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The Securities Exchange Board of India (SEBI) has canceled the license of Brickwork Ratings (BWR) over major lapses in the agency's operations. This is the first time SEBI has barred a credit rating agency.
Brickwork Agencies is an Indian credit rating agency that has been registered with SEBI since 2008. It offers ratings on Bank Loans, NCDs, Commercial Paper, Fixed deposits, securitized paper, etc. The Bengaluru-based credit rating agency is present in 150+ locations throughout India with Canara Bank as its promoter.
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According to SEBI, the agency's license was canceled due to "its failure to exercise proper skill, care, and diligence while discharging its duties as a credit rating agency". BWR has been ordered to wind down its operations in 6 months and barred from adding new customers.
SEBI has alleged several shortcomings in the agency's operations:-
- It failed to comply with timelines in over 75% of its cases.
- It failed to make correct disclosures regarding some issuers.
- It delayed the recognition of default in the case of Bhushan Steel, even after the Debenture Trustee reported default.
- It failed to downgrade the NCDs of Gayatri Projects to 'Default' even after it received information of the same from the Debenture Trustee.
The agency's first count of governance lapses was in 2018 when SEBI imposed a Rs 3 lakh monetary penalty on it. However, the agency did not rectify it's operations as it was forced to pay Rs 1 crore in September 2020 by SEBI after the latter undertook an investigation alongside the RBI.
In SEBI's words, the agency's lack of corrective action for governance lapses disclosed in earlier inspections &the monetary penalties imposed, the regulator was compelled to employ a 'strict regulatory action'.
"This is likely to have a materially destructive impact on the interests of the issuers and the investors. It is also pertinent to point out that cancellation of the noticee's license will irretrievably prejudice the workforce of the noticee and cause a loss of livelihood for over 300 employees," BWR said in its filing to SEBI.
Credit Rating Agencies are fundamentally important to the investment environment. Their ratings are used by banks to determine the risk premium to be charged on loans and bonds.
Corporations use their services to rate their debt securities. Investors use their ratings to make investment decisions. Even nations avail their services when they sell their securities in the international market.
Article by Aman Agarwal.
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