Credit rating firms have reportedly been asked by Reserve Bank of India (RBI) to provide the list of companies not cooperating in giving information used for assessing credit worthiness of borrowers.
According to an Economic Times (ET) report, nearly 50 per cent of 40,000 companies rated in India don’t cooperate with credit rating agencies (CRAs).
A source quoted by the report said that CRAs received the communication from the central bank towards the end of last month. The source told ET that RBI wants to know how many such firms are not cooperating with the agencies and why the borrowers have not disclosed the information.
When a borrower refuses to provide required information, the credit rating agencies are forced to rely on publically available data. They reportedly also withdraw the rating of borrowers who failed to disclose their financials and other information.
The rating agencies use issuer not cooperating (INC) suffix before the ratings of such borrowers. They rely on available information from reports published by debenture trustees and bankers and auditors’ feedback. The report stated that CRAs would prefer to withdraw ratings from such borrowers instead of putting in extra efforts without receiving any fee.
The withdrawal of ratings, however, needs the approval of bankers who are reluctant to give permission. The banks might want a credit agency to be associated with the borrowers, according to the report.
"We hope RBI takes a view on INC ratings. Such ratings do not help the lender and other investors,” a rating agency official was quoted as saying by the report.
The central bank can raise the risk weight on an unrated loan which would allow CRAs to withdraw their ratings from the borrowers. The report states this might also incentivise banks to ask borrowers to share all relevant information with CRAs.
