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Operational Circular for Credit Rating Agencies - SEBI - SEBI/HO/DDHS/DDHS-RACPOD2/P/CIR/2023/6Extract ..... tailed chapter-wise in this operational circular. Accordingly, the list of existing circulars for CRAs which have been superseded by Operational Circular is placed at Annexure A. IV. Applicability: The provisions of the circular shall come into effect from February 01, 2023. V. This circular is issued in exercise of the powers conferred by Section 11 (1) of Securities and Exchange Board of India Act, 1992 read with the provisions of Regulation 20 of Securities and Exchange Board of India (Credit Rating Agencies) Regulations, 1999, to protect the interest of investors in securities and to promote the development of, and to regulate, the securities market. Yours faithfully, Deena Venu Sarangadharan Deputy General Manager Department of Debt and Hybrid Securities Tel No.022-2644 9266 Email id - deenar@sebi.gov.in Chapter I : Registration Requirements 1. Online Registration Mechanism for Securities Market Intermediaries 1.1. SEBI has operationalized SEBI Intermediary Portal (https://siportal.sebi.gov.in) for the intermediaries, inter alia for CRAs, to submit all the registration applications online. The SEBI Intermediary Portal shall include online application for registration, processi ..... X X X X Extracts X X X X Login / Subscribe to Access Full Page Operational Circular for Credit Rating Agencies - SEBI X X X X Extracts X X X X ..... mmunication. 3.Transfer of business by SEBI registered intermediaries to other legal entity 3.1. SEBI has been receiving registration applications pursuant to transfer of business (SEBI regulated business activity) from one legal entity which is a SEBI registered Intermediary (transferor) to other legal entity (transferee). In this regard, following is clarified: 3.1.1. The transferee shall obtain fresh registration from SEBI in the same capacity before the transfer of business if it is not registered with SEBI in the same capacity. SEBI shall issue new registration number to transferee different from transferor’s registration number in the following scenario: 3.1.1.1. “Business is transferred through regulatory process (pursuant to merger / amalgamation / corporate restructuring by way of order of primary regulator /govt / NCLT, etc.) or non-regulatory process (as per private agreement /MOU pursuant to commercial dealing / private arrangement) irrespective of transferor continues to exist or ceases to exist after the said transfer. 3.1.2. In case of change in control pursuant to both regulatory process and nonregulatory process, prior approval and fresh registration sh ..... X X X X Extracts X X X X Login / Subscribe to Access Full Page Operational Circular for Credit Rating Agencies - SEBI X X X X Extracts X X X X ..... cted by SEBI. 4.2. The CRA, on and from the date of acceptance of the Request, or when it is commencing the winding up process, shall: 4.2.1. return the certificate of registration so cancelled to SEBI; 4.2.2. not represent itself to be a holder of certificate for carrying out the activity for which such certificate had been granted; 4.2.3. suspend undertaking activity for which such certificate had been granted; 4.2.4. until it is wound up, continue to co-operate with SEBI on matters pertaining to the activities of the CRA undertaken by it till it held the certificate of registration under SEBI (Credit Rating Agencies) Regulations, 1999; 4.2.5. make provisions as regards liability incurred or assumed by it; 4.2.6. until it is wound up, take such other action including providing any records or documents within the time period and in the manner, as may be required under the SEBI (Credit Rating Agencies) Regulations, 1999 or as may be directed by SEBI 4.3. Additionally, in case of suspension of the certificate of registration, the CRA, during such period of suspension, shall - 4.3.1. suspend undertaking activity for which such certificate of registration had been granted; 4.3.2. cont ..... X X X X Extracts X X X X Login / Subscribe to Access Full Page Operational Circular for Credit Rating Agencies - SEBI X X X X Extracts X X X X ..... a CRA whose registration is cancelled or suspended or surrendered, desirous of obtaining credit rating for regulatory purposes, shall obtain credit rating(s) from another SEBIregistered CRA(s) holding a valid certificate of registration under SEBI (Credit Rating Agencies) Regulations, 1999. 4.10. In order to facilitate the migration of credit ratings as mentioned above, the para 12.1 to 12.5 of operational circular issued under SEBI (Credit Rating Agencies) Regulations, 1999 shall not be applicable, for the concerned CRA, from the date of Order of cancellation/suspension of certificate of registration or from the date of request of application of surrender of certificate of registration by the CRA. 4.11. In case of cancellation or suspension or surrender of certificate of registration of a CRA, the credit rating assigned by such CRA shall be treated as withdrawn upon an issuer furnishing an undertaking that another rating is available for listed or proposed to be listed, non-convertible securities, Securitised Debt Instruments, Security Receipts, Municipal Debt Securities or Commercial Paper or other regulated products, from other SEBI-registered CRA, together with confirmation fr ..... X X X X Extracts X X X X Login / Subscribe to Access Full Page Operational Circular for Credit Rating Agencies - SEBI X X X X Extracts X X X X ..... tes the degree of safety of the issuer or the rated entity with regard to timely servicing of all its debt obligations. 5.3.2. Pursuant to the consultation with the CRAs, standardized symbols and their definitions have been devised for Issuer Rating/ Corporate Credit Rating. The new symbols and definitions as given in Annexure 8 shall henceforth be used for the new ratings/ reviews by the CRAs for Issuer Rating/ Corporate Credit Rating. 5.4. Structured finance products: A CRA may undertake rating of structured finance products, namely, instruments/ pay-outs resulting from securitization transactions. In such cases, apart from following all the applicable requirements in case of non-structured ratings, the rating symbols shall clearly indicate that the ratings are for structured finance products. 5.5. Rating symbol for securities having explicit Credit Enhancement feature The standardized symbols and definitions for credit ratings of securities having explicit credit enhancement given at Annexure 9-10. 5.6. Expected Loss (EL) based Rating Scale 5.6.1. In addition to the standardized rating scales prescribed for various instruments, subsequent to discussions with various stakeholders ..... X X X X Extracts X X X X Login / Subscribe to Access Full Page Operational Circular for Credit Rating Agencies - SEBI X X X X Extracts X X X X ..... ment and disclose the same on its website. 