SEBI Issues Guidelines to Standardise CRAs' Rating Scales
Moneylife Digital Team 01 November 2022
Market regulator Securities and Exchange Board of India (SEBI) on Monday came out with fresh guidelines in order to standardise the usage of rating scales used by Credit Rating Agencies (CRAs). Issuer rating or corporate credit rating indicates the degree of safety of the issuer or the rated entity with regard to the timely servicing of all its debt obligations.
 
Pursuant to the consultation with the CRAs, standardised symbols and their definitions have been devised for issuer rating or corporate credit rating, the SEBI said in a circular, adding that the new guidelines will come into force from 1 January 2023.
 
According to SEBI, 'rating outlook' indicates CRA's view on the expected direction of the rating movement in the near to medium term, whereas a 'rating watch' indicates a CRA's view on the expected direction of the rating movement in the short term. CRA will have to assign a rating outlook and disclose the same in the press release. Also, the regulator has specified standard descriptors for rating watches and rating outlooks.
 
Rating watch with positive implications, rating watch with developing implications, and rating watch with negative implications are the three standard descriptors to be used for when issuer security is placed on a rating watch. Further, stable, positive and negative are the standard descriptors to be used when an issuer or security is placed on rating outlook. Also, SEBI said that rating symbols should have CRA's first name as prefix.
 
Under this, issuers with 'AAA' rating symbols are considered to have the highest degree of safety regarding the timely servicing of debt obligations. Debt exposures to such issuers carry the lowest credit risk. While issuers with 'AA' and 'A' rating symbols are understood to have a high and adequate degree of safety, respectively with regard to the timely servicing of debt obligations. Debt exposures to such issuers carry very low to low credit risk.
 
According to SEBI, issuers with BBB ratings are considered to have a moderate degree of safety regarding the timely servicing of debt obligations.
 
Debt exposures to such issuers carry moderate credit risk. Those with BB, B and C ratings are considered to have 'moderate', 'high', 'very high' risk of default, respectively pertaining to timely servicing of debt obligations and issuers with a D rating are in default or are expected to be in default soon. 
Comments
r_ashok41
3 months ago
it was very much needed and also there should be a penalty clause if the rating agency give good ratings in collusion with the companies which has been reported since a long time so that customers subscribes to them since they go with the idea that these ratings are good but with cases like dhfl/srei/ilfs etc it is clear getting good ratings and then going bust indicates that the rating agencies are hand in hand with the companies to give good ratings and get a good commission.These companies should be taken to task and should be barred from giving ratings for the next 5 yrs and only then they will do a good job and not resort to fooling the retail investors.
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