The Securities and Exchange Board of India (Sebi) has set tougher rules for rating agencies operating in the country, including mandating them to more closely monitor whether issuers are meeting their debt obligations and increasing disclosure requirements.
This is because both the regulator and market participants feel the agencies are slow to adjust ratings of some companies that defaulted.
Each of the big three global agencies - Standard & Poor's, Fitch Ratings and Moody's Investors Service - are majority owners of firms in India which operate independently of their parent companies with different rating standards.
Under existing rules, ratings agencies operating in India are already required to "continuously monitor" the securities they rate and disseminate any changes "promptly."
Sebi wants them to track whether debt issuers were meeting payments for each rated instrument and be alert for any deterioration of financial conditions.
Sebi has asked debenture trustees (DTs) of corporate debt issuers to have adequate systems to ascertain the status of payment of interest/principal by issuer companies on due dates in a timely manner and efficiently share such information with the CRAs in order to comply with the abovementioned provisions.
Sebi said the DTs should, at least 7 days prior to the due date of interest/ principal payment, seek International Securities Identification Number (ISIN)-wise information from issuer companies under intimation to CRAs advising them to confirm the status of payment of interest/ principal on or before the due date.
If the issuer company confirms the status of payment or where no information is received from the issuer company on or before the due date, the DTs should provide ISIN-wise information to the CRAs latest by one day after such due date, which shall state the following:
- Information about payment made on or before the due date; or
- Information about delay/default in payment; or;
- No information forthcoming from the issuer company on the payment status.
Credit agencies would also need to review ratings after every "material event" and request monthly "no default statements" from issuers, Sebi said.
Sebi has threatened to impose tougher rules since the agencies were perceived to have responded slowly to changing conditions in several companies that defaulted, including Amtek Auto.