Sebi tightens disclosure and review norms for rating agencies

For reviewing rating criteria, Sebi has directed ratings agencies, to assess inter-linkages of holding company and subsidiaries, holding company’s liquidity, financial flexibility and support to the subsidiaries.

“While carrying out monitoring of repayment schedules, credit rating agencies shall analyse the deterioration in the liquidity conditions of the issuer and also take into account any asset-liability mismatch. While reviewing material events, CRAs may treat sharp deviations in bond spreads of debt instruments vis-à-vis relevant benchmark yield as a material event,” said Sebi.

The market regulator has also asked credit rating agencies to publish information about historical average rating transition rates across various rating categories, for investors to understand the historical performance of the ratings assigned by the credit rating agencies.
“…credit rating agencies shall publish their average one-year rating transition rate over a five-year period, on their respective websites, which shall be calculated as the weighted average of transitions for each rating category, across all static pools in the five-year period,” said Sebi.

According to the new norms, credit rating agencies will also have to furnish data on sharp rating actions in investment grade
rating category to stock exchanges and depositories on a half-yearly basis, within 15 days from the end of the half year on March 31 and September 30.