MASTER CIRCULAR FOR CREDIT RATING AGENCIES
SEBI/HO/MIRSD/DOP2/CIR/P/2018/76 May 02, 2018
To,
All Credit Rating Agencies
Dear Sir / Madam,
Subject: Master Circular for Credit Rating Agencies
Securities and Exchange Board of India (SEBI) has been issuing various circulars/
guidelines from time to time. In order to enable the industry and other users to have access
to all the applicable circulars/ directions at one place, Master Circular for Credit Rating
Agencies (CRAs) has been prepared.
This Master Circular is a compilation of the circulars issued by SEBI up to March 31, 2018,
which are operational as on the date of this circular.
In case of any inconsistency between the Master Circular and the applicable circulars, the
contents of the relevant circular shall prevail.
The Master Circular is a compilation of all the existing/ applicable circulars issued by
the Market Intermediaries Regulation and Supervision Department of SEBI to CRAs.
Efforts have been made to incorporate applicable provisions of existing circulars issued
by other Departments of SEBI relevant to CRAs.
Yours faithfully,
Surabhi Gupta
Deputy General Manager
Phone No.: 022 - 26449315
Email ID: surabhig@sebi.gov.in
1
Table of Contents
SECTION 1: REGISTRATION REQUIREMENTS
1.1 Online Registration Mechanism for Securities Market Intermediaries
1.2 Digital Mode of Payment
1.3 Grant of Prior approval for change in control to Credit Rating Agencies
1.4 Surrender of Certificate of Registration
SECTION 2: RATING OPERATIONS
2.1 Standardization of Rating Symbols and Definitions
2.2 Operations Manual/ Internal governing document
2.3 Rating Process
2.4 Monitoring and Review of Ratings
2.5 Standardization of Press Release for Rating Actions
2.6 Rating Agreement between the Issuer and the CRA
2.7 Dealing with Conflict of interest
2.8 Unsolicited Credit Ratings
2.9 Policy in respect of non-co-operation by the issuer
2.10 Withdrawal of ratings
2.11 Sharing of information regarding issuer companies between Debenture
Trustees and Credit Rating Agencies
2.12 Rating of instruments other than “securities”
SECTION 3: REPORTING AND DISCLOSURES
3.1 Default Studies
3.2 Periodic Disclosures
3.3 Continuous Disclosures and Reporting
3.4 Rating Criteria, Rating Process and their Disclosure
3.5 Periodical report to be submitted to SEBI
3.6 Centralized Database for Corporate Bonds/ Debentures
SECTION 4: INTERNAL AUDIT FOR CREDIT RATING AGENCIES (CRAs)
4.1 Internal Audit for Credit Rating Agencies (CRAs)
4.2 Requirements related to Internal Audit of CRAs
2
SECTION 5: REDRESSAL OF INVESTOR GRIEVANCES
5.1 Designated e-mail ID for regulatory communication with SEBI
5.2 Redressal of investor grievances through SEBI Complaints Redress System
(SCORES) platform
5.3 Information regarding Grievance Redressal Mechanism
SECTION 6: OTHERS
6.1 Guidelines on Outsourcing of Activities by Credit Rating Agencies
6.2 Unauthenticated news circulated by SEBI Registered Market Intermediaries
through various modes of communication
6.3 General Guidelines for dealing with Conflicts of Interest of Credit Rating
Agencies and their Associated Persons in Securities Market
SCHEDULE: List of Circulars
3
SECTION 1: REGISTRATION REQUIREMENTS
1.1 Online Registration Mechanism for Securities Market Intermediaries1
1.1.1. SEBI has operationalized SEBI Intermediary Portal (https://siportal.sebi.gov.in) for
the intermediaries, inter alia for CRAs, to submit all the registration applications
online. The SEBI Intermediary Portal shall include online application for
registration, processing of application, grant of final registration, application for
surrender / cancellation, submission of periodical reports, requests for change of
name/ address/ other details, etc., Link for SEBI Intermediary Portal is also
available on SEBI website – www.sebi.gov.in.
1.1.2. All applications for registration/ surrender/other requests will be made through
SEBI Intermediary Portal only. The applicants will be separately required to submit
relevant documents viz. declarations/ undertakings required as a part of
application forms prescribed in relevant regulations, in physical form, only for
records without impacting the online processing of applications for registration.
1.1.3. In case of any queries and clarifications with regard to the SEBI Intermediary
Portal, intermediaries may contact on 022-26449364 or may write at
portalhelp@sebi.gov.in.
