SEBI Proposes Rules For Rating Agencies On Actions Amid Defaults, Upgrades

The markets regulator has proposed guidelines for credit rating agencies to provide detailed reasons for their actions, particularly in cases of default and upgrades of default ratings.

The Securities and Exchange Board of India, in a consultation paper on Thursday, suggested removing "technical default" from policies as it can send negative market signals and trigger covenants.

Rating agencies have highlighted operational issues such as force majeure events or bank strikes that they believe should be taken into account in their policies. The proposed guidelines aim to address situations such as force majeure events, incorrect investor accounts or government freezes, as well as significant changes in a company's credit risk profile.

Under the current guidelines, a delay of one day or shortfall of even Re 1 in payment (principal or interest) from the scheduled repayment date must be recognised as a default, unless rescheduled by lenders before the due date.

At present, the agencies can classify certain situations (like minor delays due to operational issues) as technical defaults.

The market regulator has sought feedback on these proposed changes from the public till Aug. 15 to ensure clarity and consistency in credit rating agency policies.

(With Inputs From PTI.)