7.2. Periodicity of review shall be disclosed on the CRA's website. While disclosing the revised criteria on their website, CRAs shall also provide a reference/ hyperlink to the original criteria (before revision), so as to enable investors to discern the changes made to the same. 7.3. The criteria shall be placed on the CRA’s website in a user-friendly manner in order to facilitate easy and ready access of the same by investors. 7.4. Press Release, related to rating action, shall provide a reference/ hyperlink to the specific criteria applied for the rating. 7.5. At least, the following rating criteria shall be formulated by each CRA and should be reviewed periodically, criteria on : 7.5.1. Default recognition (Definition of default to be followed by all CRAs is provided in the Annexure 11) 7.5.2. Financial ratios (Explaining how a CRA analyses various financial ratios including adjustments made to financial statements for the interpretation of financial ratios) 7.5.3. Consolidation of companies 7.5.4. Parent support/group/government support- CRAs may review their rating criteria with regard to assessment of holding companies an ..... X X X X Extracts X X X X Login / Subscribe to Access Full Page Operational Circular for Credit Rating Agencies - SEBI X X X X Extracts X X X X ..... committee of the rated entity, at least once in a year, to discuss issues including related party transactions, internal financial control and other material disclosures made by the management, which have a bearing on rating of the listed NCDs. 8.7. In order to achieve a consistent approach, CRAs, in consultation with SEBI, shall frame a uniform Standard Operating Procedure (SOP) in respect of tracking and timely recognition of default, which shall be disclosed on the website of each CRA. 8.8. The CRAs shall at all times observe high standards and fairness in conduct of the business and any act of omission or commission in contravention of the provisions of clauses 12 and/or 23 of Code of Conduct , as specified under Third Schedule of the SEBI (Credit Rating Agencies) Regulations, 1999, in letter or spirit, may result in violation of the provisions of section 12A of the Securities and Exchange Board of India Act,1992 and SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003. 9.Monitoring and Review of Ratings 9.1. Monitoring of repayment schedules 9.1.1. CRAs have to be proactive in early detection of defaults/ delays in making ..... X X X X Extracts X X X X Login / Subscribe to Access Full Page Operational Circular for Credit Rating Agencies - SEBI X X X X Extracts X X X X ..... vant benchmark yield. (CRAs shall devise a model to track deviations in bond spreads) 9.2.2. CRAs shall publish on their website press release regarding the rating action (including reiteration of existing rating), if warranted, immediately, but not later than 7 days of occurrence of the said event. 9.3. ‘No Default Statement’ to be sought from the Issuer on a monthly basis 9.3.1. In order to enable timely recognition of default by the CRA, the CRA shall seek a ‘No Default Statement (NDS)’ from the Issuer at the end of each month, which shall be provided to the CRA by the Issuer on the first working day of the next month. 9.3.2. The NDS shall require the Issuer to explicitly confirm to the CRA that it has not delayed on any payment of interest/ principal in the previous month. 9.3.3. In case there have been delays in the payment of interest/ principal by the Issuer, the Issuers shall state the same in this statement and the CRA shall promptly conduct a rating review and disseminate the rating action through Press Release within 2 days of receipt of such statement. 9.3.4. A standardized format of the NDS is provided at Annexure 12. 10. Rating Press Release 10 ..... X X X X Extracts X X X X Login / Subscribe to Access Full Page Operational Circular for Credit Rating Agencies - SEBI X X X X Extracts X X X X ..... 10.1.7. While CRAs are required to monitor and analyse the relevant factors that affect the creditworthiness of an issuer and discuss the same in the rating notes considered by the rating committee for assignment of ratings, such relevant factors may also be suitably incorporated in the press release regarding the rating action. 10.1.8. In order to enable investors to understand underlying rating drivers better and make more informed investment decisions, CRAs shall make the following specific disclosures in the section on “Analytical Approach” in the Press Release: 10.1.8.1. When a rating factors in support from a Parent/ Group/ Government, with an expectation of infusion of funds towards timely debt servicing, the name of such entities, along with rationale for such expectation, may be provided. 10.1.8.2. When subsidiaries or group companies are consolidated to arrive at a rating, list of all such companies, along with the extent (e.g. full, proportionate or moderate) and rationale of consolidation, may be provided. 10.1.9. The Press Release shall include a specific section on “Liquidity”, which shall highlight parameters like liquid investments or cash ba ..... X X X X Extracts X X X X Login / Subscribe to Access Full Page Operational Circular for Credit Rating Agencies - SEBI X X X X Extracts X X X X ..... urity, on an ongoing basis throughout the security’s lifetime, on the basis of best available information, in accordance with the rating process and policies set forth in its Operations Manual/ Internal governing document. 11.2. CRAs shall have a detailed policy in this respect which shall include the following: 11.2.1. Non-submission of material information including (but not limited to) the following: 11.2.1.1. Non-submission of quarterly financial results or performance results or audited financial results within prescribed timelines 11.2.1.2. Current and past operational details including details about capex plans 11.2.1.3. Debt obligations and repayment details 11.2.1.4. Any other issue felt appropriate by CRA as per internal assessment or as laid down by CRA in its internal policy/manual. 11.2.2. The criteria/ methodology in respect of assessing the risk of non-availability of information from the issuers including non-cooperative issuers. 11.2.3. The steps to be taken under various scenarios in order to ascertain the status of non-cooperation by the issuer company. 11.3. CRAs shall follow a uniform practice of three consecutive months of non-submission of No-default St ..... X X X X Extracts X X X X Login / Subscribe to Access Full Page Operational Circular for Credit Rating Agencies - SEBI X X X X Extracts X X X X ..... any new ratings to an issuer, if the issuer is categorized as non-cooperative with all the CRAs for a continuous period of preceding 12 months, until the issuer resumes cooperation or the rating is withdrawn. 11.8.3. Para 11.2 to 11.4 of operational circular shall be applicable latest by March 31,2023. 