1.2 Digital Mode of Payment2
1.2.1. SEBI has notified the SEBI (Payment of Fees and Mode of Payment)
(Amendment) Regulations, 2017 on March 06, 2017 to enable digital mode of
payment (RTGS/NEFT/IMPS etc.) of fees/penalties/remittance/other payments
etc.
1.2.2. Pursuant to above, SEBI has been receiving direct credit of amounts from various
intermediaries / other entities.
1.2.3. In order to identify and account such direct credit in the SEBI account, it has been
decided that the various intermediaries / other entities shall provide the
information as mentioned in Annexure to SEBI once the payment is made.
1.2.4. The above information should be emailed to the respective department(s) as well
as to Treasury & Accounts division at tad@sebi.gov.in.
1 SEBI Circular SEBI/HO/MIRSD/MIRSD1/CIR/P/2017/38 dated May 02, 2017.
2 SEBI Circular SEBI/HO/GSD/T&A/CIR/P/2017/42 dated May 16, 2017
4
Annexure
Name of Intermediary/ Type of SEBI Registration
Date Department
Other Entities Intermediary Number (if any)
of SEBI
PAN Amount (in `) Purpose of Payment Bank name and UTR No.
(including the period for Account number
which payment was from which
made e.g. quarterly, payment is remitted
annually)
5
1.3 Grant of Prior approval for change in control to Credit Rating Agencies3
1.3.1. All registered CRAs are required to obtain prior approval of SEBI in case of
change in control.
1.3.2. In case a CRA holds multiple registrations with SEBI, it shall make only one
application to SEBI addressed to "Chief General Manager, MIRSD, SEBI"
accompanied by the following information about itself, the acquirer and the
directors/ partners of the acquirer;
a. Whether any application was made in the past to SEBI seeking registration in
any capacity but it was not granted? If yes, details thereof.
b. Whether any action has been initiated / taken under SCRA/SEBI Act or rules and
regulations made thereunder? If yes, status thereof along with corrective action
taken to avoid such violations in the future. The acquirer shall also confirm that it
shall honour all past liabilities / obligations of the applicant, if any.
c. Whether any investor complaint is pending? If yes, steps taken and confirmation
that the acquirer shall resolve the same.
d. Details of litigation, if any.
e. That all the fees due to SEBI have been paid.
f. That there will not be any change in the Board of Directors of incumbent, till the
time prior approval is granted.
g. That the incumbent shall inform all its existing investors / clients in order to
enable them to take informed decision regarding their continuance or otherwise
with the entity with new management.
1.3.3. The prior approval granted by SEBI shall be valid for a period of 180 days from the
date of communication.
1.4 Surrender of Certificate of Registration4
1.4.1 If a CRA wishes to surrender the registration voluntarily, it shall transfer, wherever
relevant, it’s existing business/ client accounts to another SEBI registered
intermediary, before they make request to SEBI for accepting the surrender of the
certificate of registration.
1.4.2 The CRA may, if it so desires, make a representation for dispensing with the
procedure, along with the application, for surrender in terms of the first proviso to
Regulation 33B of Securities and Exchange Board of India (Intermediaries)
Regulations, 2008 in the prescribed format placed as Annexure.
1.4.3 In all cases of transfer of business or client accounts to another registered
intermediary, the clients shall not be subjected to any additional cost.
3 SEBI Circular CIR/MIRSD/14/2011 dated August 02, 2011.
4 SEBI Circular No. SEBI/MIRSD/DR-2/SRP/Cir - 2/ 2005 dated January 4, 2005.
6
Annexure
Letter of Representation for Credit Rating Agency
To,
Securities and Exchange Board of India
Dear Sir,
Sub: Surrender of Certificate of Registration as Credit Rating Agency, Registration
No. ___________ .
1. We hereby surrender our certificate of registration as Credit Rating Agency.
2. We enclose the original certificate of registration (or indemnity in case the certificate is
lost or stolen) for cancellation.
3. We hereby confirm that:
a. no complaint /disciplinary proceeding is pending against us;
b. no investigation / inquiry by SEBI is pending against us with respect to our activities
as a Credit Rating Agency;
c. as on date of application, we have paid all fees;
d. we shall continue to be liable for all liabilities/obligations (including monetary
penalties, if any) for violations, if any, of the provisions of the SEBI Act and the SEBI
(Credit Rating Agency) Regulations, 1999 that have taken place before our surrender
of certificate of registration;
e. all our current assignments as a Credit Rating Agency have been either duly
terminated or transferred to another registered Credit Rating Agency _____ with
registration no.___ ;
f. we have issued a public notice in a widely circulated national and a vernacular daily
dated________ informing surrender of our registration as Credit Rating Agency
(Please enclose a clipping of the said public notice);
g. we have notified the Depositories and all the stock exchanges where our client
companies are listed about the surrender of our registration.
