Rating agencies occupy a unique place in the financial landscape because they also rate government debt, making their relationship more nuanced. S&P has subsequently lowered the US sovereign rating over efforts to bootstrap the economy out of recession. The US administration has claimed the ratings downgrade is based on incomplete information. There is an element of subjectivity in every rating action, and this makes it all the more essential that the process is credible and transparent. Pressure by way of litigation can severely compromise the rating agencies’ independence and must be brought to bear in extreme situations. This could be one of them.
The rating experience in India has been less controversial. Domestic agencies began plying their trade just about a quarter of a century ago without any of the regulatory mandate their Western peers enjoyed. Although a thin market, corporate debt has sought the views of Crisil and Icra — now absorbed respectively by S&P and Moody’s — and rating is a permanent fixture of Indian finance. The Indian agencies still have their halos intact in part due to heavy regulation of the domestic financial sector. As oversight turns lighter, they too must be ready to face the arc lights.