SEBI Standardizing and Strengthening Policies on Provisional Rating by Credit Rating Agencies (CRAs) for Debt Instruments

Last updated: 28 April 2021

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The Securities and Exchange Board of India (SEBI) has issued new guidelines to standardise and strengthen policies regarding provisional ratings for debt instruments. These changes aim to enhance clarity and investor protection. Key updates include a standardised prefix for provisional ratings, clear definitions of what constitutes a provisional rating, and a stricter validity period of 90 days for converting provisional ratings to final ones, with a maximum extension of another 90 days. Credit Rating Agencies (CRAs) must also provide more detailed disclosures in their press releases and rating rationales.

Securities and Exchange Board of India CIRCULAR SEBI/HO/MIRSD/MIRSD_CRADT/P/CIR/2021/554 April 27, 2021 To All Credit Rating Agencies (CRAs) registered with SEBI Dear Madam / Sir, Sub: Standardizing and Strengthening Policies on Provisional Rating by Credit Rating Agencies (CRAs

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FAQ :

The circular aims to standardise and strengthen policies on provisional ratings for debt instruments issued by Credit Rating Agencies (CRAs).

All provisional ratings, whether long-term or short-term, must be prefixed with the word 'Provisional' before the rating symbol in all communications.

A provisional rating must be converted into a final rating within 90 days of the debt instrument's issuance. An extension of 90 days may be granted on a case-by-case basis by the CRA's rating committee. No provisional rating can be assigned after 180 days from the issuance date.

CRAs must disclose pending steps or documentation considered, the risks associated with the provisional nature, and the rating that would have been assigned without the pending steps. For REITs/InvITs, specific disclosures about proposed assets and capital structure are also required.

No, a CRA shall not assign any provisional rating for an issuer evaluating strategic decisions like funding mix, acquisitions, or debt restructuring.

If a provisional rating is not accepted, CRAs must provide supplementary disclosures on their website detailing the steps taken for the rating and the rating that would have been assigned in the absence of those steps.