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TMI BlogMaster Circular for Credit Rating AgenciesX X X X Extracts X X X X X X X X Extracts X X X X ..... on of the existing circulars as on July 03, 2023, with consequent changes. The stipulations contained in these circulars have been detailed chapter-wise in this master circular. Accordingly, the list of existing circulars for CRAs which have been superseded by this master Circular is placed at Annexure A. IV. Notwithstanding such rescission,- a. anything done or any action taken or purported to have been done or taken under the rescinded circulars, prior to such rescission, shall be deemed to have been done or taken under the corresponding provisions of this Master Circular; b. any application made to the Board under the rescinded circulars, prior to such rescission, and pending before it shall be deemed to have been made under the corresponding provisions of these regulations; V. This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. VI. This issues w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ? If yes, steps taken and confirmation that the acquirer shall resolve the same. 2.2.4. Details of litigation, if any. 2.2.5. That all the fees due to SEBI have been paid. 2.2.6. That there will not be any change in the Board of Directors of incumbent, till the time prior approval is granted. 2.2.7. That the incumbent shall inform all its existing investors / clients in order to enable them to take informed decision regarding their continuance or otherwise with the entity with new management. 2.3. The prior approval granted by SEBI shall be valid for a period of 180 days from the date of communication. 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 tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der SEBI (Credit Rating Agencies) Regulations, 1999 ('CRA Regulations'); 4.1.1.5. continue to comply with the provisions of the CRA Regulations and circulars thereunder, till the time the CRA holds the certificate of registration; 4.1.1.6. continue to co-operate with SEBI with regard to sharing of information when requested and payment of fees as required under CRA Regulations ; 4.1.1.7. take such other action including providing any records or documents within the time period and in the manner, as may be required under the CRA Regulations or as may be directed 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 CRA Regulations ; 4.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the CRA, whose certificate of registration is suspended, shall not be valid during the period of suspension. 4.8. Upon cancellation or surrender or suspension of certificate of registration of a CRA, the concerned CRA's services cannot be used by listed entities or issuers for compliance with requirements of various SEBI regulations which require credit ratings from a CRA registered with SEBI. 4.9. Listed entities or issuers who have obtained credit rating from 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 SEBI- registered CRA(s) holding a valid certificate of registration under CRA Regulations . 4.10. In order to facilitate the migration of credit ratings as mentioned above, the para 12.1 to 12.5 of master 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 su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the guidelines of different financial sector regulators or authorities. 5.2.2. In order to standardise the usage of rating scales, CRAs are advised to align their rating scales with the rating scales prescribed under the guidelines of respective financial sector regulator or authority in terms of Regulation 9(f) of SEBI (Credit Rating Agencies) Regulations, 1999. 5.3. Issuer Rating/ Corporate Credit Rating 5.3.1. Issuer Rating/Corporate Credit Rating indicates 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 symb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de of seeking information from external entities. CRAs should endeavour to obtain such information/confirmation in writing. 6.3.4. Policy regarding internal approvals and timelines at each step of the Rating Exercise. 6.3.5. Policy regarding monitoring and review of ratings, including the timelines within which such review is to be completed. 7. Rating Criteria 7.1. Each CRA shall frame detailed rating criteria, include the same in its Operations Manual/ Internal governing document 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.4.4. If a quantitative model is a substantial component of the credit rating process, the rationale for any material difference between the credit rating implied by the model and the credit rating actually assigned. 8.4.5. These records should be maintained till five years after maturity of securities and be made available to auditors and regulatory bodies when sought by them. 8.5. During the rating process, CRAs shall record minutes of the meeting with issuer management and incorporate it in the rating committee note. 8.6. CRAs shall meet the audit 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inancial statements, which are not in line with CRA's earlier estimates 9.2.1.7. Granting, withdrawal, surrender, cancellation or suspension of key licenses or regulatory approvals. 9.2.1.8. Disruption/ commencement/ postponement of operations of any unit or division of the listed entity. 9.2.1.9. Any attachment or prohibitory orders against the Issuer 9.2.1.10. Any rating action taken by an International Rating Agency with respect to rating assigned to the Issuer/ Instruments issued by the Issuer. 