4. *We hereby request SEBI to dispense with the procedure laid down in Regulation 16(1)
of the SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty)
Regulations, 2002 while processing our request for surrender of certificate of registration.
Thanking you,
Yours faithfully,
Name:
(Whole time/Managing Director/Principal Officer)
* Please strike off, if not applicable.
7
SECTION 2: RATING OPERATIONS
2.1 Standardization of Rating Symbols and Definitions5
2.1.1. It is felt that common rating symbols and definitions are needed (i) for easy
understanding of the rating symbols and their meanings by the investors, and (ii)
to achieve high standards of integrity and fairness in ratings.
2.1.2. The issue was discussed in the meeting of Corporate Bonds and Securitisation
Advisory Committee of SEBI. The Committee recommended that the rating
symbols and their definitions should be standardised.
2.1.3. Pursuant to the above, in consultation with the CRAs and considering the
international practices, standardised symbols and their definitions have been
devised for the following:
a. Long term debt instruments;
b. Short term debt instruments;
c. Long term structured finance instruments;
d. Short term structured finance instruments;
e. Long term mutual fund schemes; and
f. Short term mutual fund schemes.
2.1.4. The symbols and definitions as given in Annexures 1-6 shall be used for the
ratings/ reviews by the CRAs.
2.1.5. A CRA may undertake rating of structured finance products, namely, instruments/
pay-outs resulting from securitization transactions. In such cases, apart from
following all the applicable requirements in case of non-structured ratings, the
following additional requirements shall also be complied with:6
a. The rating symbols shall clearly indicate that the ratings are for structured
finance products.
b. The CRA shall include all the assumptions/ covenants made while carrying
out the review of such products in the Press Release.7
2.1.6. For structured products/ market linked debentures, the credit rating shall bear a
prefix ‘PP-MLD’ denoting Principal Protected Market Linked Debentures, followed
by the standardized rating symbols for long/ short term debt on the lines specified
below.8
5 Circular No. CIR/MIRSD/4/2011 dated June 15, 2011
6 Circular No. CIR/MIRSD/ CRA/ 6/ 2010 May 3, 2010
7 Circular No. SEBI/ HO/ MIRSD/ MIRSD4/ CIR/ P/ 2017/ 71 dated June 30, 2017
8 Cir. /IMD/DF/17/2011 dated September 28, 2011
8
ANNEXURE 1
Rating Symbols and Definitions for Long Term Debt Instruments
Long term debt instruments: The instruments with original maturity exceeding one
year
Rating symbols should have CRA’s first name as prefix
AAA - Instruments with this rating are considered to have the highest degree of safety
regarding timely servicing of financial obligations. Such instruments carry lowest credit risk.
AA - Instruments with this rating are considered to have high degree of safety regarding
timely servicing of financial obligations. Such instruments carry very low credit risk.
A - Instruments with this rating are considered to have adequate degree of safety regarding
timely servicing of financial obligations. Such instruments carry low credit risk.
BBB - Instruments with this rating are considered to have moderate degree of safety
regarding timely servicing of financial obligations. Such instruments carry moderate credit
risk.
BB - Instruments with this rating are considered to have moderate risk of default regarding
timely servicing of financial obligations.
B - Instruments with this rating are considered to have high risk of default regarding timely
servicing of financial obligations.
C - Instruments with this rating are considered to have very high risk of default regarding
timely servicing of financial obligations.
D - Instruments with this rating are in default or are expected to be in default soon.
Modifiers {"+" (plus) / "-"(minus)} can be used with the rating symbols for the
categories AA to C. The modifiers reflect the comparative standing within the
category.
9
ANNEXURE 2
Rating Symbols and Definitions for Short Term Debt instruments
Short term debt instruments: The instruments with original maturity of up to one year
Rating symbols should have CRA’s first name as prefix
A1 – Instruments with this rating are considered to have very strong degree of safety
regarding timely payment of financial obligations. Such instruments carry lowest credit risk.
A2 - Instruments with this rating are considered to have strong degree of safety regarding
timely payment of financial obligations. Such instruments carry low credit risk.
