Report Para No.

Recommendations

1.5

Instead of regulation through registration, SEBI may recognise certain agencies for particular purposes only such as allowing rating by CRAs recognised by it for inclusion in the public/rights issue offer documents.

1.7

A request may be made to the Government to amend the SEBI Act, 1992 to bring CRAs out of the regulatory purview of SEBI.

2.1

Only those ratings of securities may be covered by the regulations which are used or proposed to be used by the issuers to comply with or fulfil a requirement prescribed by SEBI in any of SEBI’s regulations, guidelines, instructions, circulars etc..

2.2

The regulations should cover rating of securities only. The regulations should not cover the rating of fixed deposits, LPG Dealers, corporates, foreign exchange, countries etc..

3.1

The promoters of CRAs should belong to one of the following categories:

1. a public financial institution;
2. a scheduled bank ;
3. a foreign bank operating in India;
4. a foreign credit rating agency recognised in the country of its incorporation, having at least five years experience in rating ;
5. any other company or a body corporate having continuous networth of minimum Rs. 100 crores as per the audited annual accounts for the previous five years prior to filing of the application with the Board.

Further, the promoters should collectively hold at least 26% of the paid-up capital of a CRA for a minimum period of 5 years.

3.2

No minimum networth or infrastructure requirements should be specified in the regulations.

4.1

Compulsory disclosure of unaccepted ratings to investors should be prescribed.

4.2

If a company’s securities are rated by a associate, then another rating by another CRA should be compulsorily obtained and disclosure of both ratings should be prescribed.

4.3

Uniform rating symbols across CRAs should not be insisted upon.

4.4

CRAs shall carry out periodic reviews at regular intervals and, if necessary, carry out rating changes as are considered appropriate, of all ratings as long as obligations on rated security are outstanding in the market of all ratings during the entire term of the rated security.

4.5

SEBI’s inspections of the CRAs should not normally judge the appropriateness of analysis by CRA for arriving at a rating decision. Inspections for judging appropriateness should be very sparingly undertaken in cases of serious complaints and such inspections should be conducted only by a panel constituted by SEBI consisting of majority of independent experts with relevant experience.

4.6

Standardisation of methodology across CRAs should not be insisted upon.

4.7

Composition of the Rating Committee should be left to the discretion of CRAs.

5.1

The CRAs should not be disallowed to invest in the securities issued by their clients. They should be required to frame their own norms for investments in such securities which inter alia should have mechanisms in place to prevent misuse of insider information.

5.2(a)

A clause should be incorporated in the listing agreement of the stock exchanges requiring the companies to co-operate with the rating agencies in giving correct and adequate information.

5.2(b)

Issuers coming out with a public/rights issue of debt securities should be required to incorporate an undertaking in the offer documents promising necessary co-operation with the rating agency in providing true and adequate information.

5.3

Deterioration of financial condition of a CRA should not be a reason for suspension/cancellation of certificate of registration of a CRA.

5.4

For all public and rights issues of debt securities of issue size greater than or equal to Rs. 100 crores, two credit ratings from different rating agencies including rating assigned by an associate, if any, should be made mandatory through amendment in SEBI’s Disclosure and Investor Protection Guidelines.