Regulate raters

This refers to your edit Reform Credit Rating( ET,May 15,2010). The rating agencies performance needs to be evaluated and an unbiased and fair rating of the industry, issuer of the product and the economyneeds to be encouraged. This is possible only where rating agencies are funded from a general pool and they are made accountable. The present system of funding by the issuer will have only biased rating and investors cannot trust fully on such ratings.

The general pool can be funded by investors as and when IPOS are open and alloted, Regulators like SEBI, IRDA, NSE and Stock Exchanges and by issuers of securities. Even a contribution from the Government as and when they raise funds from market through borrowings or disinvestment can be considered which will help to enforce transparability and accountability from the rating agencies.

The rating agencies' have to be evaluated by some regulator preferably by SEBI and the rating given to them need to be publicised. Even a recompense Clause can be thought of in case the rating agencies' rating shows drastic variance from actuals later on and they should be made to pay a penalty and this money should also go to the general pool. What is required is reliability in rating and the method of rating . This will ensure allround stability in financial market.

Dr.T.V.Gopalakrishnan

(An edited version of this appeared in ET dt 18/05/10).