NEW DELHI: The Securities and Exchange Board of India (SEBI) on Thursday said that Credit Rating Agencies (CRA) can deviate from the 90-day period needed to upgrade the rating of any firm from default to non-investment grade, in view of the coronavirus pandemic.
Currently, there is a post-default curing period of 90 days for the rating to move from default to speculative grade, and generally 365 days for a default to move to investment grade.
SEBI feels that there is a possibility that such cases may increase in the wake of the pandemic. “In a few recent cases of defaults, even though the rated entity was able to correct the default in a relatively shorter span of time, the rating could not be upgraded and continued to be under sub-investment grade due to the extant provisions on post-default curing period,” SEBI said.
“After a default is cured and payments regularised, a CRA shall generally upgrade the rating from default to non-investment grade after a period of 90 days based on the satisfactory performance by the company during this period. CRAs may deviate from the said 90-day period on a case-to-case basis, subject to them framing a detailed policy in this regard,” it said.
The policies framed may include scenarios such as technical defaults, change in management, acquisition by another firm, sizeable inflow of long-term funds or benefits arising out of a regulatory action, which basically alter the credit risk profile of the firm.
SEBI added that cases of deviations from the stipulated 90 days need to be placed before the ratings sub-committee of the CRA board on a half-yearly basis. The CRA will have to frame a policy regarding upgradation of default rating to investment grade and place it on its website.