PremiumThe circular will come into effect on 1 January 2023. CRAs will then have to report to Sebi their compliance with the norms as ratified by their boards of directors within one quarter from date of applicability.
MUMBAI : The Securities and Exchange Board of India (Sebi) issued a circular on Monday pertaining to the standardization of rating scales used by credit rating agencies(CRAs).
This follows deliberations of the regulator with various stakeholders, including the credit rating firms. The circular will come into effect on 1 January 2023. CRAs will then have to report to Sebi their compliance with the norms as ratified by their boards of directors within one quarter from date of applicability.
“Pursuant to the consultation with the CRAs, standardized symbols and definitions have been devised for issuer rating and corporate credit rating," Sebi said in its four-page circular.
A “rating outlook" reflects the predicted direction of the rating movement in the short to medium term, while a “rating watch" indicates a CRA’s view on the expected direction of the rating movement in the short term, Sebi said.
Standard descriptors to be used for an issuer or security are placed on Rating Watch, the regulator said. This will include Rating Watch with positive implications, Rating Watch with developing implications, and Rating Watch with negative implications.
Essentially, stable, positive, and negative are the standard descriptors to be used an issuer or security placed on rating outlook, Sebi said. Moreover, the monitoring of the implementation of these norms will be carried out through half-yearly internal audits for CRAs mandated under Sebi’s (Credit Rating Agencies) Regulations, it said. The circular mandates each credit rating firm to assign a rating outlook and disclose this in a press release.
Issuers with a rating of AAA are considered to have the highest degree of safety pertaining to timely servicing of debt obligations.