12. Withdrawal of ratings 12.1. Withdrawal of ratings of Open-Ended Mutual Fund Schemes 12.1.1. Open ended Mutual Fund schemes being perpetual in nature and having no specified maturity, withdrawal of rating of such schemes is permitted. However, as units of such schemes are held by many investors, such ratings shall be placed on notice of withdrawal for at least 30 days, which shall be publicly available on the CRA’s website. 12.1.2. Ratings of the aforementioned schemes can be withdrawn after receiving request for withdrawal from the Asset Management Company (AMC) in case of mutual funds; 12.2. Press Release for Withdrawal of Rating of a rated security : At the time of withdrawal, the CRA shall assign a rating to such security and issue a press release as per the format prescribed in the Annexure 13. The Press Release shall also mention the reason(s) for withdrawal. 12.3. Wit ..... X X X X Extracts X X X X Login / Subscribe to Access Full Page Operational Circular for Credit Rating Agencies - SEBI X X X X Extracts X X X X ..... also assign a credit rating to such security, except where there are no outstanding obligations under the security rated by the CRA, or the company whose security is rated is wound up or merged or amalgamated with another company. 13. Provisional Rating by CRAs 13.1. In order to strengthen and standardize the policies on provisional rating, subsequent to consultation with various stakeholders, including CRAs, it has been decided to prescribe as under: 13.1.1. Rating Symbol: All Provisional Ratings (‘long term’ or ‘short term’) for security shall be prefixed as ‘Provisional’ before the rating symbol in all communications viz. rating letter, press release / rating rationale, etc. 13.1.2. Standardized Term: A rating shall be considered as provisional, and not final, when it is contingent upon occurrence following steps or execution of following documents, as applicable: 13.1.2.1. execution of letter of comfort, corporate guarantee, or other forms of explicit third-party support; 13.1.2.2. execution of documents such as debenture trust deed/ debenture trustee agreement, legal agreements/ opinions, representations and warranties, final term sheet; 13 ..... X X X X Extracts X X X X Login / Subscribe to Access Full Page Operational Circular for Credit Rating Agencies - SEBI X X X X Extracts X X X X ..... that in case the security is subsequently issued, the provisional rating would have to be converted into final rating as per the validity period prescribed at para 13.1.3 above. 13.1.4.5. While assigning provisional rating to an issued security, the press release shall specify the rating and timeline implications as per the validity period prescribed at para 13.1.3 above. 13.1.4.6. Furthermore, in case of provisional ratings for cases mentioned in para 13.1.2.6 above, the following disclosures shall also be required, wherever applicable: a. the broad details of the assets that are proposed to be held by the REIT/ InvIT, the proposed capital structure, etc. b. the rating rationale should disclose that the CRA has taken an undertaking from the sponsor stating that the key assumptions (relating to the assets, capital structure, etc.) are in consonance with the details filed by the sponsor with SEBI. c. In case of change in provisional rating due to change in aforesaid key assumptions, the press release shall state that the rating by the CRA is based on a declaration from the issuer that similar changes have been made in the filing with SEBI. 13.1.5. Unaccepted provisional rating: In c ..... X X X X Extracts X X X X Login / Subscribe to Access Full Page Operational Circular for Credit Rating Agencies - SEBI X X X X Extracts X X X X ..... g the strength of the credit enhancement. 14.5. Furthermore, for such credit ratings, it is reiterated that CRAs shall verify the documentation related to the specified support considerations to ensure inter alia the following: 14.5.1. The support is unconditional, irrevocable, and legally enforceable till all the obligations of the rated security has been paid to the investors. 14.5.2. CRAs shall undertake independent examination of financial strength of the support provider to ascertain the ability to honour the obligations guaranteed by the support provider. 14.5.3. The support provider has a lower probability of default on a continuous basis, compared with the rated issuer, till the time such ratings are outstanding. 14.6. The CRAs shall devise a model to assess the adequacy of credit enhancement structure under various scenarios including stress scenarios. Such assessment shall also be disclosed in the press release regarding the rating action. 14.7. Monitoring: Monitoring of provisions at para 14 shall be done in terms of the half-yearly internal audit for CRAs, mandated under Regulation 22 of the SEBI (Credit Rating Agencies) Regulations, 1999 and this operational circular i ..... X X X X Extracts X X X X Login / Subscribe to Access Full Page Operational Circular for Credit Rating Agencies - SEBI X X X X Extracts X X X X ..... an annual basis, undertake a review of the decisions taken by the Committees in that year, which would, inter alia, include: 16.6.1. Ratings assigned by the rating committees/ sub-committees including ratings assigned based on best available information in cases of noncooperation by the issuer. 16.6.2. Sharp changes in ratings. 17. Request by Issuers for review of ratings provided by CRAs : Cases of requests by an issuer for review of the rating(s) provided to its security/ies shall be reviewed by a rating committee of the CRA that shall consist of majority of members that are different from those in the Rating Committee of the CRA that assigned the earlier rating, and at least one-third of members are independent. ("Independent" would mean people not having any pecuniary relationship with the CRA or any of its employees). 18. Rating Agreement between the Issuer and the CRA 18.1. Rating Agreement to be signed between Issuer and CRA prior to commencement of rating exercise: 18.1.1. Regulation 14 of SEBI (Credit Rating Agencies) Regulations, 1999 requires CRAs to enter into a written agreement with each client whose securities it proposes to rate. 18.1.2. In this regard, it ..... X X X X Extracts X X X X Login / Subscribe to Access Full Page Operational Circular for Credit Rating Agencies - SEBI X X X X Extracts X X X X ..... ng the agreement.” Security type ISIN Issue Size (INR Cr) Coupon Rate Coupon Payment Dates Terms of Redemption Redemption date Name and contact details of Debenture Trustee Details of top 10 investors 18.2.2.3. “The client (Issuer/ borrower) undertakes to provide the CRA a No Default Statement on a monthly basis wherein the Issuer shall explicitly confirm that it has not delayed on any payment of interest/ principal in the previous month. Such statement shall be provided to the CRA on the first working day of the next month.” 19. Governance Norms of CRAs 19.1. One third of the board of a CRA shall comprise of independent directors, if the board is chaired by a non-executive director. In case the board of the CRA is chaired by an executive director, half of the board shall comprise of independent directors. 