SEBI Changes Credit Rating Rules; Check the New Rules and How will it Affect Credit Rating

Market regulator Securities and Exchange Board of India (SEBI) has unveiled new rules aimed at enhancing the business environment for credit rating agencies and streamlining their operations. 

The circular specifies clear deadlines for resolving company appeals regarding rating actions conducted during routine rating surveillance. Issued on Thursday, the SEBI announced that these revisions will be implemented starting from August 1, 2024.

What are the New Rules?

As per the statement issued by SEBI, the agencies will have to abide by the following new rules in order to continue rating the companies:

• Credit rating agencies (CRAs) must notify companies of their ratings within one working day after the rating committee meeting, ensuring timely communication.
• Companies are allowed three working days to request a review or appeal of the rating decision.
• Press releases announcing the ratings must be published on the CRA's website and communicated to the stock exchange or debenture trustee within 7 working days of the rating committee meeting.
• CRAs are required to maintain records of these disclosures for 10 years and may share them with debenture trustees upon request.
• CRAS must publish disclosures regarding these aspects on their websites, specifically under the issuer-specific press releases or rating rationale section, as applicable.

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How will SEBI Moniter CRAs?

In order to ensure that stakeholders are immediately informed about issuers who do not collaborate with rating agencies, SEBI has also set specified timetables for specific types of disclosures. One such example is a list of non-cooperative issuers that should be updated on a daily basis.

CRAs are obliged to keep records of disclosures about ratings that issuers have not accepted for a period of 12 months.

As per regulations, credit rating agencies (CRAs) will review this circular for compliance during their semi-annual internal audits, as mandated by Sebi. This procedure aims to uphold investor protection while fostering growth and ensuring regulatory oversight in the securities industry.

CRAs Under SEBI

A credit rating agency (CRA) is a company that rates securities, which can be either already listed on a SEBI-recognized stock exchange or are planning to be listed.

Seven CRAs that are registered with SEBI are: CRISIL, CARE, ICRA, Acuité, Brickwork Rating, India Ratings (Ind-Ra) and Research Pvt. Ltd., and Infomerics Valuation and Rating Pvt. Ltd.

What is Credit Rating?

A credit rating is an assessment by a specific credit agency of an organization's (government, corporate, or private) capacity and willingness to fully and on time meet its financial commitments. 

Additionally, a debtor's credit rating indicates the probability of a default in the future. It also serves as a metaphor for the credit risk associated with any debt instrument, such as a bond issue or loan.

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