Sebi tweaks framework on credit rating agencies, asks for detailed policy

Sebi tweaks operational circular on credit rating agencies, asking them to have a detailed policy by March-end

Sebi on Friday 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.

The CRA in its judgement may migrate a rating to the INC category before the expiry of three consecutive months of non-receipt of NDS.

In its fresh circular for CRAs, the regulator said that these requirements would be applicable by March 31, 2023.

Prior to that, the Securities and Exchange Board of India (Sebi) came out with an operational circular on CRAs in January, which was to come into effect from February 1.

In its fresh circular, Sebi said that the MD or CEO of a CRA and any person within CRA who has business responsibility would not be a member of rating committees of the agency.

At the time of withdrawal of any credit rating of securities that are listed on a stock exchange, the CRA would have to assign a rating to such security and issue a press release in a prescribed format, except in cases where there are no outstanding obligations under the security rated by the CRA or the company whose security is rated is wound up or merged or amalgamated with another firm.

Further, the press release should also mention the reason for withdrawal.

With regard to guidelines on the listed securities or instruments falling under the purview of other financial sector regulators, Sebi said that issuers of such instruments and any person connected therewith would abide by the rules as prescribed by such financial sector regulator.

Further, if such instruments are listed on a stock exchange, the rules specified by Sebi from time to time would continue to be applicable.