Ratings: What works for bonds can aid investors elsewhere too

Retail investors should thank Sebi for its proposal to extend this idea to a diverse range of sectors

- MADAN SABNAVIS

Credit rating agencies (CRAs) in India are allowed to rate only debt instruments that are (or could be) offered to the public. This implies that all public issues must be rated. However, private placements also get rated as they could be offered in the market at some point. In fact, issuers of such private placements get ratings from two or three CRAs, as investors often insist on them. Hence, there is a lot of value that is brought to the table.

The Securities and Exchange Board of India's (Sebi) draft paper that explores the widening of such ratings to companies or instruments that come under different financial regulators is noteworthy. As a number of financial products are reaching the retail level, it is a timely discussion. A wider range would help investors in general make better-informed decisions. Sebi has already noted that these new ratings would be ring-fenced from the rating business through separate outfits to minimize conflicts of interest.