{"id":12355,"date":"2022-11-07T09:49:58","date_gmt":"2022-11-07T09:49:58","guid":{"rendered":"https:\/\/swaritadvisors.com\/blog\/?p=12355"},"modified":"2022-11-07T09:49:59","modified_gmt":"2022-11-07T09:49:59","slug":"sebi-notification-for-standardisation-of-rating-scales-used-by-credit-rating-agencies","status":"publish","type":"post","link":"https:\/\/swaritadvisors.com\/blog\/sebi-notification-for-standardisation-of-rating-scales-used-by-credit-rating-agencies\/","title":{"rendered":"SEBI notification for Standardisation of Rating Scales Used by Credit Rating Agencies"},"content":{"rendered":"\n<p>The Securities &amp; Exchange\nBoard of India has issued a notification regarding the Standardisation of\nRating Scales Used by Credit Rating Agencies on 31<sup>st<\/sup> October 2022\n&amp; shall come into force on 1<sup>st<\/sup> January 2023.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_65 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a3a3631d9928\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a3a3631d9928\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/swaritadvisors.com\/blog\/sebi-notification-for-standardisation-of-rating-scales-used-by-credit-rating-agencies\/#Overview_of_SEBI\" title=\"Overview\nof SEBI \">Overview\nof SEBI <\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/swaritadvisors.com\/blog\/sebi-notification-for-standardisation-of-rating-scales-used-by-credit-rating-agencies\/#Functions_of_SEBI\" title=\"Functions\nof SEBI\">Functions\nof SEBI<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/swaritadvisors.com\/blog\/sebi-notification-for-standardisation-of-rating-scales-used-by-credit-rating-agencies\/#Standardisation_of_Rating_Scales_used_by_CRAs\" title=\"Standardisation\nof Rating Scales used by CRAs \">Standardisation\nof Rating Scales used by CRAs <\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/swaritadvisors.com\/blog\/sebi-notification-for-standardisation-of-rating-scales-used-by-credit-rating-agencies\/#Applicability_of_Standardisation_of_Rating_Scales\" title=\"Applicability\nof Standardisation of Rating Scales\">Applicability\nof Standardisation of Rating Scales<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/swaritadvisors.com\/blog\/sebi-notification-for-standardisation-of-rating-scales-used-by-credit-rating-agencies\/#Monitoring_of_Standardisation_of_Rating_Scales\" title=\"Monitoring\nof Standardisation of Rating Scales\">Monitoring\nof Standardisation of Rating Scales<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/swaritadvisors.com\/blog\/sebi-notification-for-standardisation-of-rating-scales-used-by-credit-rating-agencies\/#Conclusion\" title=\"Conclusion\">Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Overview_of_SEBI\"><\/span><strong>Overview\nof SEBI <\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The Securities &amp; Exchange\nBoard of India was constituted by the Government of India on 12th April 1988\nthrough a resolution passed by the government. The Securities &amp;&nbsp; Exchange Board of India was initially\nestablished as a non-statutory body, but later it was established as a\nstatutory body. On 30<sup>th<\/sup> January 1992, the provisions of the Security\nExchange Board of India 1992 came into force. <\/p>\n\n\n\n<p>The essential functions of the Securities\n&amp; Exchange Board of India as described by the preamble of SEBI are \u2013<\/p>\n\n\n\n<p>\u201c<em>To protect the Investors interest in securities &amp; to promote the\ndevelopment of, &amp; to regulate the securities market and for connected\nmatters in addition to that or incidental thereto<\/em>.\u201d The SEBI also regulates\nand sets up Standardisation of Rating Scales for the Credit Rating Agencies or\nCRAs.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Functions_of_SEBI\"><\/span><strong>Functions\nof SEBI<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Apart from regulating the Standardisation\nof Rating Scales for the Credit Rating Agencies or CRAs, The Securities &amp;\nExchange Board of India has three main functions-<\/p>\n\n\n\n<p><strong>Protective functions<\/strong>: These functions are meant to protect the\ninterest of investors or other financial participants, such as preventing\ninsider trading, promoting fair practices, creating awareness among investors, checking\nprice rigging, and prohibiting fraud and unfair trade practices.