TaxTMI 
TaxTMI 
Master Circular for Credit Rating Agencies
X X X X Extracts X X X X
X X X X Extracts X X X X
.... CRAs has been prepared. III. This Master Circular is a compilation of the existing circulars as on date, 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 Accordingly, the list of existing circulars for CRAs which have been superseded by this Master Circular is placed at Appendix. 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Notwithstanding such rescission- a. anything done or any action taken or purported to have been done or taken under the rescinded circulars, prior to such rescission, shall be deemed to have been done or taken under the corresponding provisions of this Master Circular; b. any application made to the Board under the rescinded circulars, prior to such rescission, and pending before it shall be deemed to have been made under the corresponding provisions of this Master Circular; c. the previous operation of the rescinded circulars or anything duly done or suffered thereunder, any right, privilege, obligation or liability acquired, accrued or incurred under the rescinded circulars, any penalty, incurred in respect of any violation committed against the rescinded circulars, or any investigation, l....
X X X X Extracts X X X X
X X X X Extracts X X X X
....benture Trustees (DTs) 41 25. Securities and Exchange Board of India (Credit Rating Agencies) (Second Amendment) Regulations, 2018: 42 Chapter III : REPORTING AND DISCLOSURES 44 26. Probability of Default Benchmark 44 27. Periodic Disclosures 46 28. Continuous Disclosures, Reporting and Timelines 52 29. Periodical report to be submitted to SEBI: 56 30. Other Continuous Disclosures: 57 31. Guidelines on manner of disclosures by CRAs on its website: 58 Chapter IV : INTERNAL AUDIT FOR CRAS 60 32. Internal Audit for CRAs: 60 33. Requirements related to Internal Audit of CRAs: 60 Chapter V : MISCELLANEOUS 64 34. Designated e-mail ID for regulatory communication with SEBI: 64 35. Information regarding Grievance Redressal Mechanism 64 36. Guidelines on Outsourcing of Activities by CRAs 65 37. General Guidelines for dealing with Conflicts of Interest of CRAs and their Associated Persons in Securities Market: 65 38. Standardization of industry classification- Applicability to CRAs 67 39. Firewall between CRAs and their Affiliates: 67 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 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 transferee different from transferor's r....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... a certificate of registration under 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 u....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or the date of acceptance of surrender by SEBI, whichever is earlier. 4.7. In case of suspension of certificate of registration, the credit ratings assigned 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, Para 12.1 to 12.5 of the 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....websites; 5.1.5.2. update their rating lists on their websites; and 5.2. Alignment of Rating Scales Used by CRAs 5.2.1. CRAs, in terms of Regulation 9(f) of SEBI (Credit Rating Agencies) Regulations, 1999, undertake ratings of various financial instruments under 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ies and procedures related to the rating process. 6.2. The contents of the Operations Manual/ Internal governing document, as well as any changes to the same, shall be communicated to employees promptly, and training of employees on the same shall be conducted at regular intervals. 6.3. The following shall be specified in the Operations Manual/ Internal governing document of CRAs: 6.3.1. Basic Minimum information required for conducting the Rating Exercise 6.3.2. External entities (bankers, auditors etc.) that need to be contacted 6.3.3. Mode 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 websit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in the rating process or policies shall be disclosed on the CRA's website, while also providing a reference/ hyperlink to the original provision/ process/ policy, to enable the investors to discern the changes made to the same. 8.4. A CRA shall keep the following records in support of each credit rating and review/ surveillance thereof: 8.4.1. The important factors underlying the credit rating and sensitivity of such credit rating to changes in these factors, 8.4.2. Summary of discussions with the issuer, its management, auditors and bankers which have a bearing on the credit rating, 8.4.3. Decisions of the rating committee(s), including voting details and notes of dissent, if any, by any member of the rating committee, and 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 proces....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 9.1.3. The CRA shall also monitor the Exchange website for disclosures made by the Issuer in this regard. 9.2. Material Events requiring a review 9.2.1. CRAs shall carry out a review of the ratings upon the occurrence of or announcement/ news of material events including, but not restricted to, the following: 9.2.1.1. Quarterly/ Half-yearly/ Annual results 9.2.1.2. Merger/ Demerger/ Amalgamation/ Acquisition 9.2.1.3. Corporate debt restructuring, reference to NCLT and winding-up petition filed by any party /creditors. 