It's herd mentality to blame rating agencies: India Ratings

NEW DELHI: Terming Indian regulations for credit ratings as very effective and forward-looking, global giant Fitch's India unit head has said that at times there is a herd mentality to blame rating agencies for every financial problem.


"Sometimes there is a herd mentality to blame the rating agencies, if you do not find anything else to blame," India Ratings' Managing Director and CEO Atul Joshi said.

India Ratings, formerly known as Fitch India, is a wholly-owned subsidiary of global ratings major Fitch group.

Ever since a financial crisis broke out in the US in 2007-08, credit rating agencies have been often blamed for predicting a rosy picture of large banks and other institutions even when they were on the brink of collapse.

Speaking to PTI in an interview here, Joshi also said that there may be a need to make the investors familiar with the meaning of various ratings and symbol, but the regulator Sebi has defined various ratings in a very effective manner and agencies keep on addressing these issues through investor education programmes.

When asked why the rating agencies follow symbols like AAA, AA+ and BB-, rather than simpler terms like excellent, good, bad or average for creditworthiness of the entities, Joshi said: "In ratings space, there are always things between black and white, and moreover there are many shades of grey as well."

"If you have to move from black to white or from white to black, you come across a number of other shades. For example, there is not just day or night in 24 hours. There are also mornings, noons, afternoons and evenings," he said.

Joshi further said that the broad users of ratings were typically are institutional investors, HNIs, bankers, insurance companies and FIIs, who have their own credit departments doing their own research and analysis.

"The money invested by them is not a few thousands, but hundreds or thousands of crores of rupees. So they like to know more details and understand the different shades of grey," he said.

Joshi further said that Sebi has given definitions for different ratings, explaining what all these symbol means and the agencies need to follow the directions given by the regulator in this regard.

"We are required to assign ratings from an already defined set of ratings and rating symbols defined by the regulator," he added.

"The Sebi definitions for various ratings and symbols are very clear. The symbols are given so that the entities with different ratings could be differentiated easily.

"With different ratings, mostly it becomes easier for the investors in the first look to understand that one company is better than the other.