9.2.1.11. sharp deviations in bond spreads of securities vis-à-vis relevant 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 wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing Standard descriptors to when an issuer / security is placed on "Rating Watch": 10.1.5.1. "Rating Watch with Positive Implications" 10.1.5.2. "Rating Watch with Developing Implications" 10.1.5.3. "Rating Watch with Negative Implications" 10.1.6. Press Release related to review of rating shall also carry the rating transition/ history of all securities of that issuer, rated by the CRA in the past 3 years, irrespective of whether the security is currently outstanding or not. 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 timel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f underlying assets while assigning the credit rating. The track record shall include a brief description of the financials of the originator, rating migrations to speculative categories and defaults. 11. Policy in respect of non-co-operation by the issuer 11.1. In case of non-cooperation by the issuer (such as not providing information required for rating, non-payment of fees for conducting surveillance), in line with the existing Regulations, the CRA shall continue to review the security, 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above disclosure shall be updated on a daily basis. 11.7. Information to be disclosed through Press Release: The rating action(s) in such cases shall be promptly disclosed through press release(s), which shall mention, at least, the following: 11.7.1. Date of Press Release 11.7.2. Details of security 11.7.3. Rating Action and Indicative/updated rating based on best available information 11.7.4. A brief write-up on the non-co-operation by the Issuer/ Borrower and the consistent follow-up done by the CRA for getting the information. 11.7.5. Hyperlink/ reference to the applicable "Criteria" 11.7.6. Limitations regarding information availability (shall have a suitable caveat cautioning the investors/lenders /public) 11.7.7. Rating History for last three years 11.7.8. Name and contact details of the Rating Analyst(s) 11.8. In case an issuer, having not co-operated with a CRA in the past, approaches another CRA for rating, the new CRA shall, in its Press Release, disclose the aspect of non-co-operation. 11.9. Action to be taken by CRAs in case of issuer remains non-cooperative for more than 6 months 11.9.1. If an issuer has outstanding ratings as non-co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Credit Rating Agencies) Regulations, 1999, a CRA may withdraw a rating, subject to the CRA having: 12.3.1. rated the security continuously for 5 years or 50 per cent of the tenure of the security, whichever is higher. 12.3.2. received an undertaking from the Issuer that a rating is available on that security. 12.3.3. received an undertaking from the other CRA(s) that a new rating has been assigned to such security. 12.4. Withdrawal norms in case of multiple ratings outstanding on rated security: In case of multiple ratings on a security (where there is no regulatory mandate for multiple ratings), a CRA may withdraw a rating earlier than stipulated in the aforementioned circular, provided the CRA has: 12.4.1. rated the security continuously for 3 years or 50 % of the tenure of the security, whichever is higher; and 12.4.2. received No-objection Certificate (NOC) from 75 % of bondholders by value of the outstanding debt for withdrawal of rating; and 12.4.3. received an undertaking from the issuer that another rating is available on that security. 12.4.4. received an undertaking from the other CRA(s) that a rating is available on such security. 12.5. Rating Withdraw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taining rating may commence at the stage of the sponsor filing with SEBI for the registration of the Trust, subject to declaration from the sponsor to this effect being submitted to the CRA. In no case shall a rating, including provisional rating, be assigned by a CRA for an issuer/ client evaluating strategic decisions, such as funding mix for a project, acquisition, debt restructuring, scenario-analysis in loan refinancing etc. 13.1.3. Validity period 13.1.3.1. The provisional rating shall be converted into a final rating within 90 days from the date of issuance of the security. The final rating assigned after end of 90 days shall be consistent with the available documents or completed steps, as applicable. 13.1.3.2. An extension of 90 days may be granted on a case-to-case basis by the CRA's rating committee(s), in accordance with the policy framed by the CRA in this regard. 13.1.3.3. No CRA shall assign any provisional rating to a security upon the expiry of 180 days from the date of its issuance. 13.1.4. Disclosures in the press release / rating rationale: In addition to the disclosures already made by CRAs, the following disclosures shall be included in press relea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vITs, such disclosure shall contain the broad details of the assets to be housed under the Trust, the proposed capital structure, etc. 13.1.5.2. the rating referred to in para 13.1.4.6 viz. rating that would have been assigned in absence of the said steps/ documentation. 14. Ratings having Explicit Credit Enhancement feature 14.1. CRAs shall assign the suffix 'CE' (Credit Enhancement) to rating of securities having explicit credit enhancement. It is reiterated that credit ratings, where the credit enhancement is external (or from third party), but the rated security is not bankruptcy remote of the issuer/ originator, will carry the 'CE' suffix. A list of such support considerations for CE-suffix is specified at Annexure 15. 