India’s apex securities regulator, SEBI (Securities Exchange Board of India), has decided to impose stringent disclosure and review requirements on the country’s credit rating agencies, as reported by Business Insider. These new regulations were included in SEBI’s 13 November circular which sought to prevent a repeat of the on-going IL&FS crisis.
IL&FS, one of India’s top NBFCs that lent heavily to big infrastructure projects, defaulted on its loan repayments in September this year (2018). However, in the run-up to the bust, the credit rating agencies had failed to warn the investors about its weak liquidity position. This has prompted the securities regulator to tighten norms that govern how these agencies assign ratings to companies.
In the circular, SEBI has asked credit raters to include a separate section altogether that provides a rigorous analysis of the liquidity position of a bond or stock issuer. Additionally, any discrepancies between assets and liabilities as well as cash-flow positions will have to be disclosed.
In June 2018, the SEBI had also rolled out stricter norms on shareholding patterns of credit rating agencies. While it limited cross-shareholding in these agencies to 20 per cent, it increased the minimum net worth threshold by 5 times, from Rs 5 crores to Rs 25 crores.