Page 245 - DMGT512_FINANCIAL_INSTITUTIONS_AND_SERVICES

Financial Institutions and Services

Notes

Caselet RBI to Review, Monitor Credit Rating Agencies

Mumbai, April 23 Reserve Bank of India has decided to review and monitor the
performance of credit rating agencies, for continuation of their accreditation. The 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

17.1.6 Procedure for Review of Rating

Every credit rating agency has to carry out periodic reviews of all published ratings during the
lifetime of the securities.

If the client does not co-operate with the credit rating agency so as to enable the credit rating
agency to comply with its obligations, the credit rating agency shall carry out the review on the
basis of the best available information.
Provided that if owing to such lack of co-operation, a rating has been based on the best available
information, the credit rating agency shall disclose to the investors the fact that the rating is so
based.
A credit rating agency cannot withdraw a rating so long as the obligations under the security
rated by it are outstanding, except where the company whose security is rated is wound up or
merged or amalgamated with another company.

17.1.7 Internal Procedures to be Framed

Every credit rating agency has to frame appropriate procedures and systems for monitoring the
trading of securities by its employees in the securities of its clients, in order to prevent
contravention of -

1. the Securities and Exchange Board of India (Insider Trading) Regulations, 1992;

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