How Sebi's stricter guidelines will impact credit rating agencies

On the issue of liquidity, the various parameters listed by Sebi are incorporated by CRAs in their assessment of companies

On Tuesday, the Securities and Exchange Board of India (Sebi) issued stricter guidelines for credit rating agencies (CRAs), as the financial sector continued to grapple with the fallout of the Infrastructure Leasing and Financial Services (IL&FS) crisis.

Three issues are of critical importance. First, the impact the financial position of the holding or parent company has on the rating assigned to the subsidiary or group company. Second, disclosure of a firm’s liquidity position, and third, monitoring of repayment.

On the first, typically, when CRAs rate a particular instrument of a company, they often take into account the financial support that