Regulation of Indian Credit Rating Agencies and their Status on Iosco Code Implementation

Credit Rating Agencies (CRAs), an important financial intermediary acts as a gatekeeper to the financial markets by influencing the investor and regulating the issuer’s access to the financial markets. In India, Securities and Exchange board of India (SEBI) brought rating agencies under its regulatory ambit in 1999. After the financial crisis in 2008, capital markets across the world enacted various acts, laws and amendments to regulate the rating agencies. The International Organization of Securities Commission (IOSCO) made many revisions (Final Report 2015) to the already existing code of conduct 2003 which set broad guidelines for the rating agencies. There has been many changes in the regulatory framework of India and many amendments to the SEBI CRA regulations 1999 in order to add or improve upon certain definitions, rules and to give clarity for certain specifications. Under Basel III regulations, RBI accredited certain agencies as external credit rating agencies whose ratings the bank rely upon to calculate risk weights for capital adequacy purposes. Rating of MSMEs is to be carried out by the rating agencies empaneled with NSIC. ITI grading has to be carried out by rating/grading agencies empaneled with DGE&T. The business of rating agencies is regulated by various regulators on one side and ratings are used in many investment regulations as a minimum rating guideline on the other side. This paper throws light on the regulatory framework for the rating agencies in India and analyses the status of implementation of IOSCO code by them