The shares of credit rating agencies CARE ratings and ICRA inched higher on Friday’s early trades after the Securities and Exchange Board of India (SEBI) took action against their peer. CARE ratings gained 4.81% to reach an intraday high of ₹536.85, while ICRA gained 2.53% to reach an intraday high of ₹ 4100.00.
The capital market regulator has issued a winding-up order against Brickwork Ratings and has asked them to wind down operations within six months. Therefore, analysts believe that this could translate to more business for ICRA and CARE Ratings.
The SEBI on October 6th, cited failure on the part of Brickwork Ratings to “exercise proper skill, care and diligence, while discharging its duties as a credit rating agency”.
One of the major lapses cited by SEBI was the delay in the recognition of the default of NCDs of Bhushan Steel Ltd. even after the disclosure of default by the debenture trustee. It highlighted a lack of surveillance mechanisms for tracking the interest/ principal repayment schedule of issuers, which would hamper the rating agency’s ability to provide accurate ratings.
The regulator said that credit ratings are relied upon by investors, including institutional investors like Provident Funds and Mutual Funds which handle public funds, not just while assessing investment opportunities, but also in making investment decisions.
SEBI stated that the repeated lapses, noticed across multiple inspections conducted by it, show that governance changes recommended in earlier inspections, and monetary penalties imposed have “not proved effective or deterred the Notice (Brickwork Ratings) in addressing very basic requirements of running a CRA.” It started probing the agency in 2020 and undertook a joint inspection with the RBI.
Brickwork Ratings is a SEBI-registered credit rating agency in India and a Reserve Bank of India (RBI) accredited credit rating agency. It provides various rating services and products across capital market instruments and bank loans for various sectors. In addition, it rates structured finance transactions, fixed deposit programmes, certificates of deposits and mutual funds.
A few other credit rating agencies in India are Crisil, Care, ICRA, Fitch, Infomerics Ratings, and Acuité Ratings & Research. Amongst these, Crisil has a 60% market share.
Written by Simran Bafna
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