Enhanced Disclosures by CRAs and Norms on Rating Withdrawal

August 25, 2022

To
All Credit Rating Agencies (CRAs) registered with SEBI
Dear Sir/ Madam,

i. SEBI (Credit Rating Agencies) Regulations, 1999 (“CRA Regulations”) provide for a principle-based regulation of CRAs focusing inter alia on enhanced transparency and disclosures by CRAs. Over time, SEBI has prescribed various disclosures under different circulars under the CRA Regulations.

ii. In order to allow investors and other stakeholders to properly use such disclosures in a fair assessment of CRAs, the following changes are being suggested for disclosures made by CRAs.

iii. Applicability : This circular shall be applicable to credit ratings of securities that are listed, or proposed to be listed, on a recognized stock exchange, and other credit ratings that are required under various SEBI Regulations or circulars thereunder.

IV. Methodology for Computation of Sharp Rating Action

A. SEBI circular numbered SEBI/ HO/ MIRSD/ DOS3/ CIR/ P/ 2018/ 140 dated November 13, 2018 had inter alia mandated CRAs to furnish data on sharp rating actions in investment grade rating category, as per the format in Annexure A of the aforesaid circular, to Stock Exchanges and Depositories for
disclosure on website on half-yearly basis.

B. In order to standardize the methodology of computation and disclosure of a ‘sharp rating action’, it is clarified that CRAs shall compare two consecutive rating actions. Therefore, a CRA shall disclose a sharp rating action, if the rating change between two consecutive rating actions is more than or equal to
3 notches downward. In other words, if the difference in credit rating between two consecutive press releases is more than or equal to 3 notches downward, the same has to be included in the disclosure on sharp rating actions.

c. The disclosure on sharp rating actions shall be limited to credit ratings referred at Section III above.

d. In addition to the current disclosures of sharp rating actions excluding noncooperative issuers, CRAs shall also separately disclose sharp rating actions including such actions on non-cooperative issuers.

1. V. Issuers Not Cooperating (INC) and information required for rating
   1. A. SEBI Circular dated November 01, 2016 inter-alia prescribed certain norms regarding policy in respect of non-co-operation by the issuer, including mandating each CRA to frame detailed guidelines on what constitutes noncooperation.
   2. B. In continuation to the same, CRAs shall have a detailed policy in this respect which shall include the following :
      1. i. Non-submission of material information including (but not limited to) the following :
         1. a. Non-submission of quarterly financial results or performance results or audited financial results within prescribed timelines.
            b) Current and past operational details including details about capex plans
         2. c) Debt obligations and repayment details
         3. d) Any other issue felt appropriate by credit rating agency as per internal assessment or as laid down by CRA in its internal policy/manual.
      2. ii. The criteria/ methodology in respect of assessing the risk of non-availability of information from the issuers including non-cooperative issuers.
         iii. The steps to be taken under various scenarios in order to ascertain the status of non-cooperation by the issuer company.

To Read More….
Click the link below….

Circular : https://www.dropbox.com/s/6gtol56xbdw8q30/Enhanced%20Disclosures%20by%20CRAs%20and%20Norms%20on%20Rating%20Withdrawal.pdf?dl=0