MUMBAI: Regulators including the Securities Exchange Board of India (Sebi) and the Reserve Bank of India (RBI) are examining a possible relaxation in the time period that rating companies are provided to upgrade a firm following a downgrade.Given that improvement in the financial position of a corporate could be as swift as it deteriorated due to the lockdown, rating firms now want the time taken to upgrade between one and three months, from the current 3 to 12 months.A group of seven rating companies is said to have approached the two regulators that are working on the proposal, three people with the direct knowledge of the matter told ET.Sebi and RBI did not reply to ETs mailed query.We have sought this dispensation for one or two years as it is not a financial crisis but the effect of the lockdown, said one of the persons cited above.
Sebi is said to be considering such a proposal to allow this for one year, while RBI is still deliberating over it, sources said.Company financials could worsen if the agencies dont get this special dispensation.Nothing is wrong with an individual companys business model, Joydeep Sen, consultant with Phillip Capital India.
So, if those companies remain downgraded for a longer period, rising borrowing costs will actually dent their business models.If a company is downgraded under a high-yield category, which begins from BB+ grade, the company cannot be upgraded in the next three months.
The timeline is one year if the companys rating falls under investment grade - between triple-A and BBB-.Sectors such as airlines, hospitality, tourism, gems - jewellery and automobile face the risk of downgrades.Companies in certain sectors are facing a crisis due to disruption in operations (related to Covid 19), said Arun Kumar, executive director at CARE Ratings.
We are continuing to monitor credits based on the daily evolving developments.
Credit risk profiles of companies in these sectors are likely to be stressed for next few months.This financial year, local rating agencies have downgraded 564 companies until April 20 compared with 51 upgrades, showed an industry estimate.
The number of downgrades is expected to rise.