Companies rated 'Highest' collapsed immediately

Union Finance & Corporate Affairs Minister Nirmala Sitharaman on Saturday indicated that the government was looking at the manner in which credit rating agencies were rating companies and assets, and see 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, she pointed out to an instance 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.

Sitharaman said there were many times when people were puzzled as to why the institution failed, when the ratings were good enough. Thus, 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, she added.

Role of the bureaucracy

The Finance Minister emphasised that there was also a churn happening across the spectrum, including bureaucracy, as well as the way in which businesses were being conducted compared with the 1970s. "Bureaucracy is playing a critical role and also has to catch up with a lot of things which are fundamental to the Indian economy," she said.

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

Sitharaman asserted that the government was responding quickly to the challenges faced by various sectors, while highlighting the example of how corporate taxes were reduced in quick time to support the economy.

She also said the churns and tweaking happening now would be good for the economy in the long-term as India aimed to become a $5 trillion economy.

Published on November 23, 2019