SEBI mulls crackdown on 'rating shopping'
Concerned over companies keeping under wraps their bad credit ratings and publicising only the favourable ones, the Securities and Exchange Board of India is mulling over ways to curb the "rating shopping" menace.Updated: Sep 05, 2010 22:43 IST
Concerned over companies keeping under wraps their bad credit ratings and publicising only the favourable ones, the Securities and Exchange Board of India (SEBI) is mulling over ways to curb the "rating shopping" menace.
The market regulator is considering making it mandatory for credit rating agencies (CRAs) to make public even those ratings that are not acceptable to the companies getting rated, sources said.
CRAs, who are paid by companies themselves for assigning them a rating, may also be asked to put in place clear and effective "Chinese Walls" between their analytical and business development teams, sources said.
CRAs are organisations that rate creditworthiness of companies or their debt instruments after conducting due-diligence of their financial accounts.
Other steps being considered include allowing CRAs to offer unsolicited ratings and enhancing disclosure on relationships between CRAs and clients.
However, CRAs would have to make it clear to investors whether the ratings were rejected by the companies and/or were unsolicited, sources said.
A panel constituted by SEBI had found that the current practice of assigning ratings was leading into "rating shopping" by many companies. It discovered that companies which do not get a favourable rating from a CRA, approach their rivals seeking more positive assessment.