9.2.1.4. Significant decline in share prices/bond prices of the issuer or group companies which is not linked to overall market movement 9.2.1.5. Significant increase 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.....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 10.1.3. Rating Outlook: A 'rating outlook' indicates CRA's view on the expected direction of the rating movement in the near to medium term. Each CRA shall assign a rating Outlook and disclose the same in the Press Release. It is stated that following standard descriptors shall be specified for "Rating Outlook": 10.1.3.1. Stable 10.1.3.2. Positive 10.1.3.3. Negative 10.1.4. Rating Outlooks may not be assigned for: 10.1.4.1. Short term ratings 10.1.4.2. Ratings in the 'C' and 'D' categories 10.1.4.3. Ratings on watch 10.1.4.4. Ratings of securitization transactions backed by pool of loans, as CRAs are already mandated to disclose 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. 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2. Accordingly, in order to improve transparency, the CRA shall have a specific section on 'Rating Sensitivities' in the Press Release which shall explain the broad level of operating and/ or financial performance levels that could trigger a rating change, upward and downward. 10.2.3. Such factors shall be disclosed in quantitative terms to the extent 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t 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 recognized stock exchange, and other credit ratings that are required under various SEBI Regulations or circulars thereunder, the CRA shall assign a rating to such security and issue a press release as per the format prescribed in the Annexure 13. However, in cases where there are no outstanding obligations under the se....
X X X X Extracts X X X X
X X X X Extracts X X X X
....: 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 CRAs, it has been decided to prescribe as under: 13.1.1. Rating Symbol: All Provisional Ratings ('long term' or 'short term') for security shall be prefixed as 'Provisional' before the rating symbol in all communications viz. rating letter, press release / rating rationale, etc. 13.1.2. Standardized Term: A rating shall be considered as provisional, and not final, when it is contingent upon occurrence following steps or execution of following documents, as applicable: 13.1.2.1. execution of letter of comfort, corporate guarantee, or other forms of explicit third-party support; 13.1.2.2. execution of documents such as debenture trust deed/ debenture ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....for REIT/ InvIT - pending formation of trust), the CRA shall specify the same in the press release. 13.1.4.4. While assigning provisional rating to a security proposed to be issued, the press release shall specify that in case the security is subsequently issued, the provisional rating would have to be converted into final rating as per the validity period prescribed at Para 13.1.3 above. 13.1.4.5. While assigning provisional rating to an issued security, the press release shall specify the rating and timeline implications as per the validity period prescribed at Para 13.1.3 above. 13.1.4.6. Furthermore, in case of provisional ratings for cases mentioned in Para 13.1.2.6 above, the following disclosures shall also be required, wherever applicable: a. the broad details of the assets that are proposed to be held by the REIT/ InvIT, the proposed capital structure, etc. b. the rating rationale should disclose that the CRA has taken an undertaking from the sponsor stating that the key assumptions (relating to the assets, capital structure, etc.) are in consonance with the details filed by the sponsor with SEBI. c. In case of change i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e security. 14.4. It is reiterated that while assigning such credit ratings, CRAs shall conduct independent due diligence on the nature of specified support consideration and form a definitive internal view / opinion, and, wherever warranted, obtain an independent external legal opinion for ascertaining the strength of the credit enhancement. 14.5. Furthermore, for such credit ratings, it is reiterated that CRAs shall verify the documentation related to the specified support considerations to ensure inter alia the following: 14.5.1. The support is unconditional, irrevocable, and legally enforceable till all the obligations of the rated security has been paid to the investors. 14.5.2. CRAs shall undertake independent examination of financial strength of the support provider to ascertain the ability to honour the obligations guaranteed by the support provider. 14.5.3. The support provider has a lower probability of default on a continuous basis, compared with the rated issuer, till the time such ratings are outstanding. 14.6. The CRAs shall devise a model to assess the adequacy of credit enhancement structure under various scenarios including stres....