19.2. The board of a CRA shall constitute the following committees: 19.2.1. Ratings Sub-Committee 19.2.2. Nomination and Remuneration Committee 19.3. The Chief Ratings Officer (CRO) shall directly report to the Ratings Sub- Committee of the board of the CRA. 19.4. The Nomination and Remuneration Committee shall be chaired by an independent director. 20. Accounta ..... X X X X Extracts X X X X Login / Subscribe to Access Full Page Operational Circular for Credit Rating Agencies - SEBI X X X X Extracts X X X X ..... As for managing conflict of interest in case of investment/ trading in securities (except schemes of Mutual Funds) done by CRAs or their Access Persons as defined hereunder, the following guidelines, framed in consultation with CRAs are laid down: 21.4.3.1. CRAs shall adopt adequate systems, procedures and policies to ensure that they address conflict of interest while making their own investments in securities. 21.4.3.2. The CRAs, their employees and Access Persons shall not take undue advantage of any price sensitive information that they may have about any company. 21.4.3.3. Access Persons to seek prior approval for transactions a. An Access Person shall apply to the Compliance Officer for prior approval of transactions for purchase or sale of securities of the companies which have been rated by the CRA or whose securities/instruments/facilities have been rated by the CRA. b. The Compliance Officer of the CRA shall apply to the Chief Executive of the CRA for such prior approval. c. The CEO/Compliance Officer shall ensure that there is no conflict of interest while considering the request for prior approval. d. Such approvals, if granted, shall be valid for 7 working days from th ..... X X X X Extracts X X X X Login / Subscribe to Access Full Page Operational Circular for Credit Rating Agencies - SEBI X X X X Extracts X X X X ..... d Amendment) Regulations, 2018: Vide Gazette Notification No. SEBI/LAD-NRO/GN/2018/36 dated September 11, 2018, in respect of Securities and Exchange Board of India (Credit Rating Agencies) (Second Amendment) Regulations, 2018, as laid down under Regulation 9(f) of SEBI (Credit Rating Agencies) (Second Amendment) Regulations, 2018, a CRA may undertake the rating of financial instruments under the respective guidelines of the financial sector regulators/ authorities as specified in Annexure 18. CRAs may also undertake research activities, incidental to rating, such as research for Economy, Industries and Companies. Chapter III : REPORTING AND DISCLOSURES 25. Probability of Default Benchmark 25.1. In order to enable investors to discern the performance of a CRA vis-à-vis a standardized PD benchmark scale, CRAs, in consultation with SEBI, shall prepare and disclose standardized and uniform PD benchmarks for each rating category on their website, for one-year, two-year and three-year cumulative default rates, both for short-run and long-run. 25.2. These benchmarks shall be prepared based on the following key principles: 25.2.1. Marginal Default Rate (MDR) approach, using monthly ..... X X X X Extracts X X X X Login / Subscribe to Access Full Page Operational Circular for Credit Rating Agencies - SEBI X X X X Extracts X X X X ..... l be included as separate instances. Further, in order to avoid under-estimation of default rates in case of significantly higher number of tranches of differing seniority but same rating, a cap of three tranches per rating category per issuer may be applied. 25.2.9. The above PD benchmarks and tolerance levels may be re-indexed from time to time. 25.2.10. The above standardized and uniform PD benchmarks shall be disclosed on the website of each CRA for ratings of long-term and short-term instruments, on a consolidated basis for all financial instruments rated by a CRA. 25.2.11. CRAs may review their rating methodologies in order to align the same with the proposed PD benchmarks. 26. Periodic Disclosures 26.1. A CRA shall make all the disclosures stipulated below on their websites. In case of listed securities, the CRA shall also make disclosures to the stock exchanges as specified in the SEBI (Credit Ratings) Regulations, 1999. For ratings assigned and their periodic reviews, the CRA shall issue press releases which shall also be kept on their websites. Where a specific format has been prescribed, the disclosures shall be made in that format. 26.2. A CRA can make additional disclo ..... X X X X Extracts X X X X Login / Subscribe to Access Full Page Operational Circular for Credit Rating Agencies - SEBI X X X X Extracts X X X X ..... harp 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. 26.3.3.3. In addition to disclosure of sharp rating actions excluding noncooperative issuers, CRAs shall also separately disclose sharp rating actions including such actions on non-cooperative issuers. 26.3.3.4. The disclosure on sharp rating actions shall be limited 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. 26.3.3.5. The disclosure of sharp rating action in terms of para 26.3.3.2 to 26.3.3.4 shall be applicable from H1 of Financial Year 2022-23. 26.4. Disclosures by CRAs on annual basis: CRA shall make following disclosures within 30 days from the end of each financial year (March): 26.4.1. Computation and disclosure of Default Rates 26.4.1.1. The CRA, shall publish information about the histori ..... X X X X Extracts X X X X Login / Subscribe to Access Full Page Operational Circular for Credit Rating Agencies - SEBI X X X X Extracts X X X X ..... tatic period. 26.4.1.6. The historical data on the default rates disclosed every year shall be archived and made available on the website of each CRA for last 10 years. 26.4.1.7. In order to achieve a consistent approach, CRAs, in consultation with SEBI, shall frame a uniform Standard Operating Procedure (SOP) in respect of tracking and timely recognition of default, which shall be disclosed on the website of each CRA. 26.4.1.8. In addition to disclosure on cumulative default rates (CDR) which includes non-cooperative issuers and various types of credit ratings, CRAs from Financial year 2022-2023, shall also disclose, separately, two other CDRs limited to credit ratings of securities that are listed, or proposed to be listed, on a recognized stock exchange: a. CDR (ii), wherein ratings of non-cooperative issuers shall be included in the cohort under the rating category in which the instrument is currently being rated. b. CDR (iii), wherein ratings of non-cooperative issuers shall be excluded in the cohort under the rating category in which the instrument is currently being rated. 