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June 8, 1999

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The Rediff Business Interview/B V Bhargava

'ICICI has never influenced the decisions of Crisil'

B V Bhargava B V Bhargava took over as chairman of Credit Rating and Information Services of India Limited on May 11, after serving on the board of India's first credit rating agency since its inception in 1987. From 1996 till his elevation, he served as chairman of the Crisil's rating committee. Prior to that, he had a long career with the Industrial Credit and Investment Corporation of India.

Bhargava's ascension was dramatic. Crisil's founder and first chairman Narayanan Vaghul stepped out in conformity with the view that major stakeholders' representatives on the Crisil board should not occupy the top post. Vaghul is majority stakeholder ICICI's nominee on the Crisil board. And almost overnight, the senior-most member on the board, Bhargava, stepped into Vaghul's shoes.

Email this report to a friend At one level, Bhargava faces the task of matching up to the standards set by pioneer Vaghul. At another, he is expected to give a new thrust to the credit rating sector as a whole, Crisil being the leader of the industry comprising Care and Icra. Chris Ann Fichardo interviewed Bhargava recently. Excerpts.

Your appointment as chairman of Crisil was sudden. There was talk that Crisil sometimes acts under the influence of financial institutions.

That is what people seem to love to believe, that everybody is biased, that nobody is independent. Everybody is being influenced by something or the other -- that is the popular belief. This is unfortunate. Because we are a service industry and we service only if the market accepts our data.

If our ratings are not accepted, then Crisil itself gets downgraded, so to say. So it is very wrong and unfortunate to feel that Crisil could do ratings to the ICICI's convenience or that Icra would do it for the IFCI.

At Crisil, the rating analysis is done by professionals, then this analysis is reviewed by a team of senior officers and then there is a ratings committee. The committee comprises senior independent people who are experts in credit assessment.

I have retired from the ICICI and am now with Crisil. So I can't spoil the reputation of Crisil to accommodate somebody. Even if I want to do that, the cost to Crisil will be so great none else would allow me to do it. We survive on our own strength.

Today if we have an almost 54 per cent share in the market, it is not because somebody else has promoted us. We survive on our own strength. The ICICI has never influenced the decisions of Crisil.

How has credit rating as a concept caught on in India? What inroads has it made into corporate governance?

B V Bhargava, Crisil chairman Credit rating has changed the corporate scenario a lot. Companies that have gone through the rating process are now conscious that nothing should happen that may downgrade the rating, they are careful to see that ratings are maintained.

We are also constantly on their back asking for information. Our people also inform companies of the deficiencies in their financial structure, on operations. And companies are taking corrective measures and heeding this advice.

Are there any plans to simplify the technicalities involved in credit rating for the benefit of the lay investor?

Our rating symbols are well defined. The meanings of a Triple A (AAA), a Double A (AA), are all very clear. Even when we make any moderations to these ratings, they are well explained.

For our internal understanding, we have prescribed what should be the criterion for the different ratings. We also have our own internal audit system to ensure that the divergent for the company within that rating is not beyond the norms we have. So our rating symbols have a well-laid-out definition.

The confusion could arise because the standards that we follow and other agencies follow may differ, but that is something you cannot help.

We publish our ratings along with the criteria for that rating. So the investor must look for them and find out what this rating means.

There is a view that the credit rating agencies can be manipulatedů.

That is not a very charitable thing to say. There is a certain amount of subjectivity in rating. For example, the perception about the industry or the quality of management can change. But there are certain areas where there cannot be any difference like the financial health of the company, the market position it enjoys, the company's standing in terms of quality and technology.

These are given things and you can assign certain numbers to them. There cannot be any manipulation. There could be some difference of opinion on subjective elements of rating like competitive strength, ethical values of the company, industry perception, these are the only elements of subjectivity.

Otherwise, it is all facts and figures. If you see a rating report, it is full of facts and figures. Ratings are not just taken out from the hat. They are not horoscopic reading, it's a very systematic approach.

Does corporate India need more than one credit rating agency?

If there are four agencies, there might be four different views. They might not be very divergent views, but there could be a difference in the rating -- one agency could approve an A rating while the others might give it an A plus (A+) or an A minus (A-).

But I do believe that having too many rating agencies may not be very healthy. This is because the market is limited to the same 500-1,000 companies. If these four credit rating agencies compete in this market, it could lead to very unhealthy practices, wherein I start selling my agency. And this is not a good thing at all.

Credit ratings facilitate investment decisions. So, in one sense, don't you think downgrading a company in times of recession may further hurt it and the economy as a whole?

We are not in the business of building companies. We are in the business telling investors that this is the risk associated with this investment, based on certain assumptions valid on a particular date. We think we have better expertise in analysing the situation.

A credit rating agency is the middle between the investor and the company. Our loyalty is to both. However, I cannot give a better rating or continue with a particular rating to help the company. I have a responsibility to the investor. The investor has to be informed in time about any changes, be they upgrade or downgrade. Then the choice is his to stay put or opt out.

How far has the concept of credit rating developed in India?

We are still far behind compared to foreign countries. A large number of individual investors do not understand credit rating very well right now. Maybe in Bombay there are a few who understand, but in small towns, the awareness is not there.

Most investors still go by the company's name or by what the stock broker tells them. But once the investor independently starts assessing a company of taking a view, then he will start looking into what the rating means. Then the whole business would be more meaningful to society.

Photographs: Jewella C Miranda

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