The Indian Rating Agencies – CRISIL, ICRA, Fitch, Care have been asked by the Stock Market Regulator – SEBI to disclose the Rating Methodology and the Fees it collected from the client to assign the rating. This is a major move in our view to achieve transparency in financial transaction and clean up the Financial markets, a mess created by Capitalists’ greed.
SEBI’s DGM Prasanta Mahapatra who was looking into the issue of achieving Transparency in Indian Corporate Rating system after the Collapse of American European Financial System. In his order he said,
6.1 Rating Procedure
A CRA shall formulate and disclose its policies, methodology and procedures in detail regarding solicited and unsolicited credit ratings.
6.2.4 On annual basis, the list of defaults separately for each rating category (e.g. AAA, AA, A, BBB, BB, B, C)6.3 Income
6.3.1 A CRA shall disclose the general nature of its compensation arrangements with the issuers.
6.3.2 A CRA shall disclose, in case of accepted ratings, its conflict of interest, if any, including the details of relationship – commercial or otherwise – between the issuer whose securities are being rated / any of its associate of such issuer and the CRA or its subsidiaries.
6.3.3 A CRA shall disclose annually
6.3.3.1 its total receipt from rating services and non-rating services,
6.3.3.2 issuer wise percentage share of non-rating income of the CRA and its subsidiary to the total revenue of the CRA and its
subsidiary from that issuer, and
6.3.3.3 names of the rated issuers who along with their associates contribute 10% or more of total revenue of the CRA and its
subsidiaries.
We believe this is continuation of Mr. C.B. Bhave’s measures of cleaning up the ir-regularities in the Indian Financial System.