Rating agencies' review and approval roles might be separated.
The government is considering changes to separate the review and approval function of rating agencies, Business Standard reported.
In the IL&FS fallout, the role of rating agencies has come under scrutiny. Agencies failed to provide timely warning of debt payments defaults by IL&FS subsidiaries.
“IL&FS is perhaps the turning point. There will be a lot of regulatory changes by the learnings of this case,” an official told the publication.
Moneycontrol could not independently verify the news.
“We need to recognise the rating agency. There has to be something about it independence, transparence and disclosures,” the official told Business Standard.
The government is considering creating a post for rating agencies similar to that of the public interest director of stock exchanges.
The government also wants to ensure that all debt instruments are rated.
The Securities and Exchange Board of India (SEBI) currently regulates rating agencies. Agencies are expected to furnish details of the ratings process.
SEBI tightened the disclosure and ratings requirements for rating agencies after observing lapses on the part of the agencies with regard to IL&FS.
Credit rating agencies only provide an opinion, and banks should do their own due diligence, a rating agency executive told the publication.
But, recent events call for greater transparency in the functioning of rating agencies, according to the executive.
The US placed civil liabilities on credit rating agencies after the 20008 financial crisis. In the European Union, civil liability can be imposed in the event of gross negligence or damage to investors.