<\/p>\n\n\n\n<p><strong>Regulatory functions<\/strong>&#8211; SEBI performs these functions to regulate the\nfunction of business in the financial market, such as Regulating company takeovers,\nInquiries and exchange audits, Registration of merchant bankers, brokers and\nsub-brokers, Exercising and performing powers and duties, Regulating and exchanging\ncredit rating agency, Regulating and Implementing the code of conduct.<\/p>\n\n\n\n<p><strong>Development Functions<\/strong>&#8211; SEBI performs development functions that\ninclude research work, promoting fair trade, reducing malpractices, etc. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Standardisation_of_Rating_Scales_used_by_CRAs\"><\/span><strong>Standardisation\nof Rating Scales used by CRAs <\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The Securities &amp; Exchange Board of India issued a circular on the standardisation of rating scales used by CRAs or Credit rating agencies on 31<sup>st<\/sup> October 2022. The Circular will come into effect from 1<sup>st<\/sup> January 2023. The Circular has notified about specific guidelines issued about the rating scales used by the CRAs. The Guidelines are as follows-<\/p>\n\n\n\n<ol><li><strong>Issuer\nRating\/Corporate Credit Rating:&nbsp; \u201c<\/strong><em>The Corporate Credit Rating or Issuer rating\nindicates the degree of safety of issuer or rated entity in relation to timely\nservicing of all their debt obligations.\u201d<\/em><\/li><\/ol>\n\n\n\n<p>New Standardised\nsymbols and their definitions have also been devised for the issuer rating\/\ncorporate credit rating. The symbols and definitions shall be used for the new\nratings\/ reviews by the Credit Rating Agencies(CRAs) for Issuer rating or corporate\ncredit rating.&nbsp; <\/p>\n\n\n\n<p><strong>The Rating symbols and definitions for\nIssuer rating are as follows- <\/strong><\/p>\n\n\n\n<p><strong>AAA- <\/strong>The issuers with AAA\nratings have the highest degree of safety with regard to the timely servicing\nof debt obligations. The debt exposures to these issuers carry the lowest\ncredit risks. <\/p>\n\n\n\n<p><strong>AA-<\/strong>The issuers with  AA ratings have a high degree of safety regarding the timely servicing of debt obligations. The Debt exposures to such issuers carry very low credit risks. <\/p>\n\n\n\n<ol><li>The\nissuers with A ratings have an adequate degree of safety with regard to the\ntimely servicing of debt obligations. The Debt exposure to such issuers carry\nlow credit risks.<\/li><\/ol>\n\n\n\n<p><strong>BBB- <\/strong>The issuers with BBB ratings have a moderate degree of safety with regard to the timely servicing of debt obligations. The Debt exposure to such issuers carry moderate credit risks.<\/p>\n\n\n\n<p><strong>BB-<\/strong>The issuers with BB ratings have a moderate risk of default with regard to the timely servicing of the debt obligations.<\/p>\n\n\n\n<ul><li>The\nissuers with B ratings have a high risk of default with regard to timely\nservicing of the debt obligations.<\/li><li>The\nissuers with the C ratings have a very high risk of default regarding the\ntimely servicing of debt obligations.<\/li><li>The\nissuers with the D ratings are in default \/are expected to be in default soon. <\/li><\/ul>\n\n\n\n<ul><li><strong>Standard\ndescriptors for Rating Watch and Rating Outlook- <\/strong><\/li><\/ul>\n\n\n\n<p>A \u201cRating\noutlook\u201d denotes the Credit rating agency&#8217;s (CRA&#8217;s) view on the apprehended\ndirection of rating movement in the near to medium term. In contrast, a\n&#8220;Rating watch&#8221;&#8216; denotes the Credit rating agency&#8217;s (CRA&#8217;s) view on\nthe apprehended direction of the rating movement in short term. <\/p>\n\n\n\n<p>The guideline\nalso notified about the standard descriptors that are specified for \u201c<strong>Rating