26.4.2. Disclosure of Average Rating Transition Rates for long-term Instruments 26.4.2.1. Transition st ..... X X X X Extracts X X X X Login / Subscribe to Access Full Page Operational Circular for Credit Rating Agencies - SEBI X X X X Extracts X X X X ..... transition matrices (limited to credit ratings of securities that are listed, or proposed to be listed, on a recognized stock exchange) using the following definition of static pool: a. Static Pool: Ratings outstanding for each category at the beginning of any financial year. It shall exclude ratings that have been withdrawn or ratings of non-cooperative issuers during the financial year. Ratings downgraded to D shall be treated as default for the rest of the financial year. Ratings which are upgraded from D shall be considered as new rating for the relevant subsequent static pools. b. Static Pool: Ratings outstanding for each category at the beginning of any financial year. It shall include ratings that have been withdrawn or ratings of non-cooperative issuers during the financial year. Ratings downgraded to D shall be treated as default for the rest of the financial year. Ratings which are upgraded from D shall be considered as new rating for the relevant subsequent static pools. 26.4.3.4. In the disclosure at para 26.4.3.3 (b) above, a CRA shall include an additional column to indicate the proportion of ratings that were withdrawn during the financial year. 26.4.3.5. The disclos ..... X X X X Extracts X X X X Login / Subscribe to Access Full Page Operational Circular for Credit Rating Agencies - SEBI X X X X Extracts X X X X ..... ulations, following is clarified: 27.3.2. Initial Rating Scenario Timelines - immediately but not later than Communication of the rating assigned to issuer 2 working days of rating committee meeting Acceptance of Rating/ Appeal for Review of Rating by the Issuer 5 working days of communication of rating by the CRA to the Issuer Disclosure of rating as non- accepted Rating In case rating is not accepted by the Issuer within a month of communication of rating by the CRA to the Issuer, the same shall be disclosed as Non-Accepted Rating on the CRA’s website Dissemination of Press Release on CRA’s website and intimation of same to Stock Exchange/ Debenture Trustee 2 working days of acceptance of Rating by the Issuer 27.3.3. Periodic Surveillance Scenario Timeline - immediately but not later than Dissemination of Press Release on CRA’s website and intimation of same to Stock Exchange/ Debenture Trustee 5 working days of Rating Committee Meeting 27.3.4. Dissemination of Press Release on CRA’s website and intimation of same to Stock Exchange/ Debenture Trustee in case of event based review Scenario Timeline- immediately but not later than Intimation from Issuer/ Deb ..... X X X X Extracts X X X X Login / Subscribe to Access Full Page Operational Circular for Credit Rating Agencies - SEBI X X X X Extracts X X X X ..... isclosed shall include the name of the issuer, name/ security type, size of the issue, date of last review, reasons for delay in periodic review, hyperlink to the last Press Release etc. 27.7. Disclosure of guidelines for dealing with Conflict of Interest: The policies adopted by the CRAs for effective implementation of guidelines for dealing with Conflict of Interest for investment/ trading by CRAs, Access Persons and other employees, shall be disclosed on the CRAs’ website. 28. Periodical report to be submitted to SEBI: 28.1. All CRAs shall report the following change(s) to SEBI while submitting the Action Taken Report in accordance with para 32.4 of the operational circular: 28.1.1. Amalgamation, demerger, consolidation or any other kind of corporate restructuring falling within the scope of section 230 of the Companies Act, 2013 or the corresponding provision of any other law for the time being in force; 28.1.2. Change in Director, including managing director/ whole-time director; 28.1.3. Change in shareholding not resulting in change in control. 28.1.4. If there is no change during the relevant half year, it shall be indicated in the report. 29. Other Continuous Disclosu ..... X X X X Extracts X X X X Login / Subscribe to Access Full Page Operational Circular for Credit Rating Agencies - SEBI X X X X Extracts X X X X ..... d Exchange Board of India (Credit Rating Agencies) Regulations, 1999 shall include an internal audit to be undertaken in the following manner: 31.1.1. It shall be conducted on a half yearly basis. 31.1.2. It shall be conducted by Chartered Accountants, Company Secretaries or Cost and Management Accountants who are in practice and who do not have any conflict of interest with the CRA. 31.1.3. It shall cover all aspects of CRA operations and procedures, including investor grievance redressal mechanism, compliance with the requirements stipulated in the SEBI Act, Rules and Regulations made thereunder, and guidelines issued by SEBI from time to time. 31.1.4. The report shall state the methodology adopted, deficiencies observed, and consideration of response of the management on the deficiencies. 31.1.5. The report shall include a summary of operations and of the audit, covering the size of operations, number of transactions audited and the number of instances where violations / deviations were observed while making observations on the compliance of any regulatory requirement. 31.1.6. The report shall comment on the adequacy of systems adopted by the CRA for compliance with the requirem ..... X X X X Extracts X X X X Login / Subscribe to Access Full Page Operational Circular for Credit Rating Agencies - SEBI X X X X Extracts X X X X ..... the CRA. 32.3.7. Dissents, if any, have been recorded for each committee meeting, as stated in the Operations Manual/ Internal governing document. 32.3.8. CRA has complied with the timelines for publication of press release/ rating rationale for the ratings assigned, as set out in its Operations Manual/ Internal governing document. 32.3.9. The Press Releases issued are broadly in line with the standard template prescribed by SEBI. 32.3.10. Verify the rating disclosures made by the CRAs on their website. 32.3.11. Comment on the conflict of interest, if any, arising due to composition of the rating committee and participation in the rating committee meetings. 32.3.12. The audit shall also cover adherence to the prescribed methodology for calculation of transition rates and default rates, 32.3.13. Compliance by CRA with the provisions of all the Circulars shall be verified during half-yearly Internal Audit. 32.4. Action on the Internal Audit Report: 32.4.1. The CRA shall receive the report of the internal audit within two months from the end of the half-year. 32.4.2. Upon receipt of the internal audit report, the Compliance Officer of the CRA shall provide detailed comments on each of ..... X X X X Extracts X X X X Login / Subscribe to Access Full Page Operational Circular for Credit Rating Agencies - SEBI X X X X Extracts X X X X ..... please contact SEBI Office on Toll Free Helpline at 1800 22 7575 / 1800 266 7575. 35. Guidelines on Outsourcing of Activities by CRAs 35.1. Outsourcing may be defined as the use of one or more than one third party - either within or outside the group - by a registered CRA to perform the activities associated with services which the CRA offers. 