According to reports, the Reserve Bank of India (RBI) has requested credit rating agencies to give a list of businesses that refuse to cooperate in providing information necessary to determine a borrower’s credit worthiness.
Nearly 50% of India’s 40,000 rated firms, according to a study in the Economic Times (ET), don’t work with credit rating agencies (CRAs).
The CRAs got the information from the central bank around the end of last month, according to a source cited in the paper. According to the source, RBI wants to know how many of these companies are not collaborating with the agencies and the reasons for the borrowers’ failure to give the information.
The credit rating companies are obligated to utilise publicly accessible information when a borrower declines to furnish the necessary information. According to reports, they also remove the ratings from borrowers who withheld financial and other information.
Before assigning ratings to such debtors, rating agencies employ the suffix “issuer not cooperating” (INC). They depend on information that is readily accessible from reports released by debenture trustees, as well as comments from bankers and auditors. According to the research, CRAs would rather revoke their ratings from such debtors than exert more work without being compensated.
However, in order to remove ratings, bankers must agree, and they are hesitant to do so. According to the study, the banks could prefer that a credit agency be connected to the debtors.
“We expect RBI will have an opinion on INC ratings. Such ratings do not benefit the lender or other investors, according to a representative of the rating agency mentioned in the paper.
The central bank has the authority to increase the risk weight on an unrated loan, allowing CRAs to revoke their ratings of the borrowers. According to the research, this may also encourage banks to request that borrowers provide CRAs all pertinent information.