Mumbai: The Securities and Exchange Board of India (Sebi) has tightened the disclosure and review norms for credit rating agencies (CRA) with an aim to help investors make more informed investment decisions.
The latest circular comes in the backdrop of the default by IL&FS that rattled the entire financial markets.
While CRAs are required to monitor and analyse the relevant factors that affect the creditworthiness of an issuer and discuss the same in the credit notes considered by the rating committee for assignment of ratings, the regulator said such relevant factors should also be suitably incorporated in the press release regarding the rating action.
“The press release shall include a specific section on “Liquidity” which shall highlight parameters like liquid investment or cash balances, access to unutilised credit lines, liquidity coverage ratio, adequacy of cash flows for servicing maturing debt obligations etc. CRA’s shall also disclose any linkage to external support for meeting near term maturing obligations,” SEBI said in its circular.
It further added that while carrying out monitoring of repayment schedules, CRA’s should analyse the deterioration in the liquidity conditions of the issuer and also take into account any asset liability mismatch. Additionally, while reviewing ‘material events’, the new norms require CRA’s to treat sharp deviations in bond spreads of debt instruments in relation to relevant benchmark yield as a material event.
“Transition studies are central to evaluating the performance of a CRA and provide an insight on the stability of ratings over a period of time. In order to promote transparency and to enable the market to best judge the performance of the ratings, the CRA should publish information about 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,” the Sebi circular said....