35.2. The principles for outsourcing by CRAs have been framed (Annexure 29). These principles shall be followed by all CRAs registered with SEBI. 35.3. The SEBI registered CRAs desirous of outsourcing their activities shall not, however, outsource their core business activities and compliance functions. 35.4. The SEBI registered CRAs shall be responsible for reporting of any suspicious transactions / reports to FIU or any other competent authority in respect of activities carried out by the third parties. 36. General Guidelines for dealing with Conflicts of Interest of CRAs and their Associated Persons in Securities Market: 36.1. CRAs are presently governed by the provisions for avoidance of conflict of interest as mandated in the SEBI (Credit Rating Agencies) Regulations,1999 read with relevant circulars issued from time to time by SEBI. On ..... X X X X Extracts X X X X Login / Subscribe to Access Full Page Operational Circular for Credit Rating Agencies - SEBI X X X X Extracts X X X X ..... ot in any way contribute to manipulate the demand for or supply of securities in the market or to influence prices of securities; 36.4.11. not have an incentive structure that encourages sale of products not suiting the risk profile of their clients; 36.4.12. not share information received from clients or pertaining to them, obtained as a result of their dealings, for their personal interest; 36.5. The Board of CRAs shall put in place systems for implementation of these guidelines and provide necessary guidance enabling identification, elimination or management of conflict of interest situations. The Boards shall review the compliance of this circular periodically. 36.6. These guidelines shall be in addition to the provisions, if any, contained in respective regulations/ circulars issued by the Board from time to time regarding dealing with conflict of interest, in respect of such entities 37. Standardization of industry classification- Applicability to CRAs 37.1. The Market Data Advisory Committee (MDAC), a standing committee constituted by SEBI, comprising of representatives from stock exchanges, depositories and other market participants, examined the existing industry classific ..... X X X X Extracts X X X X Login / Subscribe to Access Full Page Operational Circular for Credit Rating Agencies - SEBI X X X X Extracts X X X X ..... es on sharing of information or resources, if any, between the CRA and the non-rating entity in order to mitigate any potential or actual conflict of interest. 38.2.2. A CRA shall disclose on its website, details of any common director or Chief Executive Officer or Managing Director between the CRA and the non-rating entity. Such disclosure shall be updated by the CRA on the first working day of each month. The disclosure should include a reference to the date it was last updated by the CRA, along with a reference or hyperlink to archives of previous such disclosures. 38.2.3. Credit rating scales (i.e., symbols and definitions) prescribed by this SEBI circular issued under the SEBI (Credit Rating Agencies) Regulations, 1999, shall not be used by any non-rating entities of the CRA. 38.2.4. The websites of SEBI-registered CRAs and their non-rating entities shall be separate. ACRA’s website may contain hyperlinks to the separate websites of the non-rating entities 38.2.5. Applicability: CRAs shall report on their compliance with this circular (as ratified by their respective board of directors) to SEBI within one quarter from the date of applicability of this circular. 38.2.6. M ..... X X X X Extracts X X X X Login / Subscribe to Access Full Page Operational Circular for Credit Rating Agencies - SEBI X X X X Extracts X X X X ..... gencies (CRAs) 16. Circular No.SEBI/HO/MIRSD/CRADT/CIR/P/2019/121 dated November 04, 2019 Enhanced Governance Norms for Credit Rating Agencies (CRAs) 17. Circular No.SEBI/HO/MIRSD/CRADT/CIR/P/2020/2 dated January 03, 202 Strengthening of the rating process in respect of 'INC' ratings 18. Circular No. SEBI/ HO/MIRSD/ CRADT/ CIR/ P/ 2020/ 87 dated May 21, 2020 Review of Post-Default Curing Period for CRAs 19. Circular No. SEBI/ HO/ MIRSD/ MIRSD_CRADT/P/ CIR/ 2021/ 554 dated April 27, 2021 Standardizing and Strengthening Policies on Provisional Rating by Credit Rating Agencies (CRAs)for Debt Instruments 20. Circular No. SEBI/HO/MIRSD/MIRSD_CRADT/P/CIR/2021/594 dated July 16, 2021 Introduction of Expected Loss (EL) based Rating Scale and Standardisation of Rating Scales Used by Credit Rating Agencies 21. 3 Circular No. SEBI/ HO/ MIRSD/ CRADT/CIR/ P/2022/ 42 April 01, 2022 Standardization of industry classification-Applicability to credit rating agencies 22. Circular No. SEBI/HO/MIRSD/MIRSD_CRADT/P/CIR/2022/43 dated April 01, 2022 Standardisation of Ratings Scales Used by credit rating agencies - Extension of timeline for implementation 23. Circular No. SEBI/HO/DDHS/DDHSRACPOD2/ ..... X X X X Extracts X X X X Login / Subscribe to Access Full Page Operational Circular for Credit Rating Agencies - SEBI X X X X Extracts X X X X ..... anism 9. Circular SEBI/HO/MIRSD/MIRSD1/CIR/P/2017/38 dated May 02, 2017 Online Registration Mechanism for Securities Market Intermediaries 10. Circular No.SEBI/HO/MIRSD/DOR/CIR/P/2021/46 dated March 26, 2021 Transfer of business by SEBI registered intermediaries to other legal entity Annexure 1 Letter of Representation for Credit Rating Agency Securities and Exchange Board of India Dear Sir, Sub: Surrender of Certificate of Registration as Credit Rating Agency, Registration No. . 1. We hereby surrender our certificate of registration as Credit Rating Agency. 2. We enclose the original certificate of registration (or indemnity in case the certificate is lost or stolen) for cancellation. 3. We hereby confirm that: a. no complaint /disciplinary proceeding is pending against us; b. no investigation / inquiry by SEBI is pending against us with respect to our activities as a Credit Rating Agency; c. as on date of application, we have paid all fees; d. we shall continue to be liable for all liabilities/obligations (including monetary penalties, if any) for violations, if any, of the provisions of the SEBI Act and the SEBI (Credit Rating Agency) Regulations, 1999 that have taken place befo ..... X X X X Extracts X X X X Login / Subscribe to Access Full Page Operational Circular for Credit Rating Agencies - SEBI X X X X Extracts X X X X ..... / "-"(minus)} can be used with the rating symbols for the categories AA to C. The modifiers reflect the comparative standing within the category. Annexure 3 Rating Symbols and Definitions for Short Term Securities Short term securities: The securities with original maturity of up to one year Rating symbols should have CRA’s first name as prefix A1 - Securities with this rating are considered to have very strong degree of safety regarding timely payment of financial obligations. Such securities carry lowest credit risk. A2 - Securities with this rating are considered to have strong degree of safety regarding timely payment of financial obligations. Such securities carry low credit risk. A3 - Securities with this rating