India's securities markets regulator, the Securities and Exchange Board of India (SEBI), has today notified additional guidelines for credit rating agencies (CRAs). These guidelines specify more detailed disclosures by CRAs, and require greater transparency from them. CRISIL welcomes the strengthening of the regulations, and believes that increased transparency is desirable for the industry since it will enhance the comfort investors have with ratings. Roopa Kudva, Managing Director and CEO of CRISIL Limited, said: "We support the objectives of increasing transparency and accountability of CRAs. We view the guidelines issued by SEBI today as furthering these objectives through a uniform level of disclosures across CRAs. CRISIL is already compliant with all the suggested guidelines for managing conflicts of interest, and most of
the increased disclosure requirements, such as disclosure of our shareholding and ownership pattern, our criteria and methodologies, and a bi-annual disclosure of rating changes and defaults in our portfolio. CRISIL will comply with the additional disclosure requirements regarding rating histories and more detailed revenue break-ups within the timelines stipulated by SEBI."
Disclosures on shareholding and ownership patterns of rating agencies will enhance investors' confidence in CRAs' ability to manage conflicts of interest arising out of shareholder pressures. Standardisation of best practices including analysts not participating in marketing and business development activities and a CRA or its subsidiaries not providing consultancy or advisory services regarding the design of structured finance instruments, will further mitigate issues related to conflicts of interest.
The guidelines have also introduced uniformity in default definitions and disclosures relating to rating changes, and have made mandatory the publishing of default studies. Default studies are a quantitative measure of CRAs' performance, and act as objective report cards of their track records. Ms Kudva added "Learning from the global financial crisis, over the past two years, CRISIL has made a number of enhancements to its business processes and has increased communication with the market to help investors in their credit decisions. As an example, CRISIL has introduced CreditAlerts, which highlight, in a proactive manner, changes in any industry that can affect credit profiles of companies in that industry. CRISIL has also stepped up surveillance of ratings, and increased the disclosures in its rationales for structured finance instruments".
Indian CRAs have been regulated since 1999. The CRAs, operating within the existing regulatory framework, have served the Indian market well. The new regulations issued today were preceded in January 2010, by a report on CRAs prepared by the High-Level Coordination Committee on Financial Markets (HLCC), a forum for interface among financial sector regulators comprising RBI, SEBI, IRDA, PFRDA and Ministry of Finance. The report had stated "prima facie there is no immediate concern about the operations and activities of CRAs in India even in the context of the recent financial crisis." CRISIL remains committed to unbiased and accurate ratings in India, and to maintaining the highest standards of analytical rigour and independence. CRISIL supports all initiatives that increase transparency and promote good practices in credit ratings.