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sh the following details to the Stock Exchanges, Depositories and Debenture Trustee on the same day as the dissemination of the rating Press Release on the CRA's website: Name of the security ISIN Amount to be paid Due date of payment Amount of payment made Amount of payment failed Reasons for failure of payment The Stock Exchanges, Depositories and Debenture Trustees shall disseminate the above information on their websites. 15.6. CRAs shall sensitise their clients, i.e. the issuers, to avail of the penny-drop verification facility offered by banks to avoid occurrence of failure to remit the required payments of debt (principal and/ or interest) and/or other suitable measures to prevent such occurrence.]^[5] 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 o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ring the request for prior approval. d. Such approvals, if granted, shall be valid for 7 working days from the date of approval. 21.4.3.4. Disclosures a. Any person, who becomes an employee of the CRA, shall submit a statement of holding of all securities in respect of 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....(Credit Rating Agencies) (Second Amendment) Regulations, 2018: Vide Gazette Notification No. SEBI/LAD-NRO/GN/2018/36 dated September 11, 2018, in respect of Securities and Exchange Board of India (Credit Rating Agencies) (Second Amendment) Regulations, 2018, as laid down under Regulation 9(f) of SEBI (Credit Rating Agencies) (Second Amendment) Regulations, 2018, a CRA may undertake the rating of financial instruments under the respective guidelines of the financial sector regulators/ authorities as specified in Annexure 19. CRAs may also undertake research activities, incidental to rating, such as research for Economy, Industries and Companies. 25A. Guidelines on the listed securities/instruments/products falling under the purview of other financial sector regulator/s or authority/ies Certain instruments/products/securities are regulated by other financial sector regulator/s or authority/ies and could be listed or unlisted. The issuers of such instruments/products/securities and any person connected therewith (such as CRAs) shall abide by the rules/regulations/directions/guidelines applicable to or governing such instruments/products/securities as prescribed by such ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....achieve ordinality, wherever required. 26.2.4. The same may be adjusted for rating withdrawals. For securities, the rating shall be included in the computation of default rates till the completion of the cohort or the maturity of the instrument, whichever is earlier. 26.2.5. Ratings of non-cooperative issuers shall be included in the cohort under the rating category in which the instrument is currently being rated. 26.2.6. The PD benchmark for the rating categories AAA, AA and A shall be as under, subject to any unexpected legal events/ mitigating circumstances impacting the default rates, with certain permitted tolerance levels: 26.2.6.1. For AAA: a. Zero for 1-year and 2-year default rate. b. Zero for 3-year default rate, with a tolerance level of 1%. 26.2.6.2. For AA: a. Zero for 1-year default rate. b. Zero for 2-year default rate with a tolerance level of 2%. 26.2.6.3. For A: a. Zero for 1-year default rate with a tolerance level of 3%. 26.2.7. For ratings on non-structured instruments, various instruments of an issuer with equal seniority level and having same rating sh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ure 20. The disclosure in the "Rating Distribution for outstanding ratings as on 31st March/30th September" section of Annexure 20 shall also include number of INC ratings outstanding in each category also. 27.3.1.2. Details of new credit ratings assigned during last six-months (Annexure 21). 27.3.1.3. Movement of credit rating of all outstanding securities during the last six-months: a. Movement of each credit rating (Annexure 22), b. Movement of each credit rating from investment grade to noninvestment grade and vice versa (Annexure 23) and 27.3.1.4. The history of credit rating of all outstanding securities (Annexure 24). 27.3.1.5. On half yearly basis, the list of defaults separately for each rating category (e.g. AAA, AA, A, BBB, BB, B, C) {(Annexure 25)}. 27.3.2. Structured Finance Products: A CRA shall disclose at least once in every six months, the performance of the rated pool, i.e., collection efficiency, delinquencies. A CRA shall also provide a detailed description of the underlying pools including ageing, Credit enhancements such as liquidity supports, first and second loss guarantee provided shall also be ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed issuer-wise using the Marginal Default Rate (MDR) approach, using monthly static pools. b. The above may be adjusted for rating withdrawals. For securities, the withdrawn rating shall be included in the computation of default rates till the completion of the cohort or the maturity of the instrument, whichever is earlier. Accordingly, all DTs shall continue to report any delays/ default in payment on debentures to the CRA(s) having rated the said debenture for the lifetime of the instrument, irrespective of the rating on that instrument being withdrawn. c. Ratings of non-cooperative issuers shall be included in the cohort under the rating category in which the instrument is currently being rated. 