Mumbai, Dec 18 (PTI) In the aftermath of the IL&FS crisis where credit rating agencies were unable to spot and warn of risks on time, a senior Sebi official Tuesday said mutual funds will have to strengthen their in-house credit risk assessment systems.

"Asset management companies need to strengthen their in-house credit risk assessments system on fixed income products, instead of relying completely on the rating provided by the rating agencies," executive director SV Muralidhar Rao said at an event, according to a statement shared by the industry lobby CII.

Flush with investment funds, mutual funds were one of the biggest lenders to NBFCs before the IL&FS crisis unfurled full-blown. MFs were on a high till the IF&FS crisis, hitting new peaks month after month, and has crossed the Rs 25 trillion mark many months in 2018.

Earlier in the day, speaking to reporters on the sidelines of an event, Sebi chairman Ajay Tyagi said show- cause notices have been issued to three credit ratings agencies for alleged lapses while rating the troubled infra lender.

It can be noted that IL&FS saw massive downgrades in August, but the market had to wait for the default and the rating agencies which have to ideally flag such an event were not able to get a hold of the brewing troubles. The event led to a mass scale review of credit rating agencies' functioning by the capital markets regulator as well.

Other NBFCs, especially the infrastructure-focused and home mortgage ones, also had a tough time following the crisis as difficulties in their apparent asset liability mismatches came to the fore.

This led to a massive correction in the share prices of many such lenders. However, all the companies have been successful in rolling over their immediate repayment commitments through fresh borrowings till now.

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