RBI Issues Warning On Rating Firms

Red-flags ‘rating shopping’ that helps broke firms get big loans

The RBI has red-flagged the practice of credit rating agencies allowing low-rated companies to get inflated credit scores in order to make them eligible for big loans from banks. The central bank has warned that this poses a high risk to the banking sector which is already reeling from a huge bad loans burden.

In its latest Financial Stability Report released on Friday, the RBI has warned of “rating shopping” by companies for long-term bank loans based on indicative ratings given by credit rating agencies (CRAs) which are not available to the banks or investors.

“Rating shopping” refers to the practice of a company or a debt paper managing to obtain a better rating from another agency within three months of getting a poor rating.