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Letter to PFRDA : Why go back to Requiring Rating for Bonds


The PFRDA seems to have ditched the Expert Group. In it’s call for comments, I notice that they have both an incorrect entry (of what the Expert Group said) and they have chosen to ask that “75% of all investments made in corporate bonds must have an investment grade rating from at least one credit rating agency”.

Oh come on. After all the fabulous comments by high-ranking people in the Expert Group (see this post) the PFRDA has simply overriden them and gone with whatever they wanted.

I’m furious; we’re going down the exact route of the US, and feeding the illiterate public gyan that rating is good. It is irrelevant and such agencies have shown themselves to be incompetent earlier.

I refuse to put my pensions into any such scheme unless the rating requirement is removed – or, invest solely in the “E” and “G” groups, where rating is not required.

Here is what I wrote, to everyone on this page:


I have noted with deep regret that the PFRDA has gone back against the Expert Group recommendations on the “C” group of investments, now requiring at least investment grade on 75% of the investment in the C category where the investment is in Debt securities of Corporates and banks or NBFCs.

Sirs, I first want to correct you on one aspect of the request for comments given here:

It says that the Expert group required a “credit rated” government bond or corporate bond. The Expert group, in fact, does not say so. It says specifically:

“Traditionally, investment restrictions have been put in place based on the credit rating
of the bond issued. However, while we do consider that there is value in a bond that has
a credit rating compared to a bond that does not have a credit rating,12 the EG does not
consider it either necessary nor sucient to include a minimum credit rating for a bond
that NPS funds can be invested into.”

They do not require a credit rating, but your release for request for comments seems to indicate they do. This may have been overlooked but the fact that the recommendation spent nearly two more pages explaining why they feel credit ratings are irrelevant, incompetant or dishonest, I request you to investigate why such blatantly incorrect wording was placed in the public release. It does not deem good on the reputation of esteemed people such as yourselves or on the PFRDA itself which will manage the money of a number of citizens, to have made or ignored such a glaring error.

Secondly, and most importantly, Sirs: Why are we requiring ratings at all in the “C” group? Rating agencies have lied, have corroborated with issuers, have been lazy or incompetent, and have been non transparent. Why should we trust what they say, for our long term savings? Please also make it cheaper for our corporates and our municipalities to issue bonds – after all, if they should get it rated, they must pay heavy fees to the rating agencies – and for ratings which are largely irrelevant. Again, if we ever get to the global concepts of bond insurance, we will go down the US route as it has with AIG, which built upon the bubble created by incompetently rated bonds.

I request you to please remove any rating requirements. Please help make our pensions safer by allowing our managers to ignore incorrect opinion. We will otherwise have to suffer in our old age, due to the gross incompetence, negligence and dishonestly that we have already seen in the US pensions where ratings were required. Please, sir, keep our children’s futures bright. Please make ratings irrelevant. They are only an opinion, after all.


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