The issuers obtaining non-rating services have higher ratings and default rates suggesting conflicts of interest
Credit rating agencies (CRAs) in India generate significant revenue through non-rating activities undertaken by their specialized subsidiaries. On average, about 40% of the total revenue of the rating agency stems from non-rating activities. A recent study by Ramin P. Baghai and Bo Becker, Non-rating revenue and conflicts of interest, provides convincing evidence that such non-rating activities generate significant conflicts of interest with respect to the main service that CRAs provide to the economy—ratings of the issuers. Given the pernicious role of CRAs in the financial crisis of 2008-09, the Securities and Exchange Board of India (Sebi) should take note and appropriately regulate the CRAs to eliminate these conflicts of interest.