27.4.1.3. Based on approach mentioned at Para 27.4.1.2, CRA shall disclose, on an annual basis, the average one-year, two-year and three-year cumulative default rates (based on weighted average) each for: a. Last 10-financial years period (Long-run average default rates) b. 24, 36 and 48 most recent cohorts, respectively (Short-run average default rates) 27.4.1.4. The format of the above disclosures is specified at Annexure 27. The ab....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bout the historical average rating transition rates across various rating categories, so that investors can understand the historical performance of the ratings assigned by the CRAs. 27.4.2.2. CRAs shall publish their average one-year rating transition rate over a 5-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 5-year period. The format of the disclosure of transition rates is enclosed as Annexure 28. For the said purpose, the following terms shall have the meaning as under: a. Static Pool: Ratings outstanding for each category at the beginning of any financial year. However, it shall exclude ratings that have been withdrawn or ratings of non-cooperative issuers during the financial year. Ratings downgraded to D shall be treated as default for the rest of the financial year. Ratings which are upgraded from D shall be considered as new rating for the relevant subsequent static pools. b. Transition Rate: The number of movements/ transitions from each rating category to another, as at the end of the financial year, as a percentage of the tot....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... services and non-rating services, 27.4.4.2. issuer wise percentage share of non-rating income of the CRA and its subsidiary to the total revenue of the CRA and its subsidiary from that issuer, and 27.4.4.3. names of the rated issuers who along with their associates contribute 10% or more of total revenue of the CRA and its subsidiaries. 27.4.5. Unsolicited Credit Ratings: A CRA shall disclose following as prescribed at Annexure 29: 27.4.5.1. all the unsolicited ratings carried out in the last three financial years; 27.4.5.2. names of issuers, out of those mentioned in Para 27.4.5.1 above, which were given solicited rating in the last 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 [working]^[7] day post the due date, the CRA shall i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ile an outer timeline of 1 working day has been specified, CRAs shall endeavour to communicate the rating to the issue on the same day as the Rating Committee meeting. 28.3.4. 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 28.4. Disclosures in case of considerable delay in 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 repea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e submitting the Action Taken Report in accordance with Para 33.4 of the Master Circular: 29.1.1. 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; 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s subject to methodology explained being in line with the SEBI Regulations and circulars issued thereunder. 31.1.5. The provisions under Para 31.1.1 to 31.1.2 shall be applicable for Website Disclosures made after March 31, 2023. Chapter IV : INTERNAL AUDIT FOR CRAs 32. Internal Audit for CRAs: 32.1. The audit envisaged under Regulation 22 of the Securities and Exchange Board of India (Credit Rating Agencies) Regulations, 1999 shall include an internal audit to be undertaken in the following manner: 32.1.1. It shall be conducted on a half yearly basis. 32.1.2. 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. 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., and is adhering to the same. At a minimum, it shall be checked if any irregularities/ delays/ defaults in debt servicing had been indicated by any of the below mentioned entities and suitable action with regard to the same was taken by the CRA: 33.3.5.1. The issuer/ borrower 33.3.5.2. The Company's statutory auditor 33.3.5.3. The borrower's bankers, during interactions with the CRA 33.3.5.4. Debenture Trustees 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Designated email id Name of compliance 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. 36. Guidelines on Outsourcing of Activities by CRAs 36.1. Outsourcing may be defined as the use of one or more than one third party - either within or outside the g....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 - published information 37.4.9. not to communicate the material non-published information while dealing in securities on behalf of others 37.4.10. not in any way contribute to manipulate the demand for or supply of securities in the market or to influence prices of securities; 37.