Not happy with current credit rating with your organization? – Can it be changed? – A Case study
Not happy with current credit rating with your organization? What happens when you feel like rating given by rating agency is not up-to the mark?
Credit rating of an organization depends on may factors. There are standard framework & procedures that approved rating agencies has to follow before handing out ratings. There are many questions which can be answered with simple case study
Common Question
Madras High Court has given a breather to credit rating agency as the court has dismissed a petition filed by a public trust (Mahasemam Trust), seeking to quash rating action taken by a rating agency (India Rating and Research Pvt. Ltd.). The court has observed that litigation against the actions of credit-rating agencies are not maintainable before a High Court under writ jurisdiction.
I’m not happy with credit rating assigned to my organization? Can Court can interfere in the rating opinion given by rating agencies?
The answer is NO
Let’s look at Background of the case:
Mahasemam Trust, is an NBFC, involved in micro-financing women Self Help Group. The rating agency had downgraded the NBFC’s bank loan rating to BB+ from BBB-, considering the stretched liquidity position and expected adverse impact of the COVID-19 pandemic outbreak on the asset quality of the NBFC.
The court observed that rating function of the credit rating agency is a normal corporate functions and merely because they have implications on the general public and lending institutions tend to go by them, credit-rating agencies cannot be considered as discharging public function or public duty.
Moreover, rating is an exercise that is carried out by financial analysts and professionals and writ court should not assume jurisdiction in matters which are better handled by experts.
Court Verdict :
The court has also observed while dismissing the petition that :
“Credit Rating indicates the fiscal health of the person or the institution concerned. It is one thing to say that notwithstanding the actual position, ameliorative relief must be provided. It is one thing to say that loans should be provided notwithstanding the downgrading. But it would be a completely different matter to say that rating should not reflect the actual state of affairs. Any remedial treatment must be preceded by correct diagnosis.”
What are the remedies available against the decision of a rating agency?
Representation / appeal to the credit rating agency:
When we are not happy with the rating assigned to our organization, the very first option available to the organization, is to file representation with the rating agency to reconsider their decision, within 7 days of the rating communication. The representation should contain justification for the upgrade in the rating along with any additional information which was not shared with the rating agency earlier. The rating agency will consider the representation received from the organization and may change their decision (however the possibility of the same is remote). Though, this option is relatively less time consuming and involves no addition cost to the organization. Further, it is advisable to persuade the existing rating agency to improve your credit rating, to avoid any regularity challenges with the lenders.
Approach any other approved credit rating agency?
If the organization strongly feels that their organization is not properly analyzed by the existing rating agency and they deserves higher ratings, they may approach any other approved credit rating agency. This is relatively costly and time consuming exercise. Further, the recent rating action by other rating agency may also have some dampening effect of the rating outcome of the new rating agency.
Know more about: Effects of sound repayment history on credit rating process
