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Tuesday, July 23, 2024

Rating agencies seek RBI help to tame non-cooperation from companies

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In Short:

Credit rating agencies are seeking the central bank’s help to penalize banks that withhold critical information for company ratings. Discussions initiated by the Association of Indian Rating Agencies with the RBI aim to address issues with non-cooperative issuers. Companies not cooperating with rating agencies may face increased risk weights on loans. Banks rely on ratings to determine loan risks and capital requirements.

Engaging Update: Credit Rating Agencies Seek Central Bank’s Intervention

The Background

Two officials from Credit rating agencies have shed light on their plea to the central bank for strict actions against banks that refuse to share no-objection certificates (NOCs), necessary to withdraw ratings of companies withholding vital information. The situation is pressing as more than 60% of all rated companies are reportedly uncooperative and the numbers are on the rise.

The Call for Action

According to sources who chose to remain anonymous, discussions have been initiated with the RBI by the Association of Indian Rating Agencies (AIRA) to address the issue of non-cooperative companies. The rating agencies are eagerly awaiting the regulator’s response to their proposal to enhance risk weights on loans given the lack of cooperation from companies, especially smaller ones.

The Banking Perspective

Bankers have denied withholding ratings and mentioned that many companies seek a change in rating agencies in pursuit of better ratings to secure cheaper funds. They clarified that the issuance of NOCs is dealt with on a case-by-case basis.

The Industry Response

Experts emphasize the importance of collaborative efforts between rating agencies and banks to tackle the issue of non-cooperation. It is essential that companies provide accurate and complete information to ensure the integrity of the rating process.

Key Observations

It is noted that companies may resort to concealing risks or influencing the rating process through various tactics, ultimately compromising the accuracy and reliability of credit ratings.

Implications of Non-Cooperation

When companies fail to share essential information, they are labeled as non-cooperative, posing challenges for rating agencies in maintaining accurate credit ratings. The submission of rating agencies highlights the limitations faced when dealing with non-listed companies, where public domain data is insufficient.

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