A3 - Instruments with this rating are considered to have moderate degree of safety regarding
timely payment of financial obligations. Such instruments carry higher credit risk as
compared to instruments rated in the two higher categories.
A4- Instruments with this rating are considered to have minimal degree of safety regarding
timely payment of financial obligations. Such instruments carry very high credit risk and are
susceptible to default.
D - Instruments with this rating are in default or expected to be in default on maturity.
Modifier {"+" (plus)} can be used with the rating symbols for the categories A1 to A4.
The modifier reflects the comparative standing within the category.
10
ANNEXURE 3
Rating Symbols and Definitions for Long Term Structured Finance Instruments
Long term structured finance instruments: The instruments with original maturity
exceeding one year
Rating symbols should have CRA’s first name as prefix
AAA (SO) - Instruments with this rating are considered to have the highest degree of safety
regarding timely servicing of financial obligations. Such instruments carry lowest credit risk.
AA (SO) - Instruments with this rating are considered to have high degree of safety
regarding timely servicing of financial obligations. Such instruments carry very low credit risk.
A (SO) - Instruments with this rating are considered to have adequate degree of safety
regarding timely servicing of financial obligations. Such instruments carry low credit risk.
BBB (SO) - Instruments with this rating are considered to have moderate degree of safety
regarding timely servicing of financial obligations. Such instruments carry moderate credit
risk.
BB(SO) - Instruments with this rating are considered to have moderate risk of default
regarding timely servicing of financial obligations.
B(SO) - Instruments with this rating are considered to have high risk of default regarding
timely servicing of financial obligations.
C (SO) - Instruments with this rating are considered to have very high likelihood of default
regarding timely payment of financial obligations.
D (SO) - Instruments with this rating are in default or are expected to be in default soon.
Modifiers {"+" (plus) / "-"(minus)} can be used with the rating symbols for the
categories AA(SO) to C(SO). The modifiers reflect the comparative standing within the
category.
11
ANNEXURE 4
Rating Symbols and Definitions for Short Term Structured Finance Instruments
Short term structured finance instruments: The instruments with original maturity of
upto one year
Rating symbols should have CRA’s first name as prefix
A1 (SO) – Instruments with this rating are considered to have very strong degree of safety
regarding timely payment of financial obligation. Such instruments carry lowest credit risk.
A2 (SO) - Instruments with this rating are considered to have strong degree of safety
regarding timely payment of financial obligation. Such instruments carry low credit risk.
A3 (SO) - Instruments with this rating are considered to have moderate degree of safety
regarding timely payment of financial obligation. Such instruments carry higher credit risk as
compared to instruments rated in the two higher categories.
A4 (SO) - Instruments with this rating are considered to have minimal degree of safety
regarding timely payment of financial obligation. Such instruments carry very high credit risk
and are susceptible to default.
D (SO) - Instruments with this rating are in default or expected to be in default on maturity.
Modifier {"+" (plus)} can be used with the rating symbols for the categories A1(SO) to
A4(SO). The modifier reflects the comparative standing within the category.
12
ANNEXURE 5
Rating Symbols and Definitions for Long Term Debt Mutual Fund Schemes
Long term debt mutual fund schemes: The debt mutual fund schemes that have an
original maturity exceeding one year.
Rating symbols should have CRA’s first name as prefix
AAAmfs – Schemes with this rating are considered to have the highest degree of safety
regarding timely receipt of payments from the investments that they have made.
AAmfs – Schemes with this rating are considered to have the high degree of safety
regarding timely receipt of payments from the investments that they have made.
Amfs – Schemes with this rating are considered to have the adequate degree of safety
regarding timely receipt of payments from the investments that they have made.
BBBmfs - Schemes with this rating are considered to have the moderate degree of safety
regarding timely receipt of payments from the investments that they have made.
BBmfs - Schemes with this rating are considered to have moderate risk of default regarding
timely receipt of payments from the investments that they have made.
Bmfs - Schemes with this rating are considered to have high risk of default regarding timely
receipt of timely receipt of payments from the investments that they have made.
Cmfs - Schemes with this rating are considered to have very high risk of default regarding
timely receipt of timely receipt of payments from the investments that they have made.
Modifiers {"+" (plus) / "-"(minus)} can be used with the rating symbols for the
categories AAmfs to Cmfs. The modifiers reflect the comparative standing within the
category.
13
ANNEXURE 6
Rating Symbols and Definitions for Short Term Debt Mutual Fund Schemes
Short term debt mutual fund schemes: The debt mutual fund schemes that have an
original maturity of upto one year.
