SEBI directs credit rating agencies to avoid withdrawing ratings abruptly

The Securities and Exchange Board of India has directed credit ratings agencies such as CRISIL, ICRA and BrickWorks to not withdraw their ratings on instruments abruptly. However, these companies can suspend ratings if they have rated an instrument for at least five years or 50% of its tenure. This circular comes in the wake of abrupt rating downgrades of Amtek Auto, JSPL and Bhushan Steel and Ballarpur Industries in the last few years in which credit ratings agencies had either suspended or downgraded ratings abruptly. Earlier, SEBI had cautioned fund houses on debt fund management and advised them to be careful while investing in debt instruments. The market regulator had advised fund houses not to rely on credit rating agencies. The SEBI board also increased the net worth requirement for rating agencies to Rs 250000000 from the current Rs 50000000. It also decided the promoter entity would have to maintain at least 25% stake in the rating agency for a period of three years. Credit Rating agencies have also been barred from holding more than 10% stake in a peer rating agency. SEBI also said CRAs will have to segregate their non-core activities into a separate legal entity to avoid any conflict of interest. "CRAs shall segregate their activities, other than the rating of financial instruments and economic/ financial research, to a separate legal entity."