Increased disclosure for credit rating agencies will help MF industry, say fund managers

Market regulator SEBI has come out with detailed guidelines relating to rating criteria, process and disclosures for credit rating agencies (CRAs).

The regulator has asked rating agencies to disclose the criteria used for rating instruments, rating process and policies, all rating history, press releases and rating reports assigned by the CRAs including ratings withdrawn on their websites. Rating agencies have to implement these guidelines within 60 days.

SEBI’s move comes in the wake of sharp downgrade in ratings of Amtek Auto which forced JP Morgan AMC to restrict redemptions in two of its funds. We spoke to fund managers to understand how SEBI’s new guidelines will help fund managers and investors.

Dwijendra Srivastava, Chief Investment Officer - Debt, Sundaram MF says, “These guidelines will ultimately help investors. Earlier, no explanation was given to investors after withdrawing ratings. Now, ratings agencies have to provide every detail about the reason for withdrawal on their websites. These disclosures will also help AMCs and their credit research teams.”

Lakshmi Iyer, Chief Investment Officer (Debt) & Head of Products, Kotak Mutual Fund says that the new guidelines will be an added benefit for fund houses. “The recent cases of downgrades triggered SEBI to issue these guidelines. It was essential to have a standardized format of disclosure for CRAs. This is definitely a welcome step as it adds one more layer of due diligence. From mutual fund perspective, these guidelines may do not have direct impact but it serves as an added benefit to our internal research team.”

R. Sivakumar, Head - Fixed Income, Axis Mutual Fund says, “All fund houses have their in-house credit research teams and the increased disclosures will supplement our research and ultimately help fund managers take more informed decisions.”

CRISIL’s MD & CEO, Ashu Suyash welcomed SEBI’s guidelines, “We welcome these guidelines and believe they would lead to a material improvement in both transparency of the credit rating process and enhancement of the industry standards. Investors will benefit immensely as the rigor and disclosures will contribute to better pricing decisions.”