SEBI should not discriminate between rating agencies

SEBI should not discriminate between rating agencies

New CRAs say certain practices in the industry need to be addressed

Domestic and newer creditrating agencies (CRAs) have said certain practices in the industry need to be addressed even as the Securities and Exchange Board of India (Sebi) has sought to streamline the processes and create a level playing field.On December 28 last year, after its final board meeting for 2017, Sebi amended the regulations related to CRAs in the country.

The regulator has said that apart from a Rs 250 million minimum networth requirement, up from Rs 50 million, the promoters of CRAs need to maintain at least 26 per cent for a minimum of three years from the date of being given registration by Sebi.Rajesh Mokashi, managing director and chief executive officer (CEO), CARE ratings, says that “because there are research asset investments to be made byaCRA, in order to offer a certain quality of service in the market, you need a certain element of capital”.

CRAs Business Standard spoke to said they had not received an official circular from the regulator.Sebi has also mandated that hence forth CRAs holding more than 10 per cent of the voting rights and/or shares inaCRA cannot hold a stake of 10 per cent or more in another CRA.

However, this does not apply to holdings in pension funds, institutional investors, insurance schemes, and mutual funds.CRISIL, the S& Powned rating agency, bought an 8.8 per cent stake in CARE Ratings in June last Bank inablock deal.A spokesperson for CRISIL stated that the investment was within this stipulated limit.

Sukanta Nag, CEO of Infomerics Valuation and Ratings, said “if one existing and established CRA, having a good presence in the market, also has a significant stake in another CRA and gets a board representation, then inaway they would controlamajor part of the market.So a monopolistic system comes in, which is why Sebi issued these new conditions”.

Domestic and younger CRAs say they have faced difficulties over the past few years in establishing themselves, acquiring clients, competing with the multinational CRAs, and in “being taken seriously”.Sankar Chakraborti, CEO of Small and Medium Enterprises´ Rating Agency (SMERA),agovernment CRA, says newer CRAs “bring inaand that regulators, the government, and other stakeholders have to be convinced that they (new CRAs) should not suffer under changes in law.

Even with this new condition, which encourages longterm investment and commitment for anyone interested in entering the CRA industry, Chakraborti says more needs to be done to createafair, level playing field between established and legacy CRAs and newer ones.

DRavishankar, founding director of Brickwork Ratings India, said: “Any new CRA will have to work hard in the initial years because they have to establish their name.” “The fact that we have already rated 19,000 companies, means that we have finally been accepted.

So it´s not an overnight game, it took a long time and effort to get acceptability from institutional investors,” said Ravishanker.said: “Idon´t to step into but they a fairer play ground for newer CRAs other means.” example, there much influence brokers who between the banks and issuers.” “Further, this is a high margin business, some CRAs charge margins of 60 to per cent.

Why the protectionism for big CRAs SMERA,a government comes within and Auditor ambit, soIam restricted in competing on margins with other established and larger CRAs." Chakraborti said certain discriminatory tactics had been employed in the past, and in several important cases higher networth CRAs inevitably got the clientele as some clients chose their CRA based on networth criteria.

Further, he said that there was a tendency for even government entities to favour large and foreign owned CRAs.Mokashi said the crossholding condition had plugged a long standing gap in regulation because “if one CRA were to buy more than 10 per cent in another CRA, according to the Sebi regulations of 1999, it would end up being called the ´promoter´ of the CRA.This would send the wrong message to the market that two CRAs are acting in concert.”

SEBI's New Regulation

It is now maintain at least

CRAs holding voting 10% or

This restriction holdings institutional insurance and mutual investments

Younger said there many difficulties they faced past few establishing

The Business Standard, New Delhi, 8th January 2018

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