SEBI show-cause notice to CRISIL, CARE in Amtek rating case

Tarun SharmaMoneycontrolCapital and commodities markets regulator Securities and Exchange Board of India (SEBI) has issued show cause notices to rating agencies Credit Analysis and Research (CARE) Ratings and CRISIL over their decisions to suspend ratings of Amtek Auto and JP Morgan’s debt fund, respectively, a source told Moneycontrol.This is the first time that the regulator has voiced concern about the actions of  rating agencies.As per SEBI regulations, rating agencies cannot suspend their ratings on any security if there is debt outstanding. A rating can be suspended if the security is merged with another security or the company merged with another company. CARE and CRISIL did not respond to questionnaires sent to them on the show cause notice.SEBI had initiated a probe against CRISIL and CARE following the redemption crisis faced by JP Morgan India Treasury fund and JP Morgan India Short Term Income fund in August 2015. Both schemes had invested in the debt paper of Amtek Auto.CARE Rating suspended Amtek Auto rating on August 7, 2015. CRISIL had assigned a rating of AAA MFs (highest portfolio credit quality) to the JP Morgan Inda Treasury Scheme in May 2015. On September 1, it downgraded its rating of the scheme from AAA MFs to A+MFs. On September 29, the scheme was downgraded to BBB MFs, which meant an eight notch downgrade within a month. Finally, on October 15, CRISIL placed the scheme on “notice of withdrawal”.Following the episode, SEBI had come out with fresh guidelines for rating agencies in November last year.