SEBI building framework to allow rating agencies access to loan default information: Report

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The market regulator received many complaints from CRAs about not receiving full disclosures on the potential risks to the securities

The Securities and Exchange Board of India (SEBI) is working on a framework to provide credit rating agencies (CRAs) access to information on loan repayment and possible default from lenders or other institutions, the Business Standard reports.

The development comes on the back of the massive debacle in Infrastructure Leasing & Financial Services (IL&FS). The market regulator received many complaints from CRAs about not receiving full disclosures on the potential risks to the securities, the report said.

The framework would be inserted as an amended clause in the agreement between an insurer and rater to provide explicit consent for access to information related to loans, repayments, delays, etc from banks and lending institutions, the paper quoted a source as saying.

The SEBI board is also considering following through on the Budget proposal to cap minimum public shareholding in listed companies at 35 percent, the report added.

Both decisions are expected to be finalised during the board meeting on August 21.

Moneycontrol couldn’t independently verify the report.

The Enforcement Directorate (ED) had in its charge sheet in its IL&FS case noted that CRAs and auditors were complicit in suppressing the extent of the company’s troubles. In the charge sheet filed on August 16, the ED enclosed email exchanges between CRAs and IL&FS top executives, which showed collusion.

“These emails and statements indicate that rating agencies have changed their actions on many occasions after the intervention of senior management of IL&FS, seeking rating review. Auditors too did not raise objections over IFIN’s funding to group firms, which were in acute financial stress,” an ED official told the paper.

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