Rating symbols should have CRA’s first name as prefix
A1mfs - Schemes with this rating are considered to have very strong degree of safety
regarding timely receipt of payments from the investments that they have made.
A2mfs - Schemes with this rating are considered to have strong degree of safety regarding
timely receipt of payments from the investments that they have made.
A3mfs - Schemes with this rating are considered to have moderate degree of safety
regarding timely receipt of payments from the investments that they have made.
A4mfs - Schemes with this rating are considered to have minimal degree of safety regarding
timely receipt of payments from the investments that they have made.
Modifier {"+" (plus)} can be used with the rating symbols for the categories A1mfs to
A4mfs. The modifier reflects the comparative standing within the category.
14
2.2 Operations Manual/ Internal governing document9
2.2.1. The Operations Manual/ Internal governing document, formulated by the CRA,
shall, inter-alia, cover operating guidelines, criteria, policies and procedures
related to the rating process.
2.2.2. The contents of the Operations Manual/ Internal governing document, as well as
any changes to the same, shall be communicated to employees promptly, and
training of employees on the same shall be conducted at regular intervals.
2.2.3. The following shall be specified in the Operations Manual/ Internal governing
document of CRAs:
a. Basic Minimum information required for conducting the Rating Exercise
b. External entities (bankers, auditors etc.) that need to be contacted
c. Mode of seeking information from external entities. CRAs should endeavour
to obtain such information/confirmation in writing.
d. Policy regarding internal approvals and timelines at each step of the Rating
Exercise
e. Policy regarding monitoring and review of ratings, including the timelines
within which such review is to be completed
2.2.4. Rating Criteria: At the least, the following rating criteria shall be formulated by
each CRA and should be reviewed periodically:
Criteria on:
a. Default recognition and post-default curing period (Instrument-wise definition
of default to be followed by all CRAs is provided in the Annexure)
b. Financial ratios (Explaining how a CRA analyses various financial ratios
including adjustments made to financial statements for the interpretation of
financial ratios)
c. Consolidation of companies
d. Parent support/group/government support
e. Manufacturing, trading companies, and services sector
f. Banks and financial institutions
g. Securitization transactions
h. Public finance
i. Infrastructure ratings
2.2.5. Rating Process and Policies: Each CRA shall frame detailed guidelines on the
following:
a. General nature of compensation arrangements with rated entities
b. Policy for appeal by Issuer against the rating being assigned to its
instruments
c. Policy for placing ratings on credit watch
d. Guidelines on what constitutes non-cooperation.
e. Gift policy
9 Circular No. SEBI/HO/MIRSD/MIRSD4/CIR/P/2016/119 dated November 1, 2016
15
f. Confidentiality policy
g. Policy on outsourcing of activities
h. Policy on provisional ratings
i. FAQs on ratings
j. Disclosure on managing conflict of interest
16
Annexure: Instrument-wise definition of default
Rating
Facilities Proposed Definition of Default
Scale
Fund-based facilities & Facilities with pre-defined repayment schedule
Term Loan
Working Capital Term Loan
Working Capital Demand Loan Long Term
(WCDL) A delay of 1 day even of 1 rupee (of
Debentures/Bonds principal or interest) from the
scheduled repayment date.
Certificate of Deposits (CD)/ Short Term/
Fixed Deposits (FD) Long term
Commercial Paper Short term
Packing Credit (pre-shipment Short Term Overdue/unpaid for more than 30
credit) days.
Buyer’s Credit Short Term Continuously overdrawn for more than
30 days.
Bill Purchase/Bill Short Term Overdue/unpaid for more than 30
discounting/Foreign bill days.
discounting /Negotiation
(BP/BD/FBP/FBDN)
Fund-based facilities & No Pre - Defined Repayment Schedule
Cash Credit Long Term Continuously overdrawn for more than
30 days.
Overdraft Short Term Continuously overdrawn for more than
30 days.
Non fund-based facilities
Overdue for more than 30 days from
Letter of credit (LC) Short Term
the day of devolvement.
Bank Guarantee Amount remaining unpaid from 30
Short Term
(BG)(Performance/ Financial) days from invocation of the facility.
Other Scenarios
When rated instrument is Non-servicing of the debt (principal as
rescheduled: well as interest) as per the existing
repayment terms in anticipation of a
favourable response from the banks of
accepting their restructuring
application/ proposal shall be
considered as a default.
Rescheduling of the debt instrument
by the lenders prior to the due date
of payment will not be treated as
default, unless the same is done to
avoid default or bankruptcy.