14.2. In order to strengthen the rating process as well as to promote transparency, the following measures are being mandated for credit ratings, wherein any of the support considerations specified at Annexure 15 ("specified support considerations") is considered in the rating process: 14.3. In order to bring further transparency and to enable investors to understand the extent of credit enhancement provided by third party/ parent/ Group Company or spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ject to the CRAs framing a detailed policy in this regard. The said policy shall also be placed on CRA's website. Cases of deviations from stipulated 90 days, if any, shall be placed before the Ratings Sub- Committee of the board of the CRA, on a half yearly basis, along with the rationale for such deviation. 15.2. The CRA shall frame a policy in respect of upgrade of default rating to investment grade rating and place it on its website. 15.3. The policies framed as above may include scenarios like technical defaults, change in management, acquisition by another firm, sizeable inflow of long- term funds or benefits arising out of a regulatory action, etc. which fundamentally alter the credit risk profile of the defaulting firm. 16. Functioning and Evaluation of Rating Committees/Sub-Committees 16.1. Each CRA shall define the obligations, responsibilities, areas of conflict of interest, etc. of rating committee members in its Operations Manual/ Internal governing document. The following shall be specifically set out in the Operations Manual/ Internal governing document of each CRA and disclosed on its website: 16.1.1. Eligibility for becoming committee/sub-committee member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain from giving Indicative Ratings without having a written agreement in place. In case such Indicative Ratings are provided by the CRA, it shall be considered as aiding and abetting the Issuer in suppression of material information by the CRA which would be in contravention of Clause 12 of Code of Conduct of CRAs and 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 by the CRA. 18.2. Strengthening of Rating Agreement 18.2.1. The Rating Agreement, signed between the CRA and its client (issuer/ borrower), shall have an additional clause stating that - "The client (issuer/ borrower) agrees to disclose the history and status (non-cooperation, non-payment of fees etc.) of previous rating relation with the earlier CRA(s) to the new CRA along with reasons for non- cooperation, etc. if applicable." 18.2.2. In order to ensure cooperation from the Issuer, as required under Regulation 14(d) of Securities and Exchange Board of India (Credit Rating Agencies) Regulations, 1999, the following enabling ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ible for undertaking the rating process and adhering to the timelines as specified in the Operations Manual/ Internal governing document. 21. Dealing with Conflict of interest 21.1. A CRA shall formulate the policies and internal codes for dealing with the conflict of interest. 21.2. A CRA shall ensure: 21.2.1. that its analysts do not participate in any kind of marketing and business development including negotiations of fees with the issuer whose securities are being rated, 21.2.2. that the employees' involved in the credit rating process and their dependents do not have ownership of the shares of the issuer. 21.2.3. prompt review of the credit ratings of the securities as and when any of its employees joins the respective issuer. 21.3. Avoiding conflict of interest while rating of structured finance products 21.3.1. While undertaking rating of structured finance products, apart from following all the applicable requirements in case of non-structured ratings, the following additional requirements shall also be complied with. 21.3.2. A CRA or its subsidiaries shall not provide consultancy or advisory services regarding the design of structured finance instru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... persons mentioned at para 21.4.2. above to the Compliance officer or Chief Executive, as the case may be, within 7 working days of joining CRA. b. All employees of CRA including the Access Persons shall submit the following details to the CEO/Compliance Officer, as the case may be: i. Details of purchase or sale transactions effected within 7 working days from the date of transaction. ii. A consolidated statement of holding of all securities within 30 working days from the end of the Financial Year. c. The members of the Rating Committee shall upfront declare / disclose their interest, if any, to the Chief Executive Officer or Compliance Officer, as per the policy of the CRA, in the securities/instruments/facilities that are considered for rating by the CRA. 21.4.3.5. Restrictions on employees holding ownership of securities of the issuer: A CRA shall ensure that employees involved in the rating process shall not have ownership of the securities of the issuer. 22. Unsolicited Credit Ratings 22.1. In case of unsolicited credit ratings, i.e. the credit ratings not arising out of the agreement between a CRA and the issuer, credit rating symbol shall be accompanied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gnised Stock Exchange, the rules/ regulations/ directions/ guidelines specified by the Board from time to time shall continue to be applicable. 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 static pool, for last 10-year period. 