Sebi sets industry rating standards for credit rating agencies



To achieve standardization, capital markets regulator Sebi on Friday came out with a unified industry rating framework, which will be used by credit rating agencies for the purpose of rating exercise and research activities.


The Securities and Exchange Board of India (SEBI) said in a prospectus that the industry rating will be applicable to credit rating agencies (CRAs) from October 1, 2022.

In the meantime, it added, any comments and changes suggested by CRAs will be re-calibrated by exchanges, where possible.


The unified framework will help achieve standardization in the ratings used across sectors and in the stock market.


After examining existing industry classification structures across sectors, the Market Data Advisory Committee (MDAC), a standing committee constituted by SEBI, has developed a harmonized four-tiered industry classification framework for adoption by all stakeholders and for all relevant operations or purposes in the India stock market.


The committee is composed of representatives from stock exchanges, depositors and other market participants.


Hereby, the regulator has classified industries on the basis of macroeconomic indicators, sector, industry and basic industry.


The regulator has required credit rating agencies to use this Standard Industrial Rating for the purpose of rating exercise, peer benchmarking, and research activities including research on economy, industries, companies, etc.


In a separate prospectus, Sebi extended the deadline to June 30, 2022 for CRAs to align their rating metrics.


Earlier, they were required to comply with the rules by March 31.


Hereby, rating agencies will have to align their rating scales with the scales stipulated under the guidelines for the relevant financial sector regulator or authority in relation to CRA regulations or, in the absence of these, follow the rating scales set by Sebi.


This step aims to standardize the use of rating scales.


In cases where the rating scale has not been specified by a financial sector regulator or authority, CRAs will only use rating scales determined by Sebi from time to time.


This development comes after Sebi received representation from credit rating agencies requesting an extension of the rulings’ effective date.

(The title and image for this report may have been reformulated only by the Business Standard staff; the rest of the content is automatically generated from a shared feed.)

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