Curing Period 90 Days – for Default to Speculative
Grade and generally 365 Days for
Default to Investment Grade.
*For bank loan ratings, default recognition will need to be in line with the RBI guidance.
17
2.2.6. Accountability of Rating Analysts of CRAs:
a. Roles and responsibilities of the rating analysts of CRAs shall be clearly laid
out in the CRA’s Operations Manual/ Internal governing document.
b. Analysts shall be responsible for undertaking the rating process and adhering
to the timelines as specified in the Operations Manual/ Internal governing
document.
2.2.7. Functioning and Evaluation of Rating Committees/Sub-Committees
a. Each CRA shall define the obligations, responsibilities, areas of conflict of
interest, etc. of rating committee members in its Operations Manual/ Internal
governing document. The following shall be specifically set out in the
Operations Manual/ Internal governing document of each CRA and
disclosed on its website
i. Eligibility for becoming committee/sub-committee members
ii. Composition of committee/sub-committee
iii. Minimum quorum required
iv. Duties of committee members
v. System of voting and recording of dissent.
vi. Managing conflict of interest in the rating committee/sub-committee.
b. Persons who have business responsibility shall not be part of the Rating
Committee. However, the MD/ CEO may be a member of the Rating
Committee if the majority of the Rating Committee members are
independent. ("Independent" would mean people not having any pecuniary
relationship with the CRA or any of its employees).
c. Minutes of each case discussed at the committee shall be maintained and
signed (digitally or manually) by the Chairperson. Standard format for the
Minutes of Rating Committee Meeting is placed at the Annexure below.
d. The process of discussion of case by circulation must be avoided, unless
there is urgency in taking a rating action.
e. Chairperson(s) of each rating committee/sub-committee of the CRA shall, on
an annual basis, undertake a review of the decisions taken by the
Committees in that year, which would, inter alia, include:
i. Ratings assigned by the rating committees/ sub-committees including
ratings assigned based on best available information in cases of non-
cooperation by the issuer.
ii. Sharp changes in ratings.
The review report thereof shall be placed before the Board of the CRA.
18
Annexure: Summary Record of the Rating Committee Meeting (RCM)
A. Preliminary Information
 Date of the RCM
 Names of all the persons attending the RCM
 Names of rating committee members present (only rating committee members will
have voting rights)
 Name of the chairperson of the meeting
 Any other special invitees (if any)
B. Information Relating to Rating Decision
Following information/details of each rating decision shall be captured:
 Name of the rated issuer/entity
 Rating exercise i.e. whether it is a fresh rating or review/ surveillance case
 Rating outcome i.e. rating assigned, along with rating outlook and special rating
symbol, if any
 Summary of key issues discussed during the RCM
 Dissent (if any) by any RCM member
C. Authentication and Maintenance of Rating Committee Summary
 The summary of the RCM shall be approved/ signed by the Chairperson, either
manually or digitally.
 The approved/ signed summary shall be maintained either manually or electronically.
19
2.3 Rating Process10
2.3.1. A CRA shall keep the following records in support of each credit rating and review/
surveillance thereof:
a. The important factors underlying the credit rating and sensitivity of such credit
rating to changes in these factors,
b. Summary of discussions with the issuer, its management, auditors and
bankers which have a bearing on the credit rating,
c. Decisions of the rating committee(s), including voting details and notes of
dissent, if any, by any member of the rating committee, and
d. If a quantitative model is a substantial component of the credit rating process,
the rationale for any material difference between the credit rating implied by
the model and the credit rating actually assigned.
e. These records should be maintained till five years after maturity of
instruments and be made available to auditors and regulatory bodies when
sought by them.
2.3.2. The CRAs shall at all times observe high standards and fairness in conduct of the
business and any act of omission or commission in contravention of the provisions
of clauses 12 and/or 23 of Code of Conduct , as specified under Third Schedule of
the SEBI (Credit Rating Agencies) Regulations, 1999, in letter or spirit, may result
in violation of the provisions of section 12A of the Securities and Exchange Board
of India Act,1992 and SEBI (Prohibition of Fraudulent and Unfair Trade Practices
relating to Securities Market) Regulations, 2003. 11
2.4 Monitoring and Review of Ratings12
2.4.1. Monitoring of repayment schedules:
a. CRAs have to be proactive in early detection of defaults/ delays in making
payments. In this regard, CRAs are required to track the servicing of debt
obligations for each instrument rated by them, ISIN-wise, and look for potential
deterioration in financials which might lead to defaults/ delays, particularly
before/ around the due date(s) for servicing of debt obligations, on the basis of
monitoring of indicators including, but not restricted to, the following:
i. Earnings Before Interest, Taxes, Depreciation, and Amortization
(EBITDA) not being sufficient to meet even the interest payments for
last 3 years
ii. Deterioration in liquidity conditions of the Issuer
iii. Abnormal increase in borrowing cost of the Issuer
iv. Any other information indicating deterioration in credit quality/ debt
servicing capability of the Issuer.