25.2.2. The short-run benchmarks may account for spikes due to economic cycles or unforeseen events, and hence, may have a wider band. The same shall be computed based on a confidence interval of 99.7% over the weighted average of 1-year, 2-year and 3-year default rates pertaining to last 10- year period, making adjustments to achieve ordinality, wherever required. 25.2.3. The long-run benchmarks iron out economic cycle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 disclosures other than those stipulated above with the prior approval of its Board. 26.3. Disclosures by CRAs on half-yearly basis: CRA shall make following disclosures within 15 days from the end of each half-year (March / September): 26.3.1. Disclosures on Credit Rating History, defaults and movement: The following disclosures shall be prepared and disclosed for ratings of securities: 26.3.1.1. A Rating Summary Sheet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erative 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 historical default rates of CRA rating categories and whether the default rates of these categories have changed over time, so that the public can understand the historical performance of each category and if and how rating categories have changed, and be able to draw quality comparisons among ratings given by different CRAs. 26.4.1.2. The cumulative default rates(CDR) shall be calculated in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nition 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 studies are central to evaluating the performance of a CRA and provide an insight on the stability of ratings over a period of time. In order to promote transparency and to enable the market to best judge the performance of the ratings, the CRA should publish information about the historical average rating transition rates across various ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 disclosures under paragraph 26.4.3 shall be applicable for Financial year 2022-2023 26.4.4. Income: A CRA shall disclose: 26.4.4.1. its total receipt from rating services and non-rating services, 26.4.4.2. issuer wise percentage share of non-rating income of the CRA and its subsidiary to the total revenue of the CRA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uer 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/ Debenture Trustee/ Bankers of the Issuer regarding delay in servicing debt Obligation 2 working days of intimation Material Events requiring review (as stated in para 9.2) 7 working days of occurrence of the event. 27.4. Disclosures in case of co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dic 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 master 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 Disclosures: 29.1. Rating Procedure: A CRA shall formulate and disclose its policies, methodology and procedures in detail rega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 requirements of regulations and guidelines issued by SEBI and investor grievance redressal. 32. Requirements r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ach 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 the observations therein and pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... securities on behalf of others 36.4.10. not 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 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent with the non-rating entity. 38.2.1.3. Guidance to employees 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quiry Officer and Imposing Penalty) Regulations, 2002 while processing our request for surrender of certificate of registration. Thanking you, Yours faithfully, Name: (Whole time/Managing Director/Principal Officer) * Please strike off, if not applicable. Annexure 2 Rating Symbols and Definitions for Long Term Securities Long term securities: The securities with original maturity exceeding one year Rating symbols should have CRA's first name as prefix AAA - Securities with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such securities carry lowest credit risk. AA - Securities with this rating are considered to have high degree of safety regarding timely servicing of financial obligations. Such securities carry very low credit risk. A - Securities with this rating are considered to have adequate degree of safety regarding timely servicing of financial obligations. Such securities carry low credit risk. BBB - Securities with this rating are considered to have moderate degree of safety regarding timely servicing of financial obligations. Such securities carry moderate credit risk. BB - Securiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered to have high degree of safety regarding timely servicing of financial obligations. Such instruments carry very low credit risk. A (SO) - Instruments with this rating are considered to have adequate degree of safety regarding timely servicing of financial obligations. Such instruments carry low credit risk BBB (SO) - Instruments with this rating are considered to have moderate degree of safety regarding timely servicing of financial obligations. Such instruments carry moderate credit risk. BB(SO) - Instruments with this rating are considered to have moderate risk of default regarding timely servicing of financial obligations. B(SO) - Instruments with this rating are considered to have high risk of default regarding timely servicing of financial obligations. C (SO) - Instruments with this rating are considered to have very high likelihood of default regarding timely payment of financial obligations. D (SO) - Instruments with this rating are in default or are expected to be in default soon. Modifiers {"+" (plus) / "-"(minus)} can be used with the