SEBI Circular on Enhanced Disclosures by CRAs and Norms on Rating Withdrawal– 25th August, 2022

SEBI, vide its circular dated 25 th August, 2022 enhanced disclosures by CRAs and Norms on Rating withdrawal. This circular is in reference to EBI (Credit Rating Agencies) Regulations, 1999 (“CRA Regulations”) which 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.

Therefore, 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.

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.

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.

Issuers Not Cooperating (INC) and information required for rating: 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. B. In conti