Sebi plans to review credit rating agencies

Regulator Sebi is looking to review the framework for credit rating agencies as it seeks to check the menace of 'rating shopping' and pick-and-choose approach in their actions.

The move follows controversy over rating actions on firms like Reliance Communications.

Securities and Exchange Board of India (Sebi), which has the mandate to regulate credit rating agencies in the country, plans to soon come out with a detailed discussion paper on the issue.

The draft norms are expected to be put in public domain for comments from all concerned stakeholders and the final regulations would be framed after taking into account their suggestions.

"The delay in rating action is a matter of great concern. and we are working on a paper there too on rules and regulatory framework for credit rating agencies and we are trying to come out with it in near future for consultation," Sebi Chairman Ajay Tyagi had said. In market parlance, rating shopping refers to the practice of handing out rosy ratings to riskier assets by credit rating agencies in an effort to gain more business. It has been felt that the disclosure norms need to be tightened to ensure that credit rating agencies avoid any conflict of interest while deciding and disclosing their rating actions.

Meanwhile, markets regulator Sebi has ruled out any "abeyance" of 25 per cent public float norm deadline for PSUs and said it cannot decide on extending the time limit and wants government to take a decision. As per guidelines of the Securities and Exchange Board of India (Sebi), government stake in PSUs should be 75 per cent or less by August 2017.

"There is a proposal from the (central government's) department of investment and public asset management that the August 2017 deadline will be too close (for all PSUs to bring down government holding to a maximum of 75 per cent). They have brought up some arguments.

"However, extension of the deadline cannot be done at Sebi's level. The issue has been referred to the finance ministry, which will take a view on that. The deadline is not in abeyance. The ministry needs to take a view on this," Sebi Chairman Ajay Tyagi said.

Earlier, the finance ministry had requested Sebi to extend the August deadline for PSUs to meet 25 per cent public float norm as it mulls various options to pare government stake in state-run banks. There are some public sector banks (PSBs) wherein the government holding is above 75 per cent. Post second round of capital infusion in March, the government stake in some more banks could go beyond 75 per cent.