10 Circular No. CIR/MIRSD/CRA/6/2010 dated May 3, 2010
11 Circular No. SEBI/ HO/ MIRSD/ MIRSD4/ CIR/ P/ 2016/ 119 dated November 1, 2016
12 Circular No. SEBI/ HO/ MIRSD/ MIRSD4/ CIR/ P/ 2017/ 71 dated June 30, 2017
20
b. The CRA shall also monitor the Exchange website for disclosures made by the
Issuer in this regard.
2.4.2. Material Events requiring a review:
a. CRAs shall carry out a review of the ratings upon the occurrence of or
announcement/ news of material events including, but not restricted to, the
following:
i. Quarterly/ Half-yearly/ Annual results
ii. Merger/ Demerger/ Amalgamation/ Acquisition
iii. Corporate debt restructuring, reference to BIFR and winding-up petition
filed by any party /creditors.
iv. Significant decline in share prices/bond prices of the issuer or group
companies which is not linked to overall market movement
v. Significant increase in debt level or cost of debt of the issuer company
vi. Losses, sharp revenue de-growth etc. based on publicly disclosed
financial statements, which are not in line with CRA’s earlier estimates
vii. Granting, withdrawal, surrender, cancellation or suspension of key
licenses or regulatory approvals.
viii. Disruption/ commencement/ postponement of operations of any unit or
division of the listed entity.
ix. Any attachment or prohibitory orders against the Issuer
x. Any rating action taken by an International Rating Agency with respect
to rating assigned to the Issuer/ Instruments issued by the Issuer.
2.4.3. ‘No Default Statement’ to be sought from the Issuer on a monthly basis:
a. In order to enable timely recognition of default by the CRA, the CRA shall seek
a ‘No Default Statement (NDS)’ from the Issuer at the end of each month,
which shall be provided to the CRA by the Issuer on the first working day of the
next month.
b. The NDS shall require the Issuer to explicitly confirm to the CRA that it has not
delayed on any payment of interest/ principal in the previous month.
c. A standardized format of the NDS is provided as Annexure.
21
Annexure: Standard Template for No Default Statement (Minimum Information
be sought)
To
<CRA Name and Address>
Dear Sir/ Madam,
1. We hereby Confirm that as on date there are no Over dues or default on our debt
obligations
2. We also confirm that in the month ended <Month and Year name>, there has been
no instance of delay in servicing of our debt obligations.
3. We also confirm that there has not been any instance of devolvement of Letter of
Credit in the month ended <Month and Year name>.
4. We also confirm that in the month ended <Month and Year name>, there has been
no instance of delay in servicing of debt obligations guaranteed by us.
5. We also confirm that there has been no overdraw of the drawing power sanctioned
by the bank for a period of more than 30 consecutive days in case of bank facilities
which do not have scheduled maturity/repayment dates.
6. Details of delay/ default/ rescheduling of interest or principal as on date/ in the month
ended <Month and Year name>, in any of the above case (if any) :
Name of the ISIN Amount to Due Date of Actual Date Remarks
Instrument be paid Payment of Payment
Thanking You,
Yours faithfully,
<Authorized Signatory of Issuer>
22
2.5 Standardization of Press Release for Rating Actions13
2.5.1. CRAs are mandated to issue a Press Release after assigning a rating. With a view to
harmonizing the format of the Press Release, it has been decided that all CRAs
shall follow a standardised template, which is attached as Annexure. It may be
noted that this template specifies the minimum information that must be covered in
the Press Release. CRAs can include additional information, while maintaining the
basic format of the Press Release.
2.5.2. While the Press release for the initial rating of bonds, debentures, etc. shall disclose
information about the rated amount of the instrument, the subsequent Press
Releases shall also disclose additional details of the rated instrument, viz. coupon,
maturity date, etc.
