2010-02-02

Credit Rating Concerns & Egan Jones

In India, it costs as low as INR 400,000/=  (maybe, lower) to get credit rating done. Apart from their own data gathering (facilitated by the corporation) and analyses, the credit rating agencies depend on banks and other FIs to get information and independent views on the corporations. Corporations give the names and phone numbers of the banks which these credit rating agencies can contact. Obviously, corporations refer to those banks that will give positive opinion. It is again in the banks' interest to speak well of their borrowing clients. And, finally & alarmingly, the cheque to the credit rating agency is cut by the corporation itself. It should not surprise if the agencies get morally obligated. They also feel competitive pressures as there are 3-4 rating agencies operating in the market.

It is not to dismiss the entire process as farce. Credit " rating"  a notch above than what the corporation deserves may not be uncommon. It is only one notch and not too indulgent because if well rated corporations start defaulting, then rating agencies entire business is kaput.

We need more of Egan Jones around.

No comments:

2010-02-02

Credit Rating Concerns & Egan Jones

In India, it costs as low as INR 400,000/=  (maybe, lower) to get credit rating done. Apart from their own data gathering (facilitated by the corporation) and analyses, the credit rating agencies depend on banks and other FIs to get information and independent views on the corporations. Corporations give the names and phone numbers of the banks which these credit rating agencies can contact. Obviously, corporations refer to those banks that will give positive opinion. It is again in the banks' interest to speak well of their borrowing clients. And, finally & alarmingly, the cheque to the credit rating agency is cut by the corporation itself. It should not surprise if the agencies get morally obligated. They also feel competitive pressures as there are 3-4 rating agencies operating in the market.

It is not to dismiss the entire process as farce. Credit " rating"  a notch above than what the corporation deserves may not be uncommon. It is only one notch and not too indulgent because if well rated corporations start defaulting, then rating agencies entire business is kaput.

We need more of Egan Jones around.

No comments: