COMMENTARY
INTERVIEWS
SPECIALS
CHAT
ARCHIVES

NBFCs blame credit rating agencies for poor show

The non-banking financial companies have alleged that the credit rating agencies in India do not have transparent parameters and are unable to spell out the standards to be maintained by NBFCs engaged in equipment and hire -purchase financing business having small capital base ranging from Rs 50 million to Rs 100 million.

In a letter to the Reserve Bank Executive Director S Gurumurthy recently, they said that the requirement of minimum credit rating and linking of quantum of deposits to the level of credit rating have badly hit the NBFCs engaged in leasing and hire-purchase finance activities.

There are a number of companies which are predominantly engaged in leasing and hire-purchase activities for a long period. But owing to their small capital size, narrow localised operations and lack of professional qualifications, these companies are neither qualified for minimum investment grade rating nor considered for rating by the credit rating agencies.

Urging the Reserve Bank and other regulatory authorities to have a re-look at the entire system of rating to the medium and small NBFCs, the Association of Leasing and Financial Services Companies felt that the rating mechanism did not play any productive or social role since these agencies had no responsibility in case companies rated by them commit default.

The rating personnel employed for carrying the exercise do not seem to have previous experience particularly in equipment leasing and hire-purchase finance activities and the rating does not take into account the inherent strengths of the company.

Welcoming the idea of formation of a self-regulatory organisation for the NBFCs, the association suggested for immediate delink of credit rating norms from acceptance of public deposits by NBFCs.

While the association is in the process of finalising draft of code of conduct and rules and regulations for general working of the proposed SRO, it would take a longer time for SRO to extend certification for various deposits of NBFCs due to intricacies involved in evolving such working formula.

UNI