SEBI Issues Circular on Standardisation of Rating Scales by CRAs

The Securities and Exchange Board of India (SEBI) has prescribed fresh guidelines advising Credit Rating Agencies (CRAs) to align their rating scales with the rating scales prescribed under the guidelines of respective financial sector regulator or authority in terms of Regulation 9(f) of SEBI (Credit Rating Agencies) Regulations, 1999.

Standardised symbols and their definitions have been devised for Issuer Rating/Corporate Credit Rating that indicates the degree of safety of the issuer or the rated entity with regard to timely servicing of all its debt obligations.

In addition, standardised descriptors have been specified for “Rating Watch” and “Rating Outlook”.  A ‘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. 

The circular is effective from January 1, 2023, and CRAs shall report on their compliance with the same to SEBI within one quarter. Monitoring shall be done in terms of the half-yearly internal audit for CRAs.