A Parliamentary panel on Tuesday suggested a thorough systemic
review by the Reserve Bank to pre-empt IL&FS kind of crisis, involving
systemically important entities. The Standing Committee on Finance, chaired by
Jayant Sinha, in its report said the resolution of IL&FS remains sub-judice
before the National Company Law Appellate Tribunal (NCLAT). "...delays in
the resolution process not only brings a steep value erosion to the bankers and
other creditors but more importantly leaves the understanding of the lacunae in
the system evasive," it said. The financial crisis in IL&FS came to
light after some of its group entities defaulted on debt payments. The
government in October 2018 superseded its board. "...the Committee desires
that a thorough systemic review should be conducted by RBI so that such
episodes involving 'systemically important entities' are pre-empted," the
report said. The committee said startups with the requisite capability and
expertise be encouraged to join the credit rating industry. This might aid in
fostering healthy competition and also eliminating complacency in the credit rating
industry. "The Committee further recommend the watchdogs to be more alert
and prudent in their enforcement of regulations instead of curbing the growth
of credible startups in the industry," the report said. The panel also
noted that the RBI and Sebi have started a joint inspection of credit rating
agencies with the role of the central bank specifically focussed on bank loan
ratings assigned by CRAs. It said that regulators should remain alert and
pro-active to ensure strict enforcement of the regulations. "The committee
would like to re-stress on the need for a fresh evaluation of the credit rating
framework in the country .... with a view to reinforcing public confidence in
the entire process of credit rating," it added.
Business Standard, 17th March 2021
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