Looking at rating agencies’ methodologies: Sitharaman

Finance Minister Nirmala Sitharaman and N. Kamakodi, MD and CEO, City Union Bank, in Chennai on Saturday

Finance Minister Nirmala Sitharaman and N. Kamakodi, MD and CEO, City Union Bank, in Chennai on Saturday   | Photo Credit: Bijoy Ghosh


Finance Minister cites instances of firms that collapse despite high ratings

Union Finance Minister Nirmala Sitharaman said her Ministry was looking at the manner in which credit rating agencies were rating firms and assets and whether the methodology was conducive for businesses.

“I have met a few credit rating agencies to understand the way in which they rate the company or assets and whether it was consistent with what was happening in the economy,” she said while delivering the sixth G. Ramachandran Memorial Lecture organised by The Southern India Chamber of Commerce and Industry.

Without taking names, Ms. Sitharaman pointed out instances where a company was given the highest rating of AAA and collapsed within a week thereafter. “So, do you really take the rating as an indicator or just a broad advisory or keep that as a holy book and say your rating is supreme,” she wondered.

Ms. Sitharaman said there were many times when people were puzzled as to why an institution failed when its ratings were good enough.

So, there was a churn happening in the way ratings were being done and also in the manner in which banks were assessing risks in terms of asset quality. The Finance Minister emphasised that churn was also happening across the spectrum, including in the bureaucracy, as well as the way in which businesses were being conducted compared with the 1970s.

She said the government was looking to strengthen the powers of regulators such as RBI and SEBI so that they can perform their supervisory roles better, referring to the crisis at Punjab and Maharashtra Cooperative Bank and at IL&FS.

At the same time, the government was quickly responding to the challenges faced by various sectors, Ms. Sitharaman said, giving an example of how corporate taxes were reduced in a quick time.

She also said the churn happening now would be good for the economy in the long term as India moves towards the target of becoming a $5 trillion economy.

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Printable version | Jan 22, 2020 7:16:20 PM |

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