Agencies keen to withdraw ratings of over 10k cos not sharing info | Economic Times

Mumbai: Credit rating agencies have approached financial market regulators for withdrawing ratings to more than 10,000 companies that are refusing to share information.Rating agencies will need a ‘no objection certificate’, or NOC from lending banks before they remove the ratings. Since banks are often reluctant to give NOC, the agencies have drawn the Reserve Bank of India’s attention to the problem.“A company which was unwilling to disclose information before the lockdown, is likely to be even more disinclined post Covid-19 as earnings and cash-flow drop,” a senior official of a rating agency told ET.Besides, it is not feasible to assess the true financial and repayment capacity of companies which, having opted for the RBI-announced moratorium, are not required to service interest or repay loans till end-August.Agency officials are understood to have broached the subject at a recent meeting with regulators.Rating agencies, which had come under the glare after the IL&FS fiasco that triggered rapid downgrades in quick succession, are required to review ratings after every material event — financial performance, industry-wide development, management changes, and even widening of bond yields which indicates rising risk perception. After incorporating the views of the company, the revised rating or outlook is put in the public domain.The absence of information particularly relates to loans of unlisted companies. “In the current environment, agencies would prefer deploying their resources to closely track borrowers who readily share data and information, rather than wasting time and choking resources on companies that do not cooperate,” said an industry source.According to regulatory requirement, banks have to attach a higher risk weight — thereby use more capital — for unrated and sub-investment grade loans.The problem arises when despite repeated reminders companies continue to hold back information. “Agencies do inform lending banks about such behaviour. However, most banks remain hesitant in giving the NOC which is necessary for the formal withdrawal of rating.... Not that they save on capital as many of these companies are in the non-investment grade,” said the official of another agency.76681276“Such loans require surveillance. In the absence of adequate information, the credit officer of any bank would look for various sources of information. So, it would like the rating agency to continue to associate itself as the ‘rating rationale’ offers a second perspective,” said the person.According to an industry officer, some of the bankers may also fear that allowing a withdrawal of rating may not go down well if fraud or other irregularities are detected later. In many cases, companies have not revealed information for more than a year.While agencies have faced allegations of conflict of interest, till recently they have had to deal with information asymmetry as banks as well as RBI reported incidence of corporate default long after the payment due date. More than 40,000 companies are rated in India.