Previous Year Question
Consider the following statements:
In India, credit rating agencies are regulated by the Reserve Bank of India.
The rating agency popularly known as ICRA is a public limited company.
Brickwork Ratings is an Indian credit rating agency.
Which of the statements given above are correct?
1 and 2 only
2 and 3 only
1 and 3 only
1, 2 and 3
Correct Answer: B
Detailed Solution
Statement 1 is incorrect.
Credit Rating Agencies in India are registered and regulated by the Securities and Exchange Board of India (SEBI). The statutory framework consists of the SEBI Act, 1992 and the SEBI (Credit Rating Agencies) Regulations, 1999.
An entity must obtain registration from SEBI to operate as a Credit Rating Agency. SEBI prescribes conditions concerning eligibility, independence, code of conduct, conflicts of interest, rating processes, maintenance of records and disclosures.
The RBI may recognise certain rating agencies as External Credit Assessment Institutions (ECAIs) for banking-regulation and capital-adequacy purposes. Banks may use their ratings while determining credit-risk weights. Such recognition is different from the primary statutory regulation of Credit Rating Agencies. Therefore, Statement 1 is incorrect.
Statement 2 is correct.
ICRA originally stood for the Investment Information and Credit Rating Agency of India. ICRA Limited is a public limited company incorporated in India, and its shares have been listed on Indian stock exchanges.
It provides credit-rating services for debt instruments, bank facilities, structured-finance products and other securities. Therefore, Statement 2 is correct.
Statement 3 is correct.
Brickwork Ratings India Private Limited was an Indian Credit Rating Agency and was registered under the SEBI framework at the time relevant to the question. The RBI had also recognised it as a domestic ECAI for bank capital-adequacy purposes.