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Mumbai, Oct. 17: The Securities and Exchange Board of India (Sebi) chairman U.K. Sinha today asked companies not to unnecessarily drag credit rating agencies into litigation.
There have been instances in the past where companies that were not happy with the rating or the outlook dragged rating agencies to court.
Speaking to reporters on the sidelines of India Securitisation Summit organised here today, Sinha said companies should abide by the due process if they were raising money. “My message to corporate houses is that if they are raising money, they should be willing to follow the rules of the game,” he said.
On Tuesday, the market regulator had held a meeting with credit rating agencies where the latter had communicated the challenges they face in the conduct of their business, including the risk of litigation from angry clients.
India is one of the few countries where credit rating agencies come under the purview of the capital market regulator.
The rating agencies told Sebi that litigation expenses ate into the fees it charged from a particular company for issuing the rating.
Delivering the keynote address at the conference, Sinha called for rating methodology to be standard across agencies. He said the regulator was examining how information should flow to investors in the event of any changed rating status of the issuing entity.
The Sebi chief said taxation issues was one of the reason why securitisation had not picked up in the country. Pointing out that the authorities should clarify on taxation of securitisation contracts, Sinha said some asset management firms had received notices from the tax authorities directing them to pay taxes.
“This is a matter on which the government has to clarify what the final position is. One of the reason why securitisation has not taken off is because of taxation issues,” Sinha said.
It may be recalled that earlier this year, the Income tax department had placed a tax demand on the interest earnings from some of the investments made by mutual funds in securitised paper called as passthrough certificates (PTCs).
Experts were, however, divided on this issue with some averring that as per the current tax norms, they are not taxable. Others reckon that income earned from such paper is taxable. Mutual funds are large investors in the securitisation market.
Sinha said the regulator had recently come out with guidelines that attempt to disincentivise the growing tendency to move towards high-frequency algorithm trades that were recently blamed for volatility in the markets.
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