rating symbols for the categories AA(SO) to C(SO). The modifiers reflect the comparative stand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payments from the investments that they have made. Bmfs - Schemes with this rating are considered to have high risk of default regarding timely receipt of timely receipt of payments from the investments that they have made. Cmfs - Schemes with this rating are considered to have very high risk of default regarding timely receipt of timely receipt of payments from the investments that they have made. Modifiers {"+" (plus) / "-"(minus)} can be used with the rating symbols for the categories AAmfs to Cmfs. The modifiers reflect the comparative standing within the category Annexure 7 Rating Symbols and Definitions for Short Term Debt Mutual Fund Schemes Short term debt mutual fund schemes: The debt mutual fund schemes that have an original maturity of upto one year. Rating symbols should have CRA's first name as prefix A1mfs - Schemes with this rating are considered to have very strong degree of safety regarding timely receipt of payments from the investments that they have made. A2mfs - Schemes with this rating are considered to have strong degree of safety regarding timely receipt of payments from the investments that they have made. A3mfs - Sche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties carry lowest credit risk. AA (CE) - Securities with this rating are considered to have high degree of safety regarding timely servicing of financial obligations. Such securities carry very low credit risk. A (CE) - Securities with this rating are considered to have adequate degree of safety regarding timely servicing of financial obligations. Such securities carry low credit risk. BBB (CE) - Securities with this rating are considered to have moderate degree of safety regarding timely servicing of financial obligations. Such securities carry moderate credit risk. BB (CE) - Securities with this rating are considered to have moderate risk of default regarding timely servicing of financial obligations. B (CE) - Securities with this rating are considered to have high risk of default regarding timely servicing of financial obligations. C (CE) - Securities with this rating are considered to have very high likelihood of default regarding timely payment of financial obligations. D (CE) - Securities with this rating are in default or are expected to be in default soon. Modifiers {"+" (plus) / "-"(minus)} can be used with the rating symbols for the categories ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Confirm that as on date there are no Over dues or default on our unlisted debt obligations. 3. We also confirm that in the month ended , there has been no instance of delay in servicing of our listed debt obligations. 4. We also confirm that in the month ended , there has been no instance of delay in servicing of our unlisted debt obligations. 5. We also confirm that in the month ended , there has been no instance of delay in servicing of debt obligations guaranteed by us. 6. We hereby Confirm that as on date there are no Over dues or default on payment of interest/installment obligations on loans from banks/financial institutions which continues beyond 30 days. 7. We hereby Confirm that as on date there are no Over dues or default on revolving facilities like cash credit, from banks/financial institutions which continues beyond 30 days. 8. We also confirm that there has been no overdraw of the drawing power sanctioned by the bank for a period of more than 30 consecutive days in case of bank facilities which do not have scheduled maturity/repayment dates. 9. Details of default in payment of interest/installment obligations on loans including revolving facilities lik ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g(s) assigned in Year T-2 Date(s) & Rating(s) assigned in Year T-3 1 2 Note on complexity levels of the rated security: Name and Contact Details of the Rating Analyst(s): About CRA: CRA Disclaimer: Annexure 14 Indicative illustration of usage of descriptors for liquidity assessment 1. Liquidity: Superior/ Strong - Liquidity is marked by strong accruals against negligible repayment obligations and liquid investments to the tune of Rs. xxx Crore. With a gearing of xx times as of March 31, xxxx, the issuer has sufficient gearing headroom, to raise additional debt for its capex. Its unutilized bank lines are more than adequate to meet its incremental working capital needs over the next one year. 2. Liquidity: Adequate - Adequate liquidity characterized by sufficient cushion in accruals vis-à-vis repayment obligations and moderate cash balance of Rs.xx Crore. Its capex requirements are modular and expected to be funded using debt of Rs.xx Crore for which it has sufficient headroom. Its bank limits are utilized to the extent of 80% and has sought enhancement in bank lines, supported by above unity current ratio. 