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....parate 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 practices with the non- rating entities and document the same in their internal operational manuals or governing document. Such policy, and revisions thereto, shall be ratified by the Board of Directors of the CRAs and the policy may cover inter alia the following: 39.2.1.1. Nature and extent of sharing of infrastructure, officials/employees or resources, if any, between the CRA and the non-rating entity, including specification on whether such arrangement is temporary. 39.2.1.2. Measures taken by CRA to ensure the independence of its credit rating process in view of the above arrangement with the non-rating entity. 39.2.1.3. Guidance to employees on sharing of information or resources, if any, between the CRA and the non-rat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e our surrender of certificate of registration; e. all our current assignments as a Credit Rating Agency have been either duly terminated or transferred to another registered Credit Rating Agency with registration no .; f. we have issued a public notice in a widely circulated national and a vernacular daily dated informing surrender of our registration as Credit Rating Agency (Please enclose a clipping of the said public notice); g. we have notified the Depositories and all the stock exchanges where our client companies are listed about the surrender of our registration. 4. *We hereby request SEBI to dispense with the procedure laid down in Regulation 16(1) of the SEBI (Procedure for Holding Enquiry by Enquiry 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and are susceptible to default. D - Securities with this rating are in default or expected to be in default on maturity. Modifier {"+" (plus)} can be used with the rating symbols for the categories A1 to A4. The modifier reflects the comparative standing within the category. Annexure 4 Rating Symbols and Definitions for Long Term Structured Finance Instruments Long term structured finance instruments: The instruments with original maturity exceeding one year Rating symbols should have CRA's first name as prefix AAA (SO) - Instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry lowest credit risk. AA (SO) - Instruments with this rating are 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....efix AAAmfs - Schemes with this rating are considered to have the highest degree of safety regarding timely receipt of payments from the investments that they have made. AAmfs - Schemes with this rating are considered to have the high degree of safety regarding timely receipt of payments from the investments that they have made. Amfs - Schemes with this rating are considered to have the adequate degree of safety regarding timely receipt of payments from the investments that they have made. BBBmfs - Schemes with this rating are considered to have the moderate degree of safety regarding timely receipt of payments from the investments that they have made. BBmfs - Schemes with this rating are considered to have moderate 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. M....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Issuers with this rating are considered to have very high risk of default regarding timely servicing of debt obligations. D - Issuers with this rating are in default or are 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. 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) - S....
X X X X Extracts X X X X
X X X X Extracts X X X X
....(of principal or interest) from the scheduled repayment date. Commercial Paper Short term Other Scenarios When rated instrument is rescheduled: Non-servicing of the debt (principal as well as interest) as per the 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 Annexure 12 Standard Template for No Default Statement (Minimum Information be sought) To < CRA Name and Address > Dear Sir/ Madam, 1. We hereby Confirm that as on date there are no Over dues or default on our listed debt obligations. 2. We hereby 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 ser....
X X X X Extracts X X X X
X X X X Extracts X X X X
....i.e. factors justifying favourable assessment (strengths) and factors constituting risk (weakness). Detailed description of key rating drivers highlighted above. Analytical approach (wherever applicable) taken by the CRA to assign the rating. Liquidity Hyperlink/ reference to the applicable "Criteria" for rating the security. About the Company: Factual details of the company along with the major financial information for the last and current financial year. This shall include key financial indicators and ratios for the Issuer for the last and current financial year, in tabular form, as well as any other significant information relevant to the Issuer and its Sector. Status of non-cooperation with previous CRA (if applicable): Reason and comments on status of non-co-operation with the previous CRA (if applicable). Rating Sensitivity: Any other information: Rating History for last three years: S. No Name of security Current Rating (Year T) Chronology of Rating History for the past 3 years (Rating Assigned and Press Release Date) along with Outlook/ Watch, if applicable Type (long term/ Short term) Amount Outstanding (INR Crores) Rating D....
