Sebi tweaks rules for sharp rating actions, non-cooperating issuers

Sebi tweaks rules for sharp rating actions, non-cooperating issuers

Subject : Economy

Concept : Financial markets

• The Securities and Exchange Board of India (Sebi) has tweaked the framework around ‘sharp rating actions’ and also fine-tuned the policy for dealing with non-cooperating issuers for credit rating agencies (CRAs).
• SEBI tweaked its operational circular on credit rating agencies (CRAs), asking them to have a detailed policy by March-end in respect of non-submission of crucial information, including quarterly financial numbers, by the issuers.
• Also, the detailed policy should contain methodology in respect of assessing the risk of non-availability of information from the issuers, including non-cooperative issuers and the steps to be taken under various scenarios in order to ascertain the status of non-cooperation by the issuer company.
• Further, CRAs will have to follow a uniform practice of three consecutive months of non-submission of no-default statement (NDS) as a ground for considering migrating the ratings to INC (issuers not cooperating) and need to tag such ratings within 7 days of three consecutive months of non-submission of NDS.

Credit Rating

• A credit rating is an assessment of the creditworthiness of a borrower in general terms or with respect to a particular debt or financial obligation.
• A credit rating can be assigned to any entity that seeks to borrow money — an individual, corporation, state or provincial authority, or sovereign government.

What are Credit Rating Agencies?

• A credit rating agency (CRA) is a company that assigns credit ratings, which rate a debtor’s ability to pay back debt by making timely principal and interest payments and the likelihood of default.
• Credit rating agencies in India came into existence in the second half of the 1980s.
• In India, CRAs are regulated by SEBI (Credit Rating Agencies) Regulations, 1999 of the Securities and Exchange Board of India Act, 1992.
• There are a total of seven credit agencies in India viz, CRISIL, CARE, ICRA, SMREA, Brickwork Rating, India Rating and Research Pvt. Ltd and Infomerics Valuation and Rating Private Limited.
• CRAs were set up to provide independent evidence and research-based opinion on the ability and willingness of the issuer to meet debt service obligations, quintessentially attaching a probability of default to a specific instrument.
• Evaluating the creditworthiness of an instrument comprises of both qualitative and quantitative assessments, making credit rating far from a straightforward mathematical calculation.