are considered to have moderate degree of safety regarding timely payment of financial obligations. Such securities carry higher credit risk as compared to instruments rated in the two higher categories. A4- Securities with this rating are considered to have minimal degree of safety regarding timely payment of financial obligations. Such securities carry very high credit risk and are susceptible to default. D - Securities with this rating are in defaul ..... X X X X Extracts X X X X Login / Subscribe to Access Full Page Operational Circular for Credit Rating Agencies - SEBI X X X X Extracts X X X X ..... gree of safety regarding timely payment of financial obligation. Such instruments carry low credit risk. A3 (SO) - Instruments with this rating are considered to have moderate degree of safety regarding timely payment of financial obligation. Such instruments carry higher credit risk as compared to instruments rated in the two higher categories. A4 (SO) - Instruments with this rating are considered to have minimal degree of safety regarding timely payment of financial obligation. Such instruments carry very high credit risk and are susceptible to default. D (SO) - Instruments with this rating are in default or expected to be in default on maturity. Modifier {"+" (plus)} can be used with the rating symbols for the categories A1(SO) to A4(SO). The modifier reflects the comparative standing within the category. Annexure 6 Rating Symbols and Definitions for Long Term Debt Mutual Fund Schemes Long term debt mutual fund schemes: The debt mutual fund schemes that have an original maturity exceeding one year. Rating symbols should have CRA’s first name as prefix AAAmfs - Schemes with this rating are considered to have the highest degree of safety regarding timely receipt of ..... X X X X Extracts X X X X Login / Subscribe to Access Full Page Operational Circular for Credit Rating Agencies - SEBI X X X X Extracts X X X X ..... d have CRA’s first name as prefix AAA - Issuers with this rating are considered to have the highest degree of safety regarding timely servicing of debt obligations. Debt exposures to such issuers carry lowest credit risk. AA - Issuers with this rating are considered to have high degree of safety regarding timely servicing of debt obligations. Debt exposures to such issuers carry very low credit risk. A - Issuers with this rating are considered to have adequate degree of safety regarding timely servicing of debt obligations. Debt exposures to such issuers carry low credit risk. BBB - Issuers with this rating are considered to have moderate degree of safety regarding timely servicing of debt obligations. Debt exposures to such issuers carry moderate credit risk. BB - Issuers with this rating are considered to have moderate risk of default regarding timely servicing of debt obligations. B - Issuers with this rating are considered to have high risk of default regarding timely servicing of debt obligations. C - Issuers with this rating are considered to have very high risk of default regarding timely servicing of debt obligations. D - Issuers with this rating are in default or are ..... X X X X Extracts X X X X Login / Subscribe to Access Full Page Operational Circular for Credit Rating Agencies - SEBI X X X X Extracts X X X X ..... fety regarding timely payment of financial obligation. Such securities carry low credit risk. A3 (CE) - Securities with this rating are considered to have moderate degree of safety regarding timely payment of financial obligation. Such securities carry higher credit risk as compared to instruments rated in the two higher categories. A4 (CE) - Securities with this rating are considered to have minimal degree of safety regarding timely payment of financial obligation. Such securities carry very high credit risk and are susceptible to default. D (CE) - Securities with this rating are in default or expected to be in default on maturity. Modifier {"+" (plus)} can be used with the rating symbols for the categories A1 (CE) to A4 (CE). The modifier reflects the comparative standing within the category. Annexure 11 Instrument-wise definition of default Financial Instrument Rating Scale Definition of Default Debentures/Bonds Long Term A delay of 1 day even of 1 rupee (of principal or interest) from the scheduled repayment date. Commercial Paper Short term Other Scenarios When rated instrument is rescheduled: Non-servicing of the debt (principal as well as interest) as per the exist ..... X X X X Extracts X X X X Login / Subscribe to Access Full Page Operational Circular for Credit Rating Agencies - SEBI X X X X Extracts X X X X ..... 13 Standard Template for Press Release (Minimum Information be disclosed) Name of the Company Date of Press Release Details of security/ies Name of the security Date of issuance Coupon rate Maturity Date Size of the issue Rating assigned, along with Rating Outlook Rating action (assigned/ upgraded/ downgraded) for the security. Detailed Rationale justifying the Rating Action/ rating assigned. List of key rating drivers for the Rating Action i.e. factors justifying favourable assessment (strengths) and factors constituting risk (weakness). Detailed description of key rating drivers highlighted above. Analytical approach (wherever applicable) taken by the CRA to assign the rating. Liquidity Hyperlink/ reference to the applicable "Criteria" for rating the security. About the Company: Factual details of the company along with the major financial information for the last and current financial year. This shall include key financial indicators and ratios for the Issuer for the last and current financial year, in tabular form, as well as any other significant information relevant to the Issuer and its Sector.1 Status of non-cooperation with previous CRA (if applicable): Reason a ..... X X X X Extracts X X X X Login / Subscribe to Access Full Page Operational Circular for Credit Rating Agencies - SEBI X X X X Extracts X X X X ..... ercial Mortgage-Backed Securities (CMBS)-like structures 5. Standby Letter of Credit (SBLC) backed securities 6. Debt backed by pledge of shares or other assets 7. Guaranteed Pooled bond issuance (PBI), not through a trust 8. Obligor/Co-obligor structures or Cross-default guarantee structures 9. Debt backed by Payment Waterfall /Escrow, or DSRA etc., but with Full Guarantee or DSRA Replenishment Guarantee from a third party 10. Letter of comfort Annexure 16 Summary Record of the Rating Committee Meeting (RCM) A. Preliminary Information ● Date of the RCM ● Names of all the persons attending the RCM ● Names of rating committee members present (only rating committee members will have voting rights) ● Name of the chairperson of the meeting ● Any other special invitees (if any) B. Information Relating to Rating Decision Following information/details of each rating decision shall be captured: ● Name of the rated issuer/entity ● Rating exercise i.e. whether it is a fresh rating or review/ surveillance case ● Rating outcome i.e. rating