SEBI Makes It Mandatory For Companies To Provide Details About Delayed Loan Repayments To Credit Rating Agencies
[ By Bobby Anthony ]The Securities & Exchange Board of India (SEBI) has made it mandatory for companies to provide details about delayed loan repayments and possible defaults to credit rating agencies.The development has come amidst concerns about banks citing “'client confidentiality” as a pretext to resist sharing of such information by their borrowers.To fill this regulatory gap, SEBI...
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The Securities & Exchange Board of India (SEBI) has made it mandatory for companies to provide details about delayed loan repayments and possible defaults to credit rating agencies.
The development has come amidst concerns about banks citing “'client confidentiality” as a pretext to resist sharing of such information by their borrowers.
To fill this regulatory gap, SEBI has amended its regulations for credit rating agencies and the new norms will come into force with immediate effect, the regulator said in its notification dated September 23.
Provisions of the rating agreement between a rating agency and its client or issuer of securities are governed by the SEBI (Credit Rating Agencies) Regulations, framed in 1999.
This regulation provides that every rating agency needs to enter into a written agreement with each client whose securities it proposes to rate and mentions detailed provisions that every such agreement should include.
As per these regulations, rating agencies are required to continuously monitor the rating of securities during the lifetime of such securities.
The new SEBI framework is expected to enable credit rating agencies to get timely information about any likely defaults so that they may understand the rated entity's financial strength better and incorporate the impact of these details in their ratings.
SEBI has amended its regulations for credit rating agencies to ensure that any listed or unlisted entity, before it gets a credit rating, gives an explicit consent to obtain from their lenders and other entities full details, about their existing as well as future borrowings.
The regulator has also stated that client companies of rating agencies should co-operate with credit rating agencies in order to enable the latter to periodically review ratings during the tenure of rated instruments.
It may be recalled that recently there have been several instances of huge loan defaults by corporates like Infrastructure Leasing & Financial Services Ltd (IL&FS). After such cases, credit rating agencies came under the scanner for failing to flag potential credit risks of securities and entities rated by them.
