Sebi to meet rating agencies on faster access to default data
Capital market regulator Sebi will meet credit rating agencies this week to explore ways to have quicker access to information on loan defaults by corporates. With the Reserve Bank of India (RBI) having so far refused to share the sensitive information beyond the banking industry, Sebi is keen that all rating agencies take membership of credit information companies (CICs) to obtain default data that banks have to report to CICs.
Many corporates as well as banks are reluctant to share default information with rating agencies. The only agency that receives the data on a daily basis is Central Repository of Information on Large Credit (CRILC), a RBI controlled entity, which only gives banks (but not other lenders and market participants like NBFCs) access to the data.
Compared to this, CICs typically come to know about defaults after a month or a fortnight."The regulator may discuss ways to improve the quality of data, its robustness,whether frequency can improve and how rating agencies can use the information.
When a loan is overdue for a day (described as SMA-0), banks will come to know about it immediately. However, if the company services the overdue loan interest a week later and regularises the loan account, it will not show up as a'default' when information is passed on to CIC and subsequently to rating agencies," said an industry official.
According to stock exchange listing guidelines, publicly traded companies are required to immediately share information on default on debt instruments like debentures and bonds. But, such disclosures are not mandatory for default on loans.
However, before downgrading a corporate to 'default' grade, credit rating agencies may be required to extract some confirmation (on loan default) either from the lender or borrowing company.
Last year, Sebi had asked rating agencies to explain the reasons that lead to sudden downgrade of RCom debt securities and loans by several notches and whether investors of the troubled telco could have been alerted through early rating actions.
After rating agencies spelt out that they come to know of loan defaults only after two to three months - with neither banks nor corporates cooperating - Sebi flagged off the importance of immediate dissemination of default information. The central bank, however, felt that disclosing SMA-0 data could further destabilise the borrower.
In banking parlance, loans are categorised as SMA-0 when interest or principal is overdue for less than a month; SMA-1 when payment is overdue for less than 2 months but more than a month; and SMA-3 when it is overdue for 2-3 months. Rating agencies say they can do a meaningful job only when information is received soon after there is a default.
The Business Standard, New Delhi, 14th February 2018
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