Market regulator Securities and Exchange Board of India (SEBI) has imposed penalties of Rs15 lakh on Brickwork Ratings India Pvt Ltd and Acuite Ratings & Research Ltd for rating securities issued by borrowers of their promoter entities.
In two separate orders, Amar Navlani, the adjudicating officer (AO) of SEBI, observed that Brickwork Ratings and Acuite Ratings & Research were obligated to comply with the provisions of the Credit Rating Agencies (CRAs) Regulations and relevant SEBI circulars. “However, they failed to do so, and SEBI is responsible for enforcing compliance. I believe that this non-compliance should be addressed with an appropriate penalty.”
SEBI imposed a penalty of Rs10 lakh on Brickwork Ratings India following an inspection that revealed several regulatory violations between 1 February 2022 and 30 November 2023. The inspection focused on Brickwork Ratings India's adherence to the SEBI Act, 1992, and the CRA regulations. The post-inspection analysis (PIA) identified a range of breaches, including improper due diligence, delayed disclosures and failure to comply with operational guidelines.
SEBI found Brickwork Ratings issued ratings to TVS Credit Services Ltd, Kosamattam Finance Ltd and Dhani Loans and Services Ltd, which were borrowers of the CRA’s promoter Canara Bank.
According to the market regulator, Brickwork Ratings failed to prevent conflicts of interest when rating the securities of these borrowers, a violation of Regulation 27(1) and Regulation 13, Clause 14 of the CRA Regulations. Although Brickwork Ratings claimed that this oversight was unintentional, SEBI found the violations serious enough to impose the penalty.
In addition, Brickwork Ratings India made errors in calculating the cumulative default rates (CDRs) and the average rating transition rate, SEBI says, adding that the company mistakenly included instruments that did not qualify as securities, leading to inaccuracies in the reported figures.
“Brickwork Ratings also failed to promptly recognise a default for Tridhaatu Renovators Pvt Ltd, with a delay of 191 working days in downgrading the rating. These failures, along with delayed press releases regarding material events, were deemed significant violations of SEBI regulations,” the market regulator says.
Acuite Ratings & Research was fined Rs5 lakh following an inspection covering the period from 1 September 2022 to 31 August 2023. SEBI found that Acuite Ratings violated Regulation 27(1) of the CRA Regulations by rating securities issued by entities that were borrowers of its promoter, the Small Industries Development Bank of India (SIDBI). The entities involved included Ambit Finvest Pvt Ltd, Capital India Finance Ltd, and others, all borrowers of SIDBI.
Although Acuite Ratings acknowledged its actions, it contested SEBI’s interpretation of Regulation 27(1), arguing that the regulation should not apply in this context. The CRA contended that the restrictions placed on rating securities of promoter’s borrowers would create inconsistencies in the regulatory framework.
However, SEBI maintained that the regulation was designed to prevent conflicts of interest that could arise from a CRA rating securities issued by borrowers of its promoters.
Despite Acuite Ratings objections, SEBI upheld its interpretation of the regulation and imposed the penalty, emphasising the need for CRAs to operate with transparency and integrity.