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Indian Financial System

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Caselet RBI to Review, Monitor Credit Rating Agencies

umbai, April 23 Reserve Bank of India has decided to review and monitor the
performance of credit rating agencies, for continuation of their accreditation.
MThe move is aimed at ensuring greater accountability in the quality of the
rating process and methodologies.
According to the G-20 Working Group recommendations, all credit rating agencies whose
ratings are used for regulatory purposes will be subject to regulatory oversight regime,
which includes registration and compliance with the International Organisation of
Securities Commissions (IOSCO) Code of Conduct Fundamentals. "The Reserve Bank of
India will liaise with SEBI, on the issue of rating agencies' adherence to the IOSCO Code of
Conduct Fundamentals," the recommendation said.
RBI has accorded accreditation to four rating agencies registered with market regulator
SEBI.
This will allow them to use their rating for assigning risk weights within the framework
of the Basel II Accord, which has been implemented with effect from March.

Prior to this, RBI had undertaken a review of the rating agencies' practices and procedures
to ensure that they comply with the criteria prescribed for accreditation in the Basel II
Framework. Regulations for credit-rating agencies had been framed by SEBI many years
ago. However, with ratings now spanning many products such as bank loans, commercial
paper and security receipts issued by asset reconstruction companies, the RBI wanted
oversight on rating agencies to be strengthened.

Source: http://www.thehindubusinessline.in

10.3 Credit Rating Agencies

As we all know, credit rating agencies are registered and regulated by the Securities and Exchange
Board of India. The following is the eligibility criteria for an individual to be registered as a
credit rating agency:
1. the applicant is set up and registered as a company under the Companies Act, 1956;

2. the applicant has, in its Memorandum of Association, specified rating activity as one of its
main objects;
3. the applicant has a minimum net worth of rupees five crores. Provided that a credit rating
agency existing at the commencement of these regulations, with a net worth of less than
rupees five crores, shall be deemed to have satisfied this condition, if it increases its net
worth to the said minimum within a period of three years of such commencement;
4. the applicant has adequate infrastructure, to enable it to provide rating services in
accordance with the provisions of the Act and these regulations;
5. the applicant and the promoters of the applicant, referred to in regulation 4 have
professional competence, financial soundness and general reputation of fairness and
integrity in business transactions, to the satisfaction of the Board;
6. neither the applicant, nor its promoter, nor any director of the applicant or its promoter,
is involved in any legal proceeding connected with the securities market, which may have
an adverse impact on the interests of the investors;

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