Standardisation of Rating Scales Used by Credit Rating Agencies
The SEBI has issued a circular pertaining to the standardization of rating scales used by credit rating agencies (CRAs). This follows deliberations of the regulator with various stakeholders, including the credit rating firms. The circular will come into effect on 1 January 2023. CRAs will then have to report to SEBI their compliance with the norms as ratified by their boards of directors within one quarter from date of applicability.
As per the circular, A "rating outlook" reflects the predicted direction of the rating movement in the short to medium term, while a "rating watch" indicates a CRA’s view on the expected direction of the rating movement in the short term. Standard descriptors to be used for an issuer or security are placed on Rating Watch. This will include Rating Watch with positive implications, Rating Watch with developing implications, and Rating Watch with negative implications.
