He says with all the mess of NPAs etc in Indian economy, what were credit rating agencies doing all this while?
It may well be a blessing in disguise that India does not have a robust credit market, since it is likely that retail investors would have relied on these dubious credit ratings to invest in corporate debt that could have turned sour later. Yet, we play blind to these more fundamental issues and choose to hang the neck that’s easiest to tie the noose around. The Securities & Exchange Board of India (SEBI) has some basic rules to license credit rating agencies. But there is no accountability pinned on them. And there is no proper regulatory framework for equity research and ratings. India is a unique equity research market where equity analysts write research reports based on rumours they hear, be it of central bank governors or company earnings. In most other markets, this would be reprimanded strongly.
Lest this be misconstrued, this is not to insinuate any mala fide intent by these rating agencies. This is to merely place the bad loans crisis in a larger perspective and argue for a holistic solution. It is indubitable that the public sector banking system needs to be cleaned up. It is also unquestionable that accountability needs to be imposed on private sector ratings agencies – debt and equity. It would be foolhardy to think that merely privatising public sector banks is the panacea to such problems in the future.
Actually, what is worse is how the CRAs rid themselves of all the blame so easily and continue to issue rating cards to the government (and banks). Their opinion still matters great deal. As long as one is part of the 10%, all remains well and no questions asked.
This entry was posted on July 12, 2016 at 8:12 am and is filed under Indian Economy/Financial Markets. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.