InvestorQ : I recently read that Sebi has tightened disclosure norms for credit ratings agencies in the wake of the IL&FS crisis. What does this mean?
Rohan Bhadani made post

I recently read that Sebi has tightened disclosure norms for credit ratings agencies in the wake of the IL&FS crisis. What does this mean?

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Nishita Gala answered.
3 years ago
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Indian market regulator- Securities and Exchange Board of India (Sebi)- has tightened disclosure norms for credit rating agencies (CRAs) in the wake of the IL&FS crisis because the CRAs failed to warn investors about the weak and deteriorating credit profile of the company.
In a circular, Sebi said the credit rating agencies will now need to disclose the liquidity position of the company being rated. It further said that various parameters would have to be included to give a holistic view of the company’s liquidity position. The parameters are:
- Liquid investments
- Cash balances
- Access to unutilized credit lines
- Liquidity coverage ratio
- Adequacy of cash flows for servicing maturing debt obligation
In order to ensure there’s proper fund visibility, Sebi has directed CRAs to disclose if the company is expecting additional funds to reduce its debt level and the name of the entity that will provide the money.
Adding on more to ensure the IL&FS-like situation doesn’t repeat, Sebi has also directed credit rating agencies to analyse the deterioration of liquidity and check for asset-liability mismatch.
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