Sebi tightens disclosure norms for credit rating agencies

The watchdog has called for having a uniform Standard Operating Procedure in respect of tracking and timely recognition of default.

Published: 13th June 2019 07:06 PM  |   Last Updated: 13th June 2019 07:06 PM   |  A+A-


Image of SEBI used for representational purpsose (FIle Photo | Reuters)


NEW DELHI: Markets watchdog Sebi Thursday came out with a strict disclosure framework for credit rating agencies wherein they will be required to provide the probability of default for various rated instruments.

The regulator's move comes against the backdrop of rising instances of debt defaults and concerns over the role of credit rating agencies in assessing the possible risks.

Credit rating agencies have also come under the scanner in the IL&FS case.

Issuing guidelines for enhanced disclosures by Credit Rating Agencies (CRAs), the watchdog has called for having a uniform Standard Operating Procedure (SOP) in respect of tracking and timely recognition of default.

The same has to be disclosed on the website of each CRA.

Besides, the agencies would have to put in place Probability of Default (PD) benchmarks.

"In order to enable investors to discern the performance of a CRA vis-a-vis a standardised PD benchmark scale, CRAs, in consultation with Sebi, shall prepare and disclose standardized and uniform PD benchmarks for each rating category on their website, for one-year, two-year and three-year cumulative default rates, both for short-run and long-run," the circular said.

The standardised and uniform PD benchmarks should be disclosed on the website of each CRA for ratings of long-term and short-term instruments on a consolidated basis for all financial instruments rated by a CRA by December 31, 2019.

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