Quick Edit | Rating riddle
1 min read . Updated: 06 Jun 2019, 11:43 PM ISTBy and large, rating agencies have a poor record of alerting the market to rising risks of debtors failing to repay lenders
Caught napping on IL&FS, credit rating agencies took little time to knock the debt issued by Dewan Housing Finance Ltd (DHFL) down to “default" grade after it skipped interest payments due on some debentures. The worsening “liquidity profile" of the non-bank financier was cited as the reason. Though DHFL’s top brass protested the assessment, ₹1 trillion worth of debt was affected, dragging other assets down with it. DHFL had suffered downgrades a month or so ago, too. While rating agencies ought to have sniffed trouble far earlier, we should be thankful its latest cash crunch isn’t a surprise.
By and large, rating agencies have a poor record of alerting the market to rising risks of debtors failing to repay lenders. A lingering issue that Reserve Bank of India Governor Shaktikanta Das had called attention to in March concerns a conflict-of-interest. If agencies that assess the debt of big borrowers also depend on the same companies’ patronage of other services they offer, the quality of their appraisals could be compromised by this need for add-on revenues. The hiving off of allied services could be an answer. But then, can agencies survive on their core business?