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FSDC panel discusses ways to improve quality of credit ratings

In a meeting with top credit ratings officials recently, RBI officials had expressed concerns over the inability of rating agencies' to assess credit risk and take timely rating actions.

The Sub-Committee of the Financial Stability and Development Council (FSDC), headed by Reserve Bank of India Governor Shaktikanta Das, on Thursday discussed ways to address challenges pertaining to the quality of credit ratings in the wake of the IL&FS defaults crisis.

Credit rating firms, currently regulated by the Securities and Exchange Board of India (SEBI), had come under sharp criticism from the RBI recently for failing to identify financial troubles in various companies, especially in the case of IL&FS, which commanded AAA rating just before it started defaulting.

In a meeting with top credit ratings officials recently, RBI officials had expressed concerns over the inability of rating agencies' to assess credit risk and take timely rating actions.

The FSDC panel also discussed interlinkages between housing finance companies and housing developers. Mortgage sector regulator National Housing Bank (NHB) had recently proposed to increase the capital adequacy ratio (CAR) of housing finance companies (HFCs) to 15 per cent in a phased manner in order to protect them from "untoward events which arise as a result of liquidity risk as well as the credit risk that the HFCs are exposed to in the normal course of their business".

NHB also proposed to bring down public borrowings to 12 times by March 2022 in a gradual manner from the existing 16 times of the net owned fund.

The FSDC sub-committee also deliberated on interlinking of various regulatory databases and National Strategy for Financial Inclusion (NSFI). Further, the panel reviewed the functioning of State Level Coordination Committees (SLCCs) in various States and Union Territories (UTs), activities of its various technical groups, and a thematic study on financial inclusion and financial stability. The panel also reviewed the major developments on the global and domestic fronts that impinge on the financial stability of the country.

Members of the sub-committee who attended the meeting included Subhash Chandra Garg, Finance Secretary; Injeti Srinivas, Corporate Affairs Secretary; Krishnamurthy Subramanian, Chief Economic Advisor; S C Khuntia, Chairman, Chairman, Insurance Regulatory and Development Authority of India; Hemant G Contractor, Chairman, Pension Fund Regulatory and Development Authority; Deputy Governors of RBI, N S Vishwanathan, Viral V Acharya, B P Kanungo and Mahesh Kumar Jain; Shashank Saksena, Secretary, FSDC; and Deepak Mohanty, Executive Director, RBI.

Sebi was represented by Whole Time Member G Mahalingam, while the Insolvency and Bankruptcy Board of India was represented Whole Time Member by Navrang Saini.