assigned, along with rating outlook and special rating symbol, if any ● Summary of key issues discusse ..... X X X X Extracts X X X X Login / Subscribe to Access Full Page Operational Circular for Credit Rating Agencies - SEBI X X X X Extracts X X X X ..... istry of Corporate Affairs 6. Insolvency and Bankruptcy Board of India ANNEXURE 19 Format for Half-Yearly Rating Summary Sheet S.No. Parameter No. of ratings Amount of debt rated (INR millions) 1. New Ratings 2. Upgrades a. Total Upgrades b. Upgrades from Non-Investment to Investment Grade 3. Downgrades a. Total Downgrades b. Downgrades from Investment to Non - Investment Grade 4. Defaults a. Total Defaults b. Default from Non-Investment Grade c. Default from Investment Grade: AAA AA A BBB 5. Change in Ratings assigned post appeal by Issuer in surveillance cases a. Ratings appealed by the Issuer b. Rating that have undergone revision post appeal by Issuer 6. Ratings Withdrawn 7. Rating Distribution for outstanding ratings as on 31st March/ 30th September a. AAA b. AA c A d. BBB e BB f. B g C h D Annexure 20 Details of new credit ratings assigned during last six-months New Ratings assigned between Apr - Sep/ Oct - Mar S.No Name of the ssuer Sectors,etc.) Security Type etc.) Issue Size (INR millions) Listing Status (Listed/ Proposed to be listed ) Whether the issuer requested for a review of rating? Whether review of the rating was granted by CRA. Rating assigned prior to request for ..... X X X X Extracts X X X X Login / Subscribe to Access Full Page Operational Circular for Credit Rating Agencies - SEBI X X X X Extracts X X X X ..... ing prior to default - B category 1 2 Rating prior to default - B category 1 2 Short Term Scale S.No Name of the Issuer Sector Instrument Type Issue Size (INR millions) Listing Status (Listed/ Proposed to be listed Rating Prior to Default Trigger Event Date of trigger of event/ receiving intimation Date of Default Recognition Rating prior to default - A1 category 1 2 Rating prior to default - A2 category 1 2 Rating prior to default - A3 category 1 2 Rating prior to default - A4 category 1 2 Annexure 25 Sharp rating actions in investment grade rating category (excluding non-cooperative issuers) S. No. Rating action Number of ratings 1 Number of rating downgrades of more than 3 notches 2. Number of downgrades to default from investment grade ratings 4. Number of outstanding ratings as on March 31/ September 30 Annexure 26 Long-run average default rates for long term instruments Rating Category 1-Year Default Rate 2-year Cumulative Default Rate 3-year Cumulative Default Rate AAA AA A BBB BB B C Long-run average default rates for short term instruments Rating Category 1-Year Default Rate A1+ A1 A2 A3 A4 Short-run average default rates for long term instruments Rating Category 1-Year De ..... X X X X Extracts X X X X Login / Subscribe to Access Full Page Operational Circular for Credit Rating Agencies - SEBI X X X X Extracts X X X X ..... ng with its outsourcing policy. 2. The CRA shall establish a comprehensive outsourcing risk management programme to address the outsourced activities and the relationship with the third party. 2.1 The CRA shall make an assessment of outsourcing risk which depends on several factors, including the scope and materiality of the outsourced activity, etc. The factors that could help in considering materiality in a risk management programme include a) The impact of failure of a third party to adequately perform the activity on the financial, reputational and operational performance of the CRA and on the investors / clients; b) Ability of the CRA to cope up with the work, in case of nonperformance or failure by a third party by having suitable back-up arrangements; c) Regulatory status of the third party, including its fitness and probity status; d) Situations involving conflict of interest between the CRA and the third party and the measures put in place by the CRA to address such potential conflicts, etc. 2.2 While there shall not be any prohibition on a group entity / associate of the CRA to act as the third party, systems shall be put in place to have an arm’s length distance be ..... X X X X Extracts X X X X Login / Subscribe to Access Full Page Operational Circular for Credit Rating Agencies - SEBI X X X X Extracts X X X X ..... e third party and in monitoring of its performance. 4.1 It is important that the CRA exercises due care, skill, and diligence in the selection of the third party to ensure that the third party has the ability and capacity to undertake the provision of the service effectively. 4.2 The due diligence undertaken by an CRA shall include assessment of: a) third party’s resources and capabilities, including financial soundness, to perform the outsourcing work within the timelines fixed; b) compatibility of the practices and systems of the third party with the CRA’s requirements and objectives; c) market feedback of the prospective third party’s business reputation and track record of their services rendered in the past; d) level of concentration of the outsourced arrangements with a single third party; and e) the environment of the foreign country where the third party is located. 5. Outsourcing relationships shall be governed by written contracts / agreements / terms and conditions (as deemed appropriate) {hereinafter referred to as “contract”} that clearly describe all material aspects of the outsourcing arrangement, including the rights, responsibilities a ..... X X X X Extracts X X X X Login / Subscribe to Access Full Page Operational Circular for Credit Rating Agencies - SEBI X X X X Extracts X X X X ..... ts and jurisdictional covenants that provide for adjudication of disputes between the parties under the laws of a specific jurisdiction; l) neither prevents nor impedes the CRA from meeting its respective regulatory obligations, nor the regulator from exercising its regulatory powers; and m) provides for the CRA and /or the regulator or the persons authorized by it to have the ability to inspect, access all books, records and information relevant to the outsourced activity with the third party. 6. The CRA and its third parties shall establish and maintain contingency plans, including a plan for disaster recovery and periodic testing of backup facilities. 6.1 Specific contingency plans shall be separately developed for each outsourcing arrangement, as is done in individual business lines. 6.2 CRA shall take appropriate steps to assess and address the potential consequence of a business disruption or other problems at the third party level. Notably, it shall consider contingency plans at the third party; coordination of contingency plans at both the CRA and the third party; and contingency plans of the CRA in the event of non-performance by the third party. 6.3 To ensure business con ..... X X X X Extracts X X X X Login / Subscribe to Access Full Page Operational Circular for Credit Rating Agencies - SEBI X X X X Extracts X X X X
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