Independent\ncredit rating agencies are in the line of fire, and rightly so. <\/p>\n\n\n\n
According\nto The Hindu<\/em> dated June 12, 2019,\ncredit rating agencies have downgraded 163 credit facilities in 2019, which is a\n51 per cent increase in the total tally for the last four years. <\/p>\n\n\n\n Have these\ndowngrades come just too late?<\/p>\n\n\n\n The\npresent corporate debt crisis has called rating agencies\u2019 credibility into\nserious scrutiny. <\/p>\n\n\n\n Looking at IL&FS<\/a>, Reliance ADAG and DHFL<\/a> episodes, it seems like, rating agencies have failed to give investors a heads-up on ratings downgrade. Isn\u2019t it amusing that \u201cAAA\u201d rated papers (so-called top quality papers) get downgraded to \u201cD\u201d (Default) in just a few months?<\/p>\n\n\n\n Was that\nmerely ignorance or something more?<\/p>\n\n\n\n On the other hand, mutual fund<\/a> houses are calling themselves just pass through and shrugging off their accountability towards investors.<\/p>\n\n\n\n Who can\/should\ninvestors rely on?<\/p>\n\n\n\n The capital\nmarket regulator has taken the IL&FS fiasco seriously and immediately swung\ninto action. It\u2019s nudging credit rating agencies to modernise their corporate\nstructure and improve governance practices. <\/p>\n\n\n\n According to media reports, listed below are the likely changes\none may expect in the corporate structure of credit rating agencies going\nforward: <\/strong><\/p>\n\n\n\n Moreover, the regulator has come up with the enhanced disclosure norms<\/a> for credit rating agencies. <\/p>\n\n\n\n New disclosure norms:<\/strong><\/p>\n\n\n\n While the regulator is busy revamping the regulatory framework, some credit rating agencies have initiated an internal investigation based on complaints they received by the whistle-blower. Such instances highlight that there were possibly some compromises in the credit evaluation processes at the rating agencies. <\/p>\n\n\n\n Will anything change for the investors?<\/strong><\/p>\n\n\n\n SEBI\u2019s\nrecent attempts to tighten up screws around credit rating agencies may bring in\nmore discipline and transparency in the credit rating processes. Nonetheless,\nit\u2019s crucial to see if the suggested regulatory reforms and changes in the\ncorporate structure will produce desired results. After all, the rating\nagencies will depend on their customers for their revenues. Thus, the conflict\nof interest won\u2019t disappear entirely. <\/p>\n\n\n\n Since SEBI is pondering on nominating directors on the boards of credit rating agencies, can we treat ratings assigned as those endorsed by the regulator? While, \u2018no\u2019 would be the obvious answer to this, but investors might misinterpret this change in the corporate structure. <\/p>\n\n\n\n Finally, no\nmatter how recklessly credit rating agencies missed the deteriorating\nconditions in the bond market, mutual funds can\u2019t hold the rating agencies\nentirely responsible for the on-going debt market fiasco. There can\u2019t be any\nsubstitute for the independent credit evaluation by the fund houses. Credit\nratings shall be treated just like a guiding force. No mutual fund shall base\nits investment decision to the credit ratings. <\/p>\n\n\n\n Remember these points if you are a debt fund investor: <\/strong><\/p>\n\n\n\n Independent credit rating agencies are in the line of fire, and rightly so. According to The Hindu dated June 12, 2019, credit rating agencies have downgraded 163 credit facilities in 2019, which is a 51 per cent increase in the total tally for the last four years. Have these downgrades come just too late? The…<\/p>\n","protected":false},"author":3,"featured_media":445,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"cybocfi_hide_featured_image":""},"categories":[3],"tags":[],"_links":{"self":[{"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/posts\/444"}],"collection":[{"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/comments?post=444"}],"version-history":[{"count":2,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/posts\/444\/revisions"}],"predecessor-version":[{"id":447,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/posts\/444\/revisions\/447"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/media\/445"}],"wp:attachment":[{"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/media?parent=444"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/categories?post=444"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/tags?post=444"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}