Market regulator Sebi at its last board meeting for 2017 on Thursday enhanced eligibility requirement for credit rating agencies (CRAs), restricted cross-holdings amongst them, raised net worth requirements and minimum holding period and added provisions for withdrawal of their ratings among others.
Sebi has now mandated that a CRA should have a minimum net worth of Rs25 crore against the current requirement of Rs5 crore. The promoter of a CRA should maintain a minimum shareholding of 26 per cent in the CRA for a minimum period of three years from the date of grant of registration by Sebi.
A foreign CRA incorporated in a Financial Action Task Force (FATF) member jurisdiction and registered under their law only shall be eligible to promote a CRA in India.
No CRA registered with Sebi (CRA) shall directly or indirectly, hold 10 per cent or more of shareholding and / or voting rights in any other CRA and have representation on the board of any other CRA, directly or indirectly.
However, this restriction shall not apply to holdings by pension funds, insurance schemes, and mutual fund schemes.
Acquisition of shares and / or voting rights in a CRA by another CRA beyond 10 per cent shall be permitted only if such acquisition results in change in control with prior approval of Sebi.
The decision will help raise industry standards and deepen the corporate bond market in India while also ensuring that only serious and credible players with long-term perspective enter the field, rating agency CRISIL said.
Crisil managing director and CEO Ashu Suyash said, "The higher net worth requirement will encourage CRAs to invest in intellectual capital and build quality infrastructure, thereby paving the way for a world-class industry. The guidelines around threshold for promoter holdings for a minimum period of three years will ensure greater commitment from promoters setting up CRAs."
Amendments to the Sebi (Credit Rating Agencies) Regulations, 1999 and Sebi (Listing Obligations and Disclosure Requirements), 2015.
Sebi said the decision would help improve governance of credit rating agencies registered with Sebi and mitigate the issues of conflict of interest.
Besides, Sebi eased the access norms for investment by foreign portfolio investors (FPIs) and warned against "insider trading" .
In addition, the regulator issued norms on shareholding, governance of mutual funds and allowed listing of security receipts issued by asset reconstruction companies.
A similar cross-holding mandate will also apply to sponsors or substantial shareholders of mutual funds.
Security receipts of asset reconstruction companies will be allowed to be listed and traded on the exchanges through a framework drafted by Sebi and the Reserve Bank of India.
Fourteen to fifteen simplifications have been made in norms for FPIs.
All exchanges will be able to trade securities and commodity derivatives from October 2018.
Guidelines for allowing exchanges to deal in securities and commodity derivatives will be worked out in the coming months, Sebi said.