watch<\/strong>\u201d and \u201c<strong>Rating outlook<\/strong>\u201d:<\/p>\n\n\n\n<p>Common\ndescriptors that are to be used when security or issuer is placed on the &#8220;<strong>Rating watch<\/strong>\u201d:<\/p>\n\n\n\n<ul><li>\u201cRating Watch with Positive Implications\u201d<\/li><li>\u201cRating Watch with Developing Implications\u201d<\/li><li>\u201cRating Watch with Negative Implications\u201d<\/li><\/ul>\n\n\n\n<p>Standard\ndescriptors that are to be used when security or issuer is placed on the &#8220;<strong>Rating Outlook<\/strong>\u201d:<\/p>\n\n\n\n<ul><li>Stable<\/li><li>Positive <\/li><li>Negative<\/li><\/ul>\n\n\n\n<ul><li><strong>Ratings for Capital Protection-Oriented Schemes-<\/strong>It is reiterated that for ratings of the capital protection-oriented schemes, which is required by the Regulation 38A of  <strong><a href=\"https:\/\/swaritadvisors.com\/alternative-investment-fund-registration\" class=\"text-primary\">SEBI (mutual funds) regulation<\/a><\/strong>, 1996, the Credit Rating Agencies(CRAs) shall use rating scales for \u201cstructured finances (SO)&#8221; instruments which SEBI prescribes. <\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Applicability_of_Standardisation_of_Rating_Scales\"><\/span><strong>Applicability\nof Standardisation of Rating Scales<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The circular released by SEBI for\nStandardisation of Rating Scales Used by Credit Rating Agencies shall be\napplicable from 1st January 2023. The Credit Rating Agencies are required to\nreport on their compliance with the same to SEBI within one quarter from the\ndate of application. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Monitoring_of_Standardisation_of_Rating_Scales\"><\/span><strong>Monitoring\nof Standardisation of Rating Scales<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The circular released by SEBI for Standardisation of Rating Scales Used by Credit Rating Agencies shall be monitored in terms of the half-yearly internal audit for CRAs, which is mandated under the Regulation 22 of &#8211; <strong>SEBI (Credit Rating Agencies) Regulations, 1999 &amp; Circular issued by SEBI<\/strong><sub><a href=\"https:\/\/www.sebi.gov.in\/legal\/regulations\/jul-1999\/sebi-credit-rating-agencies-regulations-1999_18745.html\" class=\"text-primary\"><strong>[1]<\/strong><\/a><\/sub>. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span><strong>Conclusion<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p> The circular released by SEBI for Standardisation of Rating Scales Used by Credit Rating Agencies is issued to protect the investor&#8217;s interest in securities and to promote the development &amp; regulate the securities market. <\/p>\n\n\n\n<p> <\/p>\n","protected":false},"excerpt":{"rendered":"<p>The Securities &amp; Exchange Board of India has issued a notification regarding the Standardisation of Rating Scales Used by Credit Rating Agencies on 31st October 2022 &amp; shall come into force on 1st January 2023. Overview of SEBI The Securities &amp; Exchange Board of India was constituted by the Government of India on 12th April [&hellip;]<\/p>\n","protected":false},"author":13,"featured_media":12359,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[64],"tags":[],"acf":[],"_links":{"self":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/12355"}],"collection":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/users\/13"}],"replies":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/comments?post=12355"}],"version-history":[{"count":4,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/12355\/revisions"}],"predecessor-version":[{"id":12361,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/12355\/revisions\/12361"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media\/12359"}],"wp:attachment":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media?parent=12355"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/categories?post=12355"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/tags?post=12355"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}