Sebi wants rating agencies to hive off other businesses

Market regulator Securities and Exchange Board of India (Sebi) has proposed tighter regulations on credit ratings agencies, including restriction on cross-holdings and spinning off of non-ratings businesses.

Sebi had earlier prescribed tougher rules, which require rating agencies to more closely monitor whether issuers are meeting their debt obligations and increased disclosure requirements.

The regulator has now proposed the rating agencies hive off any other businesses while assigning ratings and economic or financial research, to a separate entity.

Sebi also suggested that an appeal by a company against a rating assigned to it should be reviewed by a different panel than one which issued the rating.

It also said that an agency could be allowed to withdraw ratings half way through the term of the financial instrument being rated or after it had rated the instrument continuously for five years, whichever was higher.

For getting accreditation, a rating organisation should have a minimum net capital of Rs50 crore ($7.84 million), and a minimum current net capital of Rs5 crore.

SEBI also proposed that a rating agency should not hold more than 10 per cent shares or voting rights and representation on the board of a rival.

Sebi has invited public comments on the proposals by 29 September.

Meanwhile, Sebi has decided to keep the definition of ''control'' of an organisation under its takeover regulations unchanged and to take decisions on a case-to-case basis.

Sebi said it has considered the views of the ministry of corporate affairs and the Reserve Bank of India besides a few other stakeholders in this regard. They have opined that changing the current definition of 'control' may reduce the regulatory scope and make it prone to abuse.

It also noted that the Justice Bhagwati Committee, which was constituted in 1995 to review the Sebi (Substantial Acquisition of Shares and Takeovers) Regulations, 1994, had recommended a broad definition of control and opined that it should be left to Sebi to decide whether there has been an acquisition of control on the basis of facts of each case.