Kamath bats for BRICS rating agency, says Big 3 constraining growth in emerging nations

Varca: Batting for a new credit rating agency backed by BRICS group, New Development Bank president K V Kamath on Saturday said methodologies of the big three global agencies are constraining growth in emerging nations.

Kamath said despite having deep capital buffers, the ratings of multilateral banks like the BRICS-promoted NDB are affected due to the parent countries' sovereign ratings.

Citing the case of NDB itself, which is planning to get itself rated for bond-raising in many countries, he said its rating will be affected because the promoter countries are not AAA-rated.

"We need not constrain ourselves from our ability to do business...If this is the norm, I fear growth in the developing world will also be impacted," Kamath said at the BRICS Financial Forum, organised by Exim Bank, here today.

Kamath, a career commercial banker, also flagged the issue of leverage which is allowed for a multilateral bank.

He wondered why a bank like NDB has to limit its leverage at three times its buffer despite lending to sovereigns, whereas a commercial bank can take it up to nine times despite the higher risk it takes.

"The growing challenge is the stance that the global rating agencies take while looking at the developing countries ...Nobody has had a dialogue with rating agencies. We as developing countries have to take up this as something which is critical to us," he said.

"So much money can be raised and can be actually put on the table without having to access further capital if we are able to talk to the rating agencies," Kamath said.

The comments follow concerns expressed by the BRICS (Brazil, Russia, India, China, South Africa) group against the working of the rating market, currently controlled by the Big Three - S&P, Fitch and Moody's - all based in the US.

This has led the five-member grouping to pursue idea of creating its own independent rating agency, which will be discussed during the two-day annual summit which started here.

Economic affairs secretary Shaktikanta Das also suggested that NDB enter into an arrangement where it can leverage the large balance sheet of the World Bank to raise funds for supporting infrastructure projects.

Kamath said the World Bank is capital-constrained now, and while appeals by New Delhi to expand it are under review, leveraging of balance sheets by the NDB can help.

Earlier this week, the Exim Bank of India too made a strong pitch for independent rating agency for the BRICS nations, saying the way the present big three are going about their job reeks of conflict of interest.

In an interview to PTI two days ago, Exim Bank chairman Yaduvendra Mathur welcomed the move by the BRICS to have an alternative rating agency, saying it will make cost of borrowing much cheaper.

"I am AAA-rated domestically, but that doesn't survive overseas. We want more granularity," Mathur said.

Without naming the global biggies (S&P, Fitch and Moody's) who dominate the sovereign rating business, Mathur had said at present these top three agencies control 90 per cent of the market, and make the issuer pay for the rating rather than the investor which may lead to concerns over possible conflict of interest.

He also expressed strong concerns on the way these agencies go about rating in the current context. "We look at with dismay that the strong economic growth of India is still not captured in the ratings that we get while we raise the money through overseas bonds," Mathur said.