The credibility of credit rating agencies in India has come into question since the crisis involving Infrastructure Leasing and Financial Services (IL&FS). While the Indian regulators are aware of the problem, trying to come up with a fix won’t be an easy task as there are many problems with the existing system. Change is urgently needed as investor confidence is waning when they can no longer trust rating agencies.

Credit rating agencies ignored the rising debt levels at IL&FS and continued to give it high ratings despite the fact that a few of the group's companies defaulted on their repayment obligations. It was only after the IL&FS defaulted on a series of loan payments in September 2018 that rating agencies downgraded the group by multiple notches. Similar issues have also arisen following potential defaults of Dewan Housing Finance in June 2019, Zee Entertainment in January 2019 and other...