This looks bad. How would investors be made to pay to rating agencies and who’ll decide the charges? Are the fixed charges a floor or a ceiling or fixed in absolute terms ?
Will investors be required to pay the cost of rating as a part of subscription to the issue ?
If not, who ensures that the credit rating report is not getting leaked online and is accessible to all prospective investors for free without payment ?
What will be the criteria for selecting a rating agency now if price is fixed for all say by SEBI ? And who in the first place will select an agency - issuer or investors ?
Does this even make a difference who’s paying a CRA for its work - okay so investors pay and CRA becomes an agent of the investors, fine but will it affect how CRA’s execute projects? I don’t think so. Events like ILFS will still happen if for eg. the books are cooked and the quantum of data shared by companies with CRA will not change either with this “investor pays” model.
This will finish any incentive to cross sell consulting or other services by CRA to companies and will erode their pricing power as well.
This does eliminate the apparent conflict of interest though. Why not such a measure for auditors as well ?
Frankly I didn’t expect this big a disruption in such a benign business model!