X X X X Extracts X X X X
X X X X Extracts X X X X
....), not through a trust 8. Obligor/Co-obligor structures or Cross-default guarantee structures 9. Debt backed by Payment Waterfall /Escrow, or DSRA etc., but with Full Guarantee or DSRA Replenishment Guarantee from a third party 10. Letter of comfort Annexure 16 Summary Record of the Rating Committee Meeting (RCM) A. Preliminary Information • Date of the RCM • Names of all the persons attending the RCM • Names of rating committee members present (only rating committee members will have voting rights) • Name of the chairperson of the meeting • Any other special invitees (if any) B. Information Relating to Rating Decision Following information/details of each rating decision shall be captured: • Name of the rated issuer/entity • Rating exercise i.e. whether it is a fresh rating or review/ surveillance case • Rating outcome i.e. rating assigned, along with rating outlook and special rating symbol, if any • Summary of key issues discussed during the RCM • Dissent (if any) by any RCM member C. Authentication and Maintenance of Rating....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lators/ authorities 1. Securities and Exchange Board of India 2. Reserve Bank of India 3. Insurance Regulatory and Development Authority of India 4. Pension Fund Regulatory and Development Authority 5. Ministry of Corporate Affairs 6. Insolvency and Bankruptcy Board of India 7. International Financial Services Centres Authority^[13] ANNEXURE 20 Format for Half-Yearly Rating Summary Sheet S.No. Parameter No. of ratings Amount of debt rated (INR millions) 1. New Ratings 2. Upgrades a. Total Upgrades b. Upgrades from Non- Investment to Investment Grade 3. Downgrades a. Total Downgrades b. Downgrades from Investment to Non - Investment Grade 4. Defaults a. Total Defaults b. Default from Non- Investment Grade c. Default from Investment Grade: AAA AA ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Trigger Event (Quarterly Results Exchange Disclosures, Annual Surveillance etc.) *Will cover only rating changes. Reaffirmations shall be excluded" Annexure 23 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 Security Type Listing Status (Listed/Proposed to be listed) Rating prior to Revision Rating post Revision &n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sp; 2 Rating prior to default - B category 1 2 Rating prior to default - C category 1 2 Short Term Scale S. No. Name of the Issuer Sector Security Type Issue Size (INR millions) Listing Status (Listed/Proposed to be listed) Rating prior to Default Triger Event Date of trigger of event/ receiving intimation Date of Default Recognition Rating prior to default - A1 category 1 2 Rating prior to default - A2 category 1....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y AAA AA A BBB 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 29 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l performance of the CRA and on the investors / clients; b) Ability of the CRA to cope up with the work, in case of non- performance or failure by a third party by having suitable back-up arrangements; c) Regulatory status of the third party, including its fitness and probity status; d) Situations involving conflict of interest between the CRA and the third party and the measures put in place by the CRA to address such potential conflicts, etc. 2.2 While there shall not be any prohibition on a group entity / associate of the CRA to act as the third party, systems shall be put in place to have an arm's length distance 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 outsour....
X X X X Extracts X X X X
X X X X Extracts X X X X
....outsourcing work within the timelines fixed; b) compatibility of the practices and systems of the third party with the CRA's requirements and objectives; c) market feedback of the prospective third party's business reputation and track record of their services rendered in the past; d) level of concentration of the outsourced arrangements with a single third party; and e) the environment of the foreign country where the third party is located. 5. Outsourcing relationships shall be governed by written contracts / agreements / terms and conditions (as deemed appropriate) {hereinafter referred to as "contract"} that clearly describe all material aspects of the outsourcing arrangement, including the rights, responsibilities 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. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... m) provides for the CRA and /or the regulator or the persons authorized by it to have the ability to inspect, access all books, records and information relevant to the outsourced activity with the third party. 6. The CRA and its third parties shall establish and maintain contingency plans, including a plan for disaster recovery and periodic testing of backup facilities. 6.1 Specific contingency plans shall be separately developed for each outsourcing arrangement, as is done in individual business lines. 6.2 CRA shall take appropriate steps to assess and address the potential consequence of a business disruption or other problems at the third party level. Notably, it shall consider contingency plans at the third party; 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 it....