For the Reserve Bank of India, the credit rating agencies can allow the dual role of advisory-cum-rating agencies.
The purpose of this movement is to prevent such components from prejudice about the financial condition of their customers. And to restrict the conflict of interest found in it.
Official sources said that the banking regulator may soon start a dialogue with regulatory securities and the Exchange Board of India (SEBI) to create a new regulation that will affect credit functioning agencies.
Changes have been made after the IL & FS Fiasco, where the role of rating agencies has come into question. After one month of giving high ratings for IL & FS bonds loan papers in August, the company reduced its number due to default in interest payments on its bonds.
RBI May Ban Dual Functions Of Rating Agencies
Credit rating agencies are jointly regulated by both Sebi and RBI as these firms rate bank loans and NBFCs. Which constitute 70 per cent of their business.
Last week, in a meeting with top credit ratings officials, central bank governor Shaktikanta Das and the deputy governors raised doubts over rating agencies’ ability to assess credit risk and take timely rating action, said a source present there.
The source added that RBI is very miffed with these agencies for comfortably carrying out the dual job of rating the bonds and doing valuation as well as advisory for the same bonds over and over again.
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