Corporate governance rating has just made a beginning in India. Icra, has issued two ratings and is working on several more. Crisil is working on several mandates and has not yet issued any ratings.
Sebi has not made corporate governance rating mandatory in these early days. Financial ratings started in India in 1986 but they were made mandatory for the issuers of debt several years later, after Sebi came to the conclusion that the process had matured.
However, Sebi is highly supportive and some form of mandatoriness in obtaining a corporate governance rating is quite foreseeable.
More From This Section
P K Chowdhury, managing director of Icra, freely admits that assigning corporate governance ratings is still very much a learning process for his organisation. This is revealed in the time taken and effort expending to complete such a rating exercise (3-4 people working for 8-10 weeks), in comparison to what it takes to complete a conventional rating exercise (two people working for four weeks). For financial rating more time used to be taken in the initial stages.
The methodology set out for conducting a governance rating exercise seems to be fairly elaborate and the question is whether it is possible to do all this work within the resources available to a rating organisation.
For example, minutes of board meetings and even internal communications need to be examined, according to the procedure laid down. Chowdhury explained that a lot of the checking is done on a sample basis and not exhaustively.
He also revealed that governance rating fees, which were linked to the paid up capital of the company being rated, were lower than the financial rating fees which were linked to the amount of debt being raised.
The agency was expending more effort to earn less right now because the pricing for this new product was "introductory". Things would presumably change if and when such rating was made mandatory.
An important point to note is that the two rating exercises, financial and governance, are quite distinct and mean two different things. Financial rating is essentially a view of a company