Indian Credit Rating Agencies:The Road to Regulatory Reforms

Credit rating agencies (CRAs) are considered as the gatekeepers of the financial markets. However, after the global financial crises, the role played by these CRAs came under regulatory scrutiny. CRAs have been accused of faulty ratings for complex asset backed securities and other risky derivative instruments. There are concerns over the inadequacy of existing rating methodologies to rate complex structured products and the inherent conflict of interest in the issuer-pay model. Consequently, there is a renewed impetus on regulating and reforming CRAs worldwide. In this paper, we discuss the Indian Credit rating Industry. We highlight the regulatory concerns and propose the regulatory reforms required for the Indian CRAs. We believe that these proactive measures will be instrumental in protecting Indian capital markets from future shocks.