2.5.3. Each CRA shall assign a rating Outlook and disclose the same in the Press Release.
2.5.4. Rating Outlooks may not be assigned for:14
a. Short term ratings
b. Ratings in the ‘C’ and ‘D’ categories
c. Ratings on watch
d. Ratings of securitization transactions backed by pool of loans, as CRAs are
already mandated to disclose at least once in every six months the
performance of the rated pool, as per the provision at paragraph 3.2.1.4.
e. Credit quality ratings of mutual fund schemes, provided surveillance of the
fund’s holdings is carried out by the CRAs on a monthly basis.
2.5.5. Press Release related to review of rating shall also carry the rating transition/ history
of all instruments of that issuer, rated by the CRA in the past 3 years, irrespective of
whether the instrument is currently outstanding or not.
13 Circular No. SEBI/HO/MIRSD/MIRSD4/CIR/P/2016/119 dated November 1, 2016
14 Circular No. SEBI/HO/MIRSD/MIRSD4/CIR/P/2017/28 dated March 31, 2017
23
Annexure: Standard Template for Press Release (Minimum Information be disclosed)
Name of the Company
Date of Press Release
Details of Instrument(s)
Name of the Date of Coupon rate Maturity Size of the Rating assigned,
instrument issuance Date issue along with Rating
Outlook
Rating action (assigned/ upgraded/ downgraded) for the instrument.
Detailed Rationale justifying the Rating Action/ rating assigned.
List of key rating drivers for the Rating Action i.e. factors justifying favourable assessment
(strengths) and factors constituting risk (weakness).
Detailed description of key rating drivers highlighted above.
Analytical approach (wherever applicable) taken by the CRA to assign the rating.
Hyperlink/ reference to the applicable "Criteria" for rating the instrument.
About the Company: Factual details of the company along with the major financial
information for the last and current financial year. This shall include key financial indicators
and ratios for the Issuer for the last and current financial year, in tabular form, as well as any
other significant information relevant to the Issuer and its Sector.15
Status of non-cooperation with previous CRA (if applicable): Reason and comments on
status of non-co-operation with the previous CRA (if applicable).
Any other information:
Rating History for last three years:
S.No Name of Current Rating (Year T) Chronology of Rating History
Instrument for the past 3 years (Rating
(NCD/ Bank Assigned and Press Release
Loan/ Non- Date) along with Outlook/
Fund based Watch, if applicable
facilities/ Type Amount Rating Date(s) Date(s) Date(s)
Commercial (long Outstand & & &
Paper etc.) term/ ing (` Rating(s) Rating(s) Rating(s)
Short Crores) assigned assigned assigned
term) in Year in Year in Year
T-1 T-2 T-3
1
2
15 Circular No. SEBI/ HO/ MIRSD/ MIRSD4/ CIR/ P/ 2017/ 71 dated June 30, 2017
24
Note on complexity levels of the rated instrument:
Name and Contact Details of the Rating Analyst(s):
About CRA:
CRA Disclaimer:
Note: Considering the nature of instruments, following details may not be provided under the
head “Details of Instrument(s)”: 16
i. Interest rate/ coupon rate for all types of bank loan facilities.
ii. Maturity details for working capital facilities (including cash credit facilities).
iii. Tranche-wise interest rate and maturity details for money market instruments
such as Commercial Papers, Certificate of Deposit and short-term NCDs which
are reissued frequently. However, the range of duration of these instruments
(e.g. 7 - 90 days) shall be provided in the press release.
16 Circular No. SEBI/HO/MIRSD/MIRSD4/CIR/P/2017/28 dated March 31, 2017
25
2.6 Rating Agreement between the Issuer and the CRA17
2.6.1. Rating Agreement to be signed between Issuer and CRA prior to
commencement of rating exercise:
2.6.1.1. Regulation 14 of SEBI (CRA) Regulations, 1999 requires CRAs to enter into a
written agreement with each client whose securities it proposes to rate.
2.6.1.2. In this regard, it has come to the notice that in some instances, CRAs have
provided indicative ratings to Issuers without entering into a written
agreement with such Issuers and have thereafter not disclosed such
ratings on their websites.
2.6.1.3. CRAs are advised to refrain from giving Indicative Ratings without having a
written agreement in place. In case such Indicative Ratings are provided by
the CRA, it shall be considered as aiding and abetting the Issuer in
suppression of material information by the CRA which would be in
contravention of Clause 12 of Code of Conduct of CRAs and may result in
violation of the provisions of section 12A of the Securities and Exchange
Board of India Act, 1992 and SEBI (Prohibition of Fraudulent and Unfair
Trade Practices relating to Securities Market) Regulations, 2003 by the
CRA.
2.6.2. