Master Circular for Credit Rating Agencies

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.... CRAs has been prepared. III. This Master Circular is a compilation of the existing circulars as on May 16, 2024, 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 Accordingly, the list of existing circulars for CRAs which have been superseded by this master Circular is placed at Annexure A. IV. Notwithstanding such rescission- a. anything done or any action taken or purported to have been done or taken under the rescinded circulars, prior to such rescission, shall be deemed to have been done or taken under the corresponding provisions of this Master Circular; b. any application made to the Board under the rescinded circulars, prior to such rescission, and pending before it shall be deemed to have been made under the corresponding provisions of these regulations; V. This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 pr....

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....) to Debenture Trustees (DTS).... 39 40 21. Dealing with Conflict of interest Page 3 of 105 S3 Securities and 5331 भारतीय प्रतिभूति और विनिमय बोर्ड Securities and Exchange Board of India 25. Securities and Exchange Board of India (Credit Rating Agencies) (Second Amendment) Regulations, 2018:. Chapter III: REPORTING AND DISCLOSURES.. 26. Probability of Default Benchmark.. 27. Periodic Disclosures 28. Continuous Disclosures, Reporting and Timelines.…..... 40 .42 42 44 50 29. Periodical report to be submitted to SEBI: 54 30. Other Continuous Disclosures:. .54 31. Guidelines on manner of disclosures by CRAS on its website:.. 55 Chapter IV: INTERNAL AUDIT FOR CRAS. .56 32. Internal Audit for CRAs:........... 56 33. Requirements related to Internal Audit of CRAS: 56 Chapter V : MISCELLANEOUS ........... -------------- 34. Designated e-mail ID for regulatory communication with SEBI:... 60 35. Information regarding Grievance Redressal Mechanism: For information of all investors who deal/ invest/transact in....

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.... Page 5 of 105 S3 Securities and Exchange Board of India भारतीय प्रतिभूति और विनिमय बोर्ड 2.2.1. Whether any application was made in the past to SEBI seeking registration in any capacity but it was not granted? If yes, details thereof. 2.2.2. Whether any action has been initiated / taken under SCRA/SEBI Act or rules and regulations made thereunder? If yes, status thereof along with corrective action taken to avoid such violations in the future. The acquirer shall also confirm that it shall honour all past liabilities / obligations of the applicant, if any. 2.2.3. Whether any investor complaint is pending? 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....

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.... commercial paper, and other regulated products pursuant to cancellation, suspension, or surrender of certificate of registration of a CRA to another SEBI-registered CRA, the following are hereby prescribed, subject to the requirements of corresponding cancellation or suspension order(s) passed by SEBI ("the Order”), if any: 4.1.1. On and from the date of the Order, or the date of submission of request for surrender of certificate of registration ("the Request") to SEBI, as applicable, the concerned CRA shall - 4.1.1.1. disclose prominently on its website, the Order or the Request, as the case may be, and communicate the same to its clients within 15 days of the Order or the Request; 4.1.1.2. not take any new clients or fresh mandates; Page 7 of 105 S3 भारतीय प्रतिभूति और विनिमय बोर्ड Securities and Exchange Board of India 4.1.1.3. allow its clients to withdraw any assignment given to the CRA, without any additional cost to such clients; 4.1.1.4. facilitate an orderly migration of assignments as desired by clients to....

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.... be directed by SEBI. 4.4. In case of cancellation of certificate of registration, the credit ratings assigned by the CRA shall be valid till such time the client withdraws the assignment and/or migrates the assignment to other CRA as specified or the CRA is wound-up, whichever is earlier. 4.5. Surrender of Certificate of Registration 4.5.1. If a CRA wishes to surrender the registration voluntarily, it shall transfer, wherever relevant, it's existing business/ client accounts to another SEBI registered intermediary, before they make request to SEBI for accepting the surrender of the certificate of registration. 4.5.2. The CRA may, if it so desires, make a representation for dispensing with the procedure, along with the application, for surrender in terms of the first proviso to Regulation 33B of Securities and Exchange Board of India (Intermediaries) Regulations, 2008 in the prescribed format placed as Annexure 1. 4.5.3. In all cases of transfer of business or client accounts to another registered intermediary, the clients shall not be subjected to any additional cost. 4.6. In case of surrender of certificate of registration, the credit ratings assigned by the CRA ....

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....h respect to credit ratings of Issuers Not Cooperating, para 11.9.2 of master circular shall not be applicable when the said non-cooperation was with a CRA whose certificate of registration has been cancelled, suspended or surrendered. Page 10 of 105 S3 भारतीय प्रतिभूति और विनिमय बोर्ड Securities and Exchange Board of India Chapter II : RATING OPERATIONS 5. Rating Scale, Rating Symbols and Definitions 5.1. Standardization of Rating Symbols and Definitions 5.1.1. The Corporate Bonds and Securitization Advisory Committee of SEBI recommended that the rating symbols and their definitions should be standardized. 5.1.2. Pursuant to the above, in consultation with the CRAS and considering the international practices, standardized symbols and their definitions have been devised for the following: 5.1.2.1. Long term securities; 5.1.2.2. Short term securities; 5.1.2.3. Long term structured finance instruments; 5.1.2.4. Short term structured finance instruments; 5.1.2.5. Long term mutual fund schemes; and 5.1.2.6. Short term mutua....

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....e 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, the following rating scale viz. Expected Loss (EL) based Rating Scale may be used by CRAS for ratings of projects/ instruments associated with infrastructure sector to begin with: Page 12 of 105 53| भारतीय प्रतिभूति और विनिमय बोर्ड Securities and Exchange Board of India Rating symbols should have CRA's first name as prefix Rating symbol EL 1 EL 2 EL 3 EL 4 EL 5 EL 6 EL 7 Definition Instruments rated "EL 1” are considered to have the lowest expected loss, over the life of the instrument Instruments rated "EL 2” are considered to have very low expected loss, over the life of the instrument Instruments rated "EL 3" are considered to have low expected loss, over the life of the instrument In....

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....he 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 and subsidiaries in Page 14 of 105 5331 भारतीय प्रतिभूति और विनिमय बोर्ड Securities and Exchange Board of India terms of their inter-linkages, holding company's liqui....

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....egulatory 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 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 Page 16 of 105 S3 भारतीà¤....

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....crease in debt level or cost of debt of the issuer company 9.2.1.6. Losses, sharp revenue de-growth etc. based on publicly disclosed financial 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 ....

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....isclose at least once in every six months the performance of the rated pool. 10.1.4.5. Credit quality ratings of mutual fund schemes, provided surveillance of the fund's holdings is carried out by the CRAs on a monthly basis. Page 19 of 105 S3 भारतीय प्रतिभूति और विनिमय बोर्ड Securities and Exchange Board of India 10.1.5. Rating Watch: 'Rating watch' indicates a CRA's view on the expected direction of the rating movement in the short term. The CRA shall use following 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 ....

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....nt possible, discernible to the investors, and should not read like a general risk factor. 10.3. Disclosure on liquidity indicators: In order to make the disclosures meaningful to the end users, it has been decided to mandate disclosure of liquidity indicators using standardized terminology. Accordingly, CRAS shall disclose the liquidity indictors using one of the following indicators and give an explanation thereon: 10.3.1. Superior / Strong 10.3.2. Adequate 10.3.3. Stretched 10.3.4. Poor An indicative description for these liquidity indicators is provided at Annexure 14. 10.4. Structured Finance Products: While publishing the ratings of structured finance products and their movements, a CRA apart from following all the applicable requirements in case of non-structured ratings shall also disclose the track record of the originator and details of nature of 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. Page 21 of 105 S3 भारतीय प्रतिभूति ....

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....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), etc. and disclose it on their website. 11.5. In case of non-cooperation by the issuer, the credit rating symbol shall be accompanied by the suffix “ISSUER NOT COOPERATING*”in the same font size. The suffix shall be explained below and shall read as ‘Issuer did not cooperate; based on best available information'. 11.6. Over time, the number of issuers that are non-cooperative with CRAS have increased, with a vast majority of INC issuers being unlisted and small entities. In this regard, to provide enhanced transparency and information regarding non- cooperative issuers to various stakeholders, market participants and investors, the following is being prescribed: 11.6.1. A CRA shall disclose two lists of issuers who are non-cooperative with the CRA, separately for: 11.6.1.1. Securities that are listed, or proposed to be listed, on a recognized stock exchange, and 11.6.1.2. Other ratings 11.6.2. The aforementioned lists shall be disclosed....

