The Report of the Committee on Comprehensive Regulation for Credit Rating Agencies, commissioned by the High-Level Coordination Committee on Financial Markets in 2008, critically examines the role and regulation of credit rating agencies (CRAs) in India. The committee was set up by the Ministry of Finance, with K. P. Krishnan, Joint Secretary (Capital Markets), as chair. Members included C. K. G. Nair (Director, Primary Markets); Praveen Tiwari (Executive Director, PFRDA); P. K. Nagpal (Executive Director, SEBI); Ranjana Sahajwala (General Manager, RBI); and S. N. Jayasinhman (Deputy Director, IRDA). The committee initiated this inquiry in the aftermath of the Global Financial Crisis which exposed shortcomings in CRA practices worldwide. The committee’s primary objectives were to assess the systemic importance of CRAs, address conflicts of interest inherent in their business models, and propose regulatory improvements to ensure greater transparency and accountability. The report draws attention to potential regulatory gaps in India, where CRAs, though largely regulated by the Securities and Exchange Board of India, also influence sectors governed by other regulators, such as the Reserve Bank of India and the Insurance Regulatory and Development Authority.

The committee found that CRAs in India, including CRISIL, ICRA, CARE, Fitch India, and Brickworks, played a vital role in reducing information asymmetry in the financial system by providing credit-risk assessments that guide investment decisions. However, the issuer-pays model, in which companies pay for their own ratings, presented a clear conflict of interest, potentially incentivizing CRAs to assign more favorable ratings to retain clients. The report highlights that this model, while entrenched globally, contributed to inflated ratings of mortgage-backed securities that led to the financial crisis. The committee noted that Indian CRAs were instrumental in influencing regulatory capital requirements under Basel II norms, and their ratings were often linked to key financial decisions. Despite their significance, CRAs were not fully accountable for the accuracy of their ratings, which were considered mere opinions and not binding assessments.

The committee recommended a lead-regulator model, in which the Securities and Exchange Board of India would coordinate with other regulators such as the Reserve Bank of India and the Insurance Regulatory and Development Authority to ensure cohesive oversight of CRAs across sectors. It suggested mandatory disclosures of revenues earned from issuers and nonrating activities to mitigate conflicts of interest. The report also emphasized the need to improve the methodologies used for rating complex financial products like securitized assets, which have historically been prone to sudden downgrades during financial crises. Furthermore, the committee advised moving away from mandatory reliance on credit ratings for regulatory purposes and encouraged both regulators and investors to develop independent risk-assessment capabilities. Adopting international standards, such as the IOSCO (International Organization of Securities Commission) Code of Conduct, and improving transparency were seen as key steps toward strengthening the regulatory framework for CRAs in India.

The committee identified critical issues such as conflicts of interest in the issuer-pays model, regulatory gaps across sectors, and overreliance on credit ratings for financial decision-making. To address these, it proposed measures including cohesive oversight under a lead-regulator model, enhanced transparency through mandatory disclosures, improved rating methodologies, and reduced dependence on ratings for regulatory purposes—all aimed at creating a more accountable and robust credit-rating framework to support financial stability in India.