India’s markets regulator on Wednesday allowed credit rating agencies to obtain details of clients’ existing and future debt, in a bid to help them identify defaults in a timely way, amid a severe credit crunch and a slowdown in the economy.
The Securities and Exchange Board of India (SEBI) said it enabled rating agencies to get “explicit consent” from clients in rating agreements to secure details on debt repayments and any delays or defaults from lenders or other organisations.
SEBI has cracked down on such agencies in the past few years, following a series of sudden downgrades and withdrawals of ratings and for failing to identify potential defaults in time.
But rating agencies have often cited the lack of information shared by companies as a reason for their delayed response.
The regulator has also been tightening disclosure regulations to boost transparency, monitoring and accountability of rating agencies.
The collapse of shadow bank Infrastructure Leasing and Financial Services (IL&FS) late last year led to a series of defaults by several non-bank finance companies and dented credit growth, bringing a broader slowdown in the economy.
Last month, audit firm Grant Thornton said in a report that rating agencies for years assigned high ratings to IL&FS and its group companies despite its deteriorating finances.
SEBI on Wednesday also eased several regulations for foreign portfolio investors (FPIs).
These include simplifying registration procedures and eligibility criteria, amid a pullout by these investors after controversial tax measures introduced by the government in this year’s budget.
The regulator also allowed mutual funds to invest up to 10% of their total debt portfolio in unlisted non-convertible debentures (NCDs) only if the instruments are rated and secured, months after saying it would limit mutual funds to listed NCDs.
In June, SEBI had tightened regulations for mutual funds to ensure adequate liquidity in certain schemes and to limit their exposure to housing finance companies.