Credit Rating Agencies in India: A Case of Authority without Responsibility
Company Law Journal, Vol. 3, pp. 89-109, September 2008
24 Pages Posted: 20 Mar 2008 Last revised: 9 Nov 2008
Date Written: April 1, 2008
Credit Rating Agencies (CRAs) influence investor behavior and regulate issuers' access to financial markets and thus, they act as markets' gatekeepers. Further, given the statutory requirements for rating of securities before trading can commence thereon, CRAs occupy an intriguing inter-twined position of quasi-public regulators charged with the implementation of good governance norms and informational intermediaries seeking to protect the investors by purging the markets of information asymmetry. However, the conflict of interest issues add complexity to this scenario and the role of CRAs, after their complicity in the sub-prime mortgage crisis, is being debated internationally.
In this paper we examine the role and positioning of the CRAs in the capital markets of India, with a critical eye to SEBI (Credit Rating Agencies) Regulations, 1999, the regulatory framework governing the CRAs. We ferret out the shortfalls that the existing framework carries and taking cues from the US Nationally Recognized Statistical Rating Organizations (NRSROs) model and also the standards proposed by International Organization for Securities Commissions (IOSCO), present a case for reform of the existing framework for CRA regulation in India.
The chapterization is as follows: (I) Introduction (II) Credit Ratings and Credit Rating Agencies: Pivotal for Good Governance? (III) Rating Agency Failures: Imprimatur for Regulatory Oversight? (IV) Regulating Credit Rating Agencies: Lessons from Abroad (V) Regulatory Framework for Credit Rating Agencies in India (VI) The Road to Reform in India (VII) Conclusion
Keywords: Credit Rating, Credit Rating Agencies, Structured Finance, Information Asymmetry, Gatekeepers, NRSRO, IOSCO
JEL Classification: K20, K22, K23, K29
Suggested Citation: Suggested Citation