Markets regulator Sebi said cross-holding in credit rating agencies (CRAs) will be capped at 10 per cent and also decided to raise the minimum networth requirement to Rs 25 crore from the current Rs 5 crore.
Also, the board of Sebi has approved a slew of measures for tightening the financial and operational eligibility of the promoters of CRAs, besides greater disclosure requirements for them.
The moves are likely to have an impact on global rating agencies like S&P, Moody's and Fitch which have significant holdings in domestic agencies besides their direct presence.
In a significant move, the regulator has decided that no CRA should, directly or indirectly, hold more than 10 per cent of shareholding and/ or voting rights in another CRA and would not have representation on the board of the other CRA, Sebi Chairman Ajay Tyagi told reporters here.
Further, Sebi's prior approval would be needed for acquisition of shares or voting rights in a CRA that results in change in control.
"A shareholder holding 10 per cent or more shares and/ or voting rights in a registered CRA shall not hold 10 per cent or more shares and/ or voting rights, directly or indirectly, in any other CRA," the regulator said.
The minimum net worth threshold for the rating agencies has been proposed to be raised to Rs 25 crore from the current level of Rs 5 crore.
The move would check the menace of 'rating shopping' and 'pick-and-choose' approach in their actions.
Besides, the promoter of a CRA would have to maintain a minimum shareholding of 26 per cent in the CRA for a period of three years from the date of registration.
"The foreign CRA should be Incorporated in a Financial Task Force (FATF) jurisdiction and registered under their law only shall be eligible to promote a CRA in India," the regulator noted.
Sebi said that credit rating agencies will be permitted to "withdraw the ratings subject to the CRA having rated the instrument continuously for a stipulated period of time and in the manner as may be specified by it from time to time".
Besides, any activity, other than the rating of financial instruments and economic or financial research, should be hived off by the CRA into a separate entity.
As part of enhanced disclosure framework, Sebi has proposed that the agencies should disclose annual consolidated financial results, statement of profit and loss on a quarterly and year-to-date basis and statement of assets and liabilities/ balance sheet on a half-yearly basis.
"The quarterly and half yearly financial results reporting, as applicable to the listed equity instruments, have been mandated even for listed debt instruments, as against the extant requirement of providing only the half yearly results.
"However, it was being felt that six months is comparatively a longer period for the financial status to be disclosed. This was the need of the hour and will bring in more transparency in the entire Listings space. Uptil November 2017, more than 600 companies with Listed Debt instruments were listed on BSE alone," said Anjali Aggarwal, Partner and Head – Capital Market & Stock Exchange Services, at Corporate Professionals.
Welcoming Sebi's amendments to the regulations on credit rating agencies, Crisil said the decision will raise the bar on the eligibility to set up a CRA and stipulate greater disclosure for issuers on their financial performance.
"Higher minimum net worth requirements for CRAs and increased shareholding requirements along with minimum holding period for promoters of CRAs will ensure that only serious and credible players with long-term perspective enter the field," it added.
It further said that increasing transparency through greater disclosures by issuers of listed debt will boost investor confidence and equip them to take timely decisions.