Why was RCom’s downgrade delayed, asks SEBI

Credit rating agencies in India have been caught in a windstorm of downgrades, defaults and bad loans.

On one hand, SEBI, the regulator for the securities market in India has asked these agencies to explain their actions on RCom bonds so that it can be ascertained whether the correct process was followed. The regulator also wants to know what led to the downgrade of the company's debt securities and loans.

On the other hand, country’s apex bank Reserve Bank of India (RBI), has also asked agencies whether they could rate restructured loans, which would lead to regulatory and market implications that several agencies are not completely comfortable with.

"SEBI wants to know whether investors could have been alerted and rating actions could have been initiated earlier... what lead to cascading downgrades was delay in information," a person aware of the development told ET. "Rating agencies have no access to loan default data - something they feel banks and RBI should share," the person added.

In a meeting with rating agencies, RBI brought up the subject on rating of bank loans to corporate, which currently is undergoing a complex debt reshuffle programme that might involve the debut of a new investor or a deal to monetise assets.

Even though agencies are convinced to rate such loans or securities, they don’t want to publish these ratings. However, as per rules implemented by SEBI, such private ratings are not allowed, keeping in mind the benefit of investments and market participants.

BANKS CAN BENEFIT
However, a rating upgrade of the debts of companies that are going through restructuring would certainly benefit banks facing mounting bad loans.

"A higher and above-investment grade rating would lower risk weightage on these loans. This would improve their capital adequacy and thus require the government to infuse less capital. One can understand where RBI is coming from," said another person.