The Union Minister criticized global sovereign credit rating agencies like Moody's, S&P for assigning India relatively low sovereign ratings despite its strong macroeconomic fundamentals.
Issues with the CRAs
- Conflict of Interest: CRAs are paid by issuers they rate, incentivizing inflated ratings.
- Rating Shopping: Issuers solicit multiple ratings and disclose only the best ones, misleading investors.
- Opaque Methodologies: Rating models lack transparency, preventing independent scrutiny.
- Weak Accountability: Limited liability and weak penalties reduce responsibility for inaccurate ratings.
- Sovereign Bias (against India): Global CRAs over-rely onsubjective factors while undervaluing India’s strong growth, reserves, and default-free record.
Way Ahead
- Reform the issuer-pays model by introducing neutral fee-allocation mechanisms.
- Strengthen transparency through disclosure of detailed rating methodologies, assumptions, and risk models.
- Enhance SEBI's supervisory powers with real-time monitoring, periodic audits, mandatory disclosure and risk-based inspections to eliminate rating shopping.
- Improve corporate governance by ensuring independent boards, analyst rotation, and robust internal compliance.
