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Press Release
November 02, 2016 | Mumbai
SEBI guidelines on credit ratings will improve industry standards, benefit investors: CRISIL
The Securities and Exchange Board of India (SEBI) late on Tuesday issued guidelines to enhance the standards of the credit rating industry, including mandating more disclosures by credit rating agencies (CRAs), ensuring greater discipline in the rating processes, making rating outlooks compulsory, recommending performance evaluation of rating committees, underlining the process to be adopted in the event of non-cooperation by issuers, and underscoring steps to strengthen internal audit process.
Says Ashu Suyash, Managing Director and CEO, CRISIL Limited: “We welcome these guidelines and believe they would lead to a material improvement in both transparency of the credit rating process and enhancement of the industry standards. Investors will benefit immensely as the rigour and disclosures will contribute to better pricing decisions. We are committed to implementing these guidelines. In fact, many aspects of these guidelines are already a part of our existing processes.”
CRAs will now have to publish a standard set of detailed criteria documents. Further, policies pertaining to the general nature of compensation and monitoring of ratings will also have to be disclosed on the website. This will ensure investors have access to crucial information on rating criteria and its application.
The guidelines also require disclosure of ratings that haven’t been reviewed in a timely manner. This will increase the accountability of CRAs and lead to better discipline in rating reviews.
Says Pawan Agrawal, Chief Analytical Officer, CRISIL Ratings: “Investors will also benefit immensely because rating outlooks have been made mandatory, which reduces the possibility of sudden and sharp rating changes. Outlooks enable investors to anticipate the direction of rating changes over the near-to- medium term. CRISIL has been assigning rating outlooks on long-term instruments since 2003.”
The guidelines also enhance transparency by making it mandatory to disclose the composition of rating committees and sub-committees, and the eligibility for membership. This will mean many CRAs will have to now build talent pools to facilitate this. SEBI has recommended guidelines for the evaluation of decisions taken by the rating committee, which will be reviewed by the CRAs board.
SEBI has, through the guidelines, also reiterated its stance that CRAs need to review their ratings on an ongoing basis over the life of an instrument, despite issuer non-cooperation. This has implications for suspension of ratings. The key, however, for CRAs will be getting information from unlisted companies in a timely manner.
CRISIL believes ongoing regulatory support will be necessary to ensure this.
SEBI has also enhanced the scope of internal audit to ensure adherence to the policy of default recognition. This will increase the accountability of CRAs and improve the reliability of default statistics, which is the de facto report card of a CRA’s performance. This will require CRAs to recognise defaults in a timely manner.
Another aspect to note is the mandatory disclosure of unaccepted ratings. While this is aimed at improving the transparency in credit ratings, its efficacy within the Indian context will be known only over a period of time.
Overall, CRISIL believes that these guidelines are timely and will go a long way in the strengthening and developing a vibrant and deep corporate bond market in India.
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About CRISIL Limited
CRISIL is a global analytical company providing ratings, research, and risk and policy advisory services. We are India's leading ratings agency. We are also the foremost provider of high-end research to the world's largest banks and leading corporations.
CRISIL is majority owned by S&P Global Inc., a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.
For more information, visit www.crisil.com
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CRISIL Ratings is part of CRISIL Limited (“CRISIL”). We pioneered the concept of credit rating in India in 1987. CRISIL is registered in India as a credit rating agency with the Securities and Exchange Board of India (“SEBI”). With a tradition of independence, analytical rigour and innovation, CRISIL sets the standards in the credit rating business. We rate the entire range of debt instruments, such as, bank loans, certificates of deposit, commercial paper, non-convertible/convertible/partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 24,500 large and mid-scale corporates and financial institutions. CRISIL has also instituted several innovations in India in the rating business, including rating municipal bonds, partially guaranteed instruments and microfinance institutions. We also pioneered a globally unique rating service for Micro, Small and Medium Enterprises (MSMEs) and significantly extended the accessibility to rating services to a wider market. Over 95,000 MSMEs have been rated by us.
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