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....¥à¤°à¤¤à¤¿à¤­à¥‚ति और विनिमय बोर्ड Securities and Exchange Board of India 11.11. Monitoring of the provisions under para 11.6 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 guidelines issued thereunder. 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 of any credit rating of securities that are listed, or proposed to be listed, on a reco....

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....a recognized stock exchange, a credit rating cannot be withdrawn unless the security is redeemed. Often, this can result in the issuer of such bonds to stop cooperating with the CRA. 12.5.2. Therefore, to facilitate withdrawal of ratings of perpetual debt securities that are listed or proposed to be listed on a recognized stock exchange, it is proposed to revise withdrawal norms of ratings of such securities. Accordingly, a CRA may withdraw ratings of such securities provided that the CRA has: Page 26 of 105 S3 भारतीय प्रतिभूति और विनिमय बोर्ड Securities and Exchange Board of India 12.5.2.1. rated such security/ies continuously for 5 years; and 12.5.2.2. received an undertaking from the Issuer that a rating is available on such security/ies; and 12.5.2.3. received an undertaking from the other CRA(s) that a rating is available on such security/ies. 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 ....

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....m 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 release / rating rationale while assigning provisional ratings: 13.1.4.1. Pending steps/ documentation considered while assigning provisional rating. 13.1.4.2. risks associated with the provisional nature of the credit rating, including risk factors that are present in the absence of completed documentation / steps. 13.1.4.3. rating that would have been assigned in absence of the Page 28 of 105 S3 Securities and Exchange Board of India भारतीय प्रतिभूति और विनिमय बोर्ड pending steps/ documentation considered while assigning provisional rating. In cases where the absence of said steps/ documentation would not result in any rating being assigned by the CRA (for instance, in case of provisional rating for REIT/ - InvIT – pending formation of trust), the CRA shall specify the same in the press release. 13.1.4.4. While assignin....

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....re 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 Page 30 of 105 5331 भारतीय प्रतिभूति और विनिमय बोर्ड Securities and Exchange Board of India extent of credit enhancement provided by third party/ parent/ Group Company or specified support considerations, the press release for credit ratings, with or without the CE-suffix, backed by specified support considerations shall contain the following disclosures: 14.3.1. Unsupported ratings without factoring in the explicit ....

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....ubject 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/ Page 32 of 105 S3 भारतीय प्रतिभूति औà¤....

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.... 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 has come to the notice that in some instances, CRAS have provided indicative ratings to Issuers without entering into a written agreement with such Issuers and have thereafter not disclosed such ratings on their websites. 18.1.3. CRAS are advised to refrain 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 statin....

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....nt 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. Accountability of Rating Analysts of CRAS 20.1. Roles and responsibilities of the rating analysts of CRAS shall be clearly laid out in the CRA's Operations Manual/ Internal governing document. 20.2. Analysts shall be responsible 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....

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....ndustry practices and systems by CRAS 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 approv....

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....‹à¤°à¥à¤¡ Securities and Exchange Board of India 23.2. Registered DTs and CRAS shall share information with each other as specified in the Annexure 17. DTs and CRAs may share any other information from time to time in respect of issues/issuer companies which would help them in effective discharge of their duties. 23.3. DTS and CRAS shall assign designated email addresses for sending and receiving such information and ensure appropriate action, if any, based on the information received. 24. Mechanism for Sharing of Information by Credit Rating Agencies (CRAs) to Debenture Trustees (DTS)¹ 24.1. SEBI (Credit Rating Agencies) Regulations, 1999 ("CRA Regulations") and circulars issued thereunder require sharing of certain information from CRAS to Debenture Trustees (DTS). 24.2. Due to the large quantum of information submitted daily by CRAS to DTs, as well as short timelines mandated for disclosure of this information by DTs, it is essential that the data shared by CRAS be structured and submitted in a specified format for easier accessibility and analysis of the submitted data. 24.3. Accordingly, based on discussion with CRAs and DTs, an excel template....

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....¤”र विनिमय बोर्ड Chapter III: REPORTING AND DISCLOSURES 26. Probability of Default Benchmark 26.1. 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. 26.2. These benchmarks shall be prepared based on the following key principles: 26.2.1. Marginal Default Rate (MDR) approach, using monthly static pool, for last 10-year period. 26.2.2. 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. 26.2.3. The long-run benchmarks iron out economic cycles since these are over a longer tenure (10-year period) and may, t....

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....2.9. The above PD benchmarks and tolerance levels may be re-indexed from time to time. 26.2.10. 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. Page 43 of 105 S3 Securities and Exchange Board of India भारतीय प्रतिभूति और विनिमय बोर्ड 26.2.11. CRAS may review their rating methodologies in order to align the same with the proposed PD benchmarks. 27. Periodic Disclosures 27.1. 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. 27.2. A CRA can make additional disclosures oth....

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....for Computation of Sharp Rating Action: In order to standardize the methodology of computation and disclosure of a 'sharp rating action', it is clarified that CRAS shall compare two consecutive rating actions. Therefore, a CRA shall disclose a sharp rating action, if the rating change between two consecutive rating actions is more than or equal to 3 notches downward. In other words, if the difference in credit rating between two consecutive press releases is more than or equal to 3 notches downward, the same has to be included in the disclosure on sharp rating actions. 27.3.3.3. In addition to disclosure of sharp rating actions excluding non- cooperative issuers, CRAS shall also separately disclose sharp rating actions including such actions on non-cooperative issuers. 27.3.3.4. 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 Page 45 of 105 5331 भारतीय प्रतिभूति और विनिमय बोर्ड Securities and Exchange Board of India stock exc....

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....made on a consolidated basis for all financial instruments rated by a CRA. 27.4.1.5. For the above purposes, the following terms shall have the meaning as under: a. Static Pool: Non-defaulted ratings that were outstanding at the beginning of any period. b. Default: Non-payment of interest or principal amount in full on the pre- agreed date. A CRA shall recognize default at the first instance of delay in servicing of interest or principal on the rated debt instrument. c. Default Rate: The number of defaults among rated entities in the static pool as a percentage of the total number of entities in the static pool. d. Averaging: All averaging across static pools for default rate computations must be based on the weighted average method where the weights are the number of ratings in each static period. 27.4.1.6. 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. 27.4.1.7. 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 ....

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....e number of movements/ transitions from each rating category to another, as at the end of the financial year, as a Page 48 of 105 S3 Securities and Exchange Board of India भारतीय प्रतिभूति और विनिमय बोर्ड percentage of the total number of ratings in the static pool. c. Averaging: All averaging across static pools for transition rate computations must be based on the weighted average method where the weights are the number of issuers in each static period. 27.4.3. Disclosure of Average Rating Transition Rates for Long-Term Credit Ratings of securities 27.4.3.1. Para 27.4.2 of master circular mandates CRAS to disclose a rating transition matrix, where the static pool has been defined to exclude ratings that have been withdrawn or ratings of non-cooperative issuers during the financial year. 27.4.3.2. Given the increased non-cooperative issuers in the CRAS' rated universe, excluding such INC ratings might not depict a true picture of stability of credit ratings within CRAS and across CRAS. 27.4.3.3. Therefore, in addition to ....

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....financial year. 28. Continuous Disclosures, Reporting and Timelines 28.1. The rating history, Press Releases and Rating Reports, including those ratings which have been withdrawn, shall be available on the CRA's website. 28.2. Reporting and disclosure with regard to monitoring of repayment schedules 28.2.1. In case no confirmation of servicing of debt obligation by the Issuer is received by the CRA from the Debenture Trustee within 1 day post the due date, the CRA shall immediately follow up with the Issuer for confirmation of payment. In case no response is received from the Issuer within 2 days of such communication, Page 50 of 105 5=31 भारतीय प्रतिभूति और विनिमय बोर्ड Securities and Exchange Board of India the CRA shall issue a Press Release as enlisted at para Chapter 119.1.3. and disseminate the same on its website and to all stock exchanges where the security is listed. 28.2.2. The CRA shall also make a reference to SEBI regarding such suppression of information by the issuer/ non-cooperation of Issuer with CRA. Failu....

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....providing information by the Issuer 28.4.1. As per Regulation 18(2) of Securities and Exchange Board of India (Credit Rating Agencies) Regulations, 1999, the CRA, while covering the analysis of the various factors justifying the assessment in press release, shall also disclose the factors constituting a risk. 28.4.2. Accordingly, it is further clarified that if the issuer does not share information sought by the CRA within 7 days of seeking such information from the Issuer, even after repeated reminders (within these 7 days) from the CRA, the CRA shall take appropriate rating action depending upon the severity of information risk of the issuer. 28.4.3. The Press Release in such cases shall mention the efforts made by the CRA in seeking such information and limitations regarding such information availability. 28.5. Disclosures in case of rating not accepted by an issuer 28.5.1. Each CRA shall disclose on its website details of all ratings assigned by them, irrespective of whether the rating is accepted by the issuer or not, even in case Page 52 of 105 5331 भारतीय प्रतिभूति और à....

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....orporate 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; 29.1.2. Change in Director, including managing director/ whole-time director; 29.1.3. Change in shareholding not resulting in change in control. 29.1.4. If there is no change during the relevant half year, it shall be indicated in the report. 30. Other Continuous Disclosures: 30.1. Rating Procedure: A CRA shall formulate and disclose its policies, methodology and procedures in detail regarding solicited and unsolicited credit ratings. 30.2. Income: 30.2.1. A CRA shall disclose the general nature of its compensation arrangements with the issuers. 30.2.2. A CRA shall disclose, in case of accepted ratings, its conflict of interest, if any, including the details of relationship – commercial or otherwise between the - - issuer whose securities are being rated / any of its associate of such issuer and the CRA or its subsidiaries. 30.3. Unsolicited credit ratings: While publishing unsolicited ratings and their movements, a CRA apart from following all the applicable requirements in case of Page 54....

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....artered Accountants, Company Secretaries or Cost and Management Accountants who are in practice and who do not have any conflict of interest with the CRA. 32.1.3. 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. 32.1.4. The report shall state the methodology adopted, deficiencies observed, and consideration of response of the management on the deficiencies. 32.1.5. 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. 32.1.6. 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. 33. Requirements related to Internal Audit of CRAS: 33.1. Eligibility of Auditors for conducting the Internal Audit of the CRA: 33....

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....¬à¥‹à¤°à¥à¤¡ Securities and Exchange Board of India Cases where there are deviations to the checklist shall be documented by the auditor as part of the audit report submitted to the board. 33.3.6. Review of ratings has been carried out as per the review policy of the CRA. 33.3.7. Dissents, if any, have been recorded for each committee meeting, as stated in the Operations Manual/ Internal governing document. 33.3.8. 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. 33.3.9. The Press Releases issued are broadly in line with the standard template prescribed by SEBI. 33.3.10. Verify the rating disclosures made by the CRAS on their website. 33.3.11. Comment on the conflict of interest, if any, arising due to composition of the rating committee and participation in the rating committee meetings. 33.3.12. The audit shall also cover adherence to the prescribed methodology for calculation of transition rates and default rates, 33.3.13. Compliance by CRA with the provisions of all the Circulars shall be verified during half-yearly....

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....ance officer 35. Information regarding Grievance Redressal Mechanism: For information of all investors who deal/ invest/ transact in the market, it has now been decided that the information as provided below shall be prominently displayed in the offices of the CRAs: Dear Investor, In case of any grievance / complaint against the Credit Rating Agency: Please contact Compliance Officer of the Credit Rating Agency (Name and Address) / email-id ([email protected]) and Phone No. - 91-XXXXXXXXXX. You may also approach CEO / Partner / Proprietor (Name) / email-id ([email protected]) and Phone No. 91-XXXXXXXXXX. If not satisfied with the response of the CRA you can lodge your grievances with SEBI at http://scores.gov.in or you may also write to any of the offices of SEBI. For any queries, feedback or assistance, please contact SEBI Office on Toll Free Helpline at 1800 22 7575/1800 266 7575. Page 60 of 105 5=31 भारतीय प्रतिभूति और विनिमय बोर्ड Securities and Exchange Board of India 36. Guidelines on Outsourcing of Activities by CRAS : 3....

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....dards of appropriate conduct in the performance of their activities, and ensure to communicate such policies, procedures and code to all concerned; 37.4.2. at all times maintain high standards of integrity in the conduct of their business; 37.4.3. ensure fair treatment of their clients and not discriminate amongst them; 37.4.4. ensure that their personal interest does not, at any time conflict with their duty to their clients and client's interest always takes primacy in their advice, investment decisions and transactions; 37.4.5. make appropriate disclosure to the clients of possible source or potential areas of conflict of interest which would impair their ability to render fair, objective and unbiased services; 37.4.6. endeavor to reduce opportunities for conflict through prescriptive measures such as through information barriers to block or hinder the flow of information from one department/ unit to another, etc.; 37.4.7. place appropriate restrictions on transactions in securities while handling a mandate of issuer or client in respect of such security so as to avoid any conflict; 37.4.8. not deal in securities while in possession of material non information....

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....ndustry classification published by Stock Exchanges from time to time. 38.4. Monitoring: Monitoring of implementation of standardized industry classification 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 circulars issued thereunder. 39. Firewall between CRAS and their Affiliates: 39.1. SEBI (Credit Rating Agencies) Regulations, 1999 inter- alia required CRAS to Page 63 of 105 5=31 भारतीय प्रतिभूति और विनिमय बोर्ड Securities and Exchange Board of India segregate certain activities to a separate entity under Regulation 9(f) of SEBI (Credit Rating Agencies) Regulations, 1999 (hereinafter referred to as “non-rating associate or subsidiary or group entity" or collectively as "non-rating entities”). 39.2. In view of the above, the following measures are mandated to strengthen the firewall between SEBI-registered CRAs and their non-rating entities: 39.2.1. CRAS shall formulate a policy on separation or firewall ....

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....¤¤à¥€à¤¯ प्रतिभूति और विनिमय बोर्ड Securities and Exchange Board of India Annexure A: List of circulars superseded by Master Circular S. No. Reference Number of Circular SEBI/HO/DDHS/DDHS-POD2/P/CIR/2023/111 1. dated July 03, 2023 2. dated September 04, 2023 Name of Circular Master Circular for Credit Rating Agencies SEBI/HO/DDHS/DDHS-POD2/P/CIR/2023/ 151 Mechanism for Sharing of Information by Credit Rating Agencies (CRAs) to Debenture Trustees (DTS) Page 66 of 105 5=31 भारतीय प्रतिभूति और विनिमय बोर्ड Securities and Exchange Board of India 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 cer....

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....ed 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 - Securities with this rating are considered to have moderate risk of default regarding timely servicing of financial obligations. B - Securities with this rating are considered to have high risk of default regarding timely servicing of financial obligations. C - Securities with this rating are considered to have very high risk of default regarding timely servicing of financial obligations. D - 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 AA to C. The modifiers reflect the comparative standing within the category. Page 68 of 105 3 5-31 भारतीय प्रतिभूति और विनिमय बोर्ड Securities and Exchange....

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.... 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 standing within the category. Page 70 of 105 5-31 भारतीय प्रतिभूति और विनिमय बोर्ड Securities and Exchange Board of India Annexure 5 Rating Symbols and Definitions for Short Term Structured Finance Instruments Short term structured finance instruments: The instruments with or....

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....erate risk of default regarding timely receipt of 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 Page 72 of 105 5=31 भारतीय प्रतिभूति और विनिमय बोर्ड Securities and Exchange Board of India 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 d....

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....tegories AA to C. The modifiers reflect the comparative standing within the category. Page 74 of 105 5=31 भारतीय प्रतिभूति और विनिमय बोर्ड Securities and Exchange Board of India Annexure 9 Rating Symbols and Definitions for Long Term Credit Enhanced Securities Long term Credit Enhancement securities: The securities with original maturity exceeding one year Rating symbols should have CRA's first name as prefix. AAA (CE) - 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 (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....

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....¤­à¤¾à¤°à¤¤à¥€à¤¯ प्रतिभूति और विनिमय बोर्ड Securities and Exchange Board of India Instrument-wise definition of default Annexure 11 Financial Instrument Debentures/Bonds Commercial Paper Other Scenarios When rated rescheduled: instrument is Rating Scale Long Term Short term Definition of Default A delay of 1 day even of 1 rupee (of principal or interest) from the scheduled repayment date. Page 77 of 105 Non-servicing of the debt (principal as well as interest) as per the existing repayment terms in anticipation of a favourable response from the creditor of accepting their restructuring application/ proposal shall be considered as a default. Rescheduling of the debt instrument by the lenders prior to the due date of payment will not be treated as default, unless the same is done to avoid default or bankruptcy. Το 5-31 भारतीय प्रतिभूति और विनिमय बोर्ड Securities and Exch....

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....°à¤¤à¥€à¤¯ प्रतिभूति और विनिमय बोर्ड Securities and Exchange Board of India Annexure 13 Standard Template for Press Release (Minimum Information be disclosed) Name of the Company Date of Press Release Details of security/ies Name of Date Coupon rate Matur Size of the security of ity the Rating assigned, along with issuan Date issue Rating Outlook ce 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....

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....ity is marked by tightly matched accruals to repayment obligations, highly utilized bank limits and modest cash balance. - 4. Liquidity: Poor Poor liquidity marked by lower accruals when compared to repayment obligations, fully utilized bank limits and modest cash balance. This could constrain the ability of the company to repay is debt obligations on a timely basis. Page 82 of 105 531 भारतीय प्रतिभूति और विनिमय बोर्ड Securities and Exchange Board of India Annexure 15 Type of Securities / Support Consideration(s) for CE-suffix: 1. Guaranteed bond; Shortfall undertaking backed bond or other such third-party credit enhancement 2. Covered bonds which have to be serviced primarily by the issuer (i.e., primary recourse to issuer), with secondary recourse to the cash flows from the pool of loans housed in a trust 3. Partially guaranteed bond 4. Commercial 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 Poole....

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....e-holders. V. Default of any type committed by the issuer. B. Information from DTs to CRAS Ä°. 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 or redemption of debentures or delay in creation of security. v. Any change or restructuring of the terms of the issue. vi. Periodic reports from lead banks about the progress of the project for which funds have been raised through debentures and certificate from issuer's auditors in respect of utilization of funds. vii. Details of grievances filed by debenture-holders and action taken to resolve them. viii. Non-cooperation by the issuer with respect to furnishing required reports/ certific....

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....ange Board of India Details of new credit ratings assigned during last six-months New Ratings assigned between Apr - Sep/Oct - Mar Sector Securities Issue Na me etc.) of the Issu er Whether review/appea Annexure 21 Listing Wheth Type etc.) Size Status (INR (Listed/ million Propose s) d to be er the issuer reque sted Rating assign Final Rating I of the rating ed Assign listed) for a review /appe al of rating was granted by CRA. t for review /appea I by the issuer prior to ed reques S N .Zo ? Page 89 of 105 5-31 भारतीय प्रतिभूति और विनिमय बोर्ड Securities and Exchange Board of India Movement* of Each Credit Rating Upgrades Rating Upgrades between Apr - Sep/Oct - Mar Annexure 22 S Nam Sect e of or Security Type Listing Rating Rating Status prior to N the etc.) (Listed revisio post revisio Date of Notch differenc Trigger Event Press e (Quarterly issue r n n release Propos for ed to be listed) Rating upgrade Results, Exchange Disclosures Ann....

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....urities and Exchange Board of India Annexure 25 List of Defaults Separately for Each Rating Category (on half-yearly basis) Long Term Scale Listing Status Date of trigger of Date Issue of S Name (Listed Rating Trigge event/ Size Defa of the Securit prior to r receivin (INR ult N Issuer Sector y Propo Default Eve g millio Rec Туре sed to nt intimati ns) ogni be on tion listed) Rating prior to default - AAA category 2 2 2 1 1 1 2 Rating prior to default - AA category Rating prior to default - A category Rating prior to default - BBB category Rating prior to default - BB category Rating prior to default – B category 1 Rating prior to default – C category Short Term Scale Page 93 of 105 SNO 5=31 भारतीय प्रतिभूति और विनिमय बोर्ड Securities and Exchange Board of India Na Date m Sec Issue Listing Rati Date e tor Securi Size Status ng Trig of of of ty (INR (Listed/ prio ger trigger Defaul th Туре millio Propose r to Ev ....

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....िभूति और विनिमय बोर्ड Securities and Exchange Board of India S. No. Name of the Issuer Unsolicited Credit rating* Annexure 29 Financial Year Rating assigned Financial Year Financial Year 1 2 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 the table above in the last financial year** S. No. Name of the Issuer Rating assigned Any subsequent revision of the rating in the same year shall also be disclosed Page 98 of 105 5-31 भारतीय प्रतिभूति और विनिमय बोर्ड Securities and Exchange Board of India Annexure 30 PRINCIPLES FOR OUTSOURCING FOR CRAS 1. A CRA seeking to outsource activities shall have in place a comprehensive policy to guide the assessment of whether and how those activities can be appropriately outsourced. The Board / partners (as the case may be) (hereinafter referred to as the "t....

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....oup 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 external auditors of the outsourcing policies, risk management system and requirements of the regulator shall be mandated by the Board wherever felt necessary. The CRA shall review Page 100 of 105 5=31 भ....

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....d 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 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 app....

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.... 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 Page 103 of 105 5=31 भारतीय प्रतिभूति और विनिमय बोर्ड Securities and Exchange Board of India 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; 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,....