Market regulator the Securities and Exchange Board of India (SEBI) has issued an order to Brickwork Ratings India Pvt Ltd to wind down its operations within six months. The regulator has stated that the credit rating agency has “failed to exercise proper skill, care and diligence" while discharging duties as a credit rating agency.
Brickwork is one of the SEBI-registered credit rating agencies in India. It is also a Reserve Bank of India (RBI) accredited credit rating agency. The others are Crisil, Care, Icra, Fitch, Infomerics Ratings, and Acuité Ratings & Research.
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As per the order issued on October 6, SEBI said that it has come to this decision after it carried out inspections of Brickwork for the periods April 1, 2014–September 30, 2015, and April 1, 2017–September 30, 2018. “In exercise of the powers contained under the SEBI Act, 1992 read with the SEBI (Credit Rating Agencies) Regulations, 1999, SEBI had carried out inspections of Brickwork for the periods April 1, 2014–September 30, 2015, and April 1, 2017–September 30, 2018. The contraventions /deficiencies observed in the first and second inspections led to the initiation of separate adjudication proceedings against Brickworks," the order highlighted.
The regulator has further stated that the repeated lapses, noticed across multiple inspections conducted by it, show that governance changes recommended in earlier inspections, and monetary penalties imposed have "not proved effective or deterred the Noticee (Brickwork Ratings) in addressing very basic requirements of running a CRA”.
SEBI started probing the credit rating agency in 2020 and undertook a joint inspection with the RBI.
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The key findings of the initial investigations, according to the order, include a delay in recognition of default of non-convertible debentures, failure to downgrade to 'default', failure to review ratings even after receiving information about delayed payments, the order said.
In its order, SEBI highlighted a lack of surveillance mechanism for tracking the interest/ principle repayment schedule of issuers, which would hamper the rating agency's ability to provide accurate ratings.
In layman terms, credit rating agencies are institutions that rate the debt instruments of companies. These ratings help investors and companies to take business decisions, like investments, or disbursing loans.
Brickwork provides various rating services and products across capital market instruments and bank loans for the corporate sector, financial sector, infrastructure sector, insurance sector, public sector undertakings, state government, municipal and urban local bodies, among others.
Besides, it also rates structured finance transactions, fixed deposit programmes, certificate of deposits and mutual funds. The other services offered include Issuer Rating, Independent Credit Evaluation (ICE) of residual debt in entities under the RBI framework for resolution of stressed assets, Rating of Security Receipts issued by Asset Reconstruction Companies, ratings of Infrastructure Investment Trust (InvIT) / Real Estate Investment Trust (REIT) and infra Expected Loss ratings.
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