Sebi proposes guidelines for CRAs on detailed reasons for rating actions

New Delhi, July 25, 2024 

CRAs have cited operational issues like force majeure events or bank strikes that should be considered in their policies

Markets regulator Sebi on Thursday proposed guidelines for credit rating agencies (CRAs) to include detailed reasons for rating actions, especially in cases of default and upgrades of default ratings.

In its consultation paper, the regulator has recommended removing "technical default" from policies due to potential negative market signals and covenant triggers.

CRAs have cited operational issues like force majeure events or bank strikes that should be considered in their policies.

The proposed guidelines should consider situations like force majeure events, incorrect investor accounts, or government freezes, alongside significant changes to the company's credit risk profile.

Under the current guidelines, any delay of one day or shortfall of even Re 1 in payment (principal or interest) from the scheduled repayment date must be recognised as a default, unless rescheduled by lenders before the due date.

At present, CRAs can classify certain situations (like minor delays due to operational issues) as technical defaults.

The Securities and Exchange Board of India (Sebi) has sought feedback on these proposed changes from the public till August 15 to ensure clarity and consistency in CRA policies.

[Press Trust of India]