SEBI asks rating firms to detail rating methodology and fees charged

03 May 2010

The Securities and Exchange Board of India (SEBI) has sought details of the methodology credit rating agencies use in assessing credit worthiness of clients, and the fees charged by them to client companies.

Rating agencies will now have to disclose shareholding and ownership patterns, which is intended to enhance investors' confidence by ensuring that the rating agency's interests does not conflict with its own.

Also, rating firms will have to make a bi-annual disclosure of rating changes as also publish information about the historical default rates.

Credit rating agencies will have to maintain records of the important factors underlying the credit rating and a summary of discussions with all the stakeholders involved as well as decisions of the rating committee, including voting details and notes of dissent.

"These records should be maintained till five years after maturity of instruments and be made available to auditors and regulatory bodies when sought by them," SEBI said in a circular.

The market regulator issued the additional guidelines for credit rating agencies, specifying more detailed disclosures, in a bid to improve transparency.