3. Liquidity: Stretched - Liquidity is marked b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustees (DTs) and CRAs * Information from CRAs to DTs * Rating assigned/revised for debt securities along with the rationale for the same. * Press release, outstanding ratings etc. in respect of debt securities. * Non-cooperation by the issuers with respect to sharing necessary information for monitoring the credit quality of the rated instrument with CRAs. * Press release and separate communication to DT on withdrawal of rating post redemption of entire amount due towards debenture-holders. * Default of any type committed by the issuer. B. Information from DTs to CRAs (i) Whether the asset in respect of which security has been created is free from any encumbrance and adequate to ensure asset cover for the debentures or if there is any breach of the terms of creation of the security. This information shall be shared on half yearly basis. (ii) Funds transferred to Debenture Redemption Reserve (DRR), depletion of the DRR/invocation of guarantee which could affect the payment of debenture obligations. This information shall be shared annually. (iii) Details of redemption of the issue. (iv) Any default committed including the default in payment of interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. Name of the issuer Sector Security Type etc.) Listing Status (Listed / Proposed to be listed) Rating prior to revision Rating post revision Date of Press release for Rating upgrade Notch difference Trigger Event (Quarterly Results, Exchange Disclosures, Annual Surveillance etc.) Downgrades Rating Upgrades between Apr - Sep/ Oct - Mar S. No. Name of the issuer Sector Security Type Listing Status (Listed / Proposed to be listed) Rating prior to revision Rating post revision Date of Press release for Rating upgrade Notch difference Trigger Event (Quarterly Results, Exchange Disclosures, Annual Surveillance etc.) *Will cover only rating changes. Reaffirmations shall be excluded" Annexure 22 Movement of each credit rating from investment grade to non- investment grade and vice versa Rating Movement from Investment Grade and Non-Investment Grade between Apr - Sep/ Oct - Mar From Investment Grade to Non-Investment Grade S. No. Name of the issuer Sector Security Type Listing Status (Listed / Proposed to be listed) Rating prior to revision Rating post revision From Non- Investment Grade to Investment Grade S. No. Name of the issuer Sector Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fault 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 Default Rate 2-year Cumulative Default Rate 3-year Cumulative Default Rate AAA AA A BBB BB B C Short-run average default rates for short term instruments Rating Category 1-Year Default Rate A1+ A1 A2 A3 A4 Annexure 27 Average one-year transition rates for long-term ratings for the last 5-Financial Year Period Rating Category AA A AA A BB B BB B C D AAA AA A BBB BB B C Note: The left-hand column identifies ratings outstanding at the beginning of the year. Each row provides information on the migration pattern of those ratings by end of the year. Annexure 28 Unsolicited Credit rating* S. No. Name of the Issuer Rating assigned Financial Year 1 Financial Year 2 Financial Year 3 * If in a particular financial year, a rating has subsequently been changed, then that shall also be disclosed Solicited Credit Ratings assigned to those issuers mentioned in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tus; 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 between the CRA and the third party in terms of infrastructure, manpower, decision-making, record keeping, etc. for avoidance of potential conflict of interests. Necessary disclosures in this regard shall be made as part of the contractual agreement. It shall be kept in mind that the risk management practices expected to be adopted by the CRA while outsourcing to a related party or an associate would be identical to those followed while outsourcing to an unrelated party. 2.3 The records relating to all activities outsourced shall be preserved centrally so that the same is readily accessible for review by the Board of the CRA and / or its senior management, as and when needed. Such records shall be regularly updated and may also form part of the corporate governance review by the management of the CRA. 2.4 Regular reviews by internal or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 and expectations of the parties to the contract, client confidentiality issues, termination procedures, etc. 5.1 Outsourcing arrangements shall be governed by a clearly defined and legally binding written contract between the CRA and each of the third parties, the nature and detail of which shall be appropriate to the materiality of the outsourced activity in relation to the ongoing business of the CRA. 5.2 Care shall be taken to ensure that the outsourcing contract: (a) clearly defines what activities are going to be outsourced, including appropriate service and performance levels; (b) provides for mutual rights, obligations and responsibilities of the CRA and the third party, including indemnity by the parties; (c) provides for the liability of the third party to the CRA for unsatisfactory performance/other breach ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dual 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; co-ordination 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 continuity, robust information technology security is a necessity. A breakdown in the IT capacity may impair the ability of the CRA to fulfill its obligations to other market participants/clients/regulators and could undermine the privacy interests of its customers, harm the CRA's reputation, and may ultimately impact on its overall operational risk profile. Intermediaries shall, therefore, seek to ensure that third party maintains appropriate IT security and robust disaster recovery capabilities. 6.4 Periodic tests of the critical security procedures and systems and review of the backup facilities shall be undertaken by the CRA to confirm the adequacy of the third party's systems. 7. The CRA shall take appropriate steps to require that third parties protect conf ..... X X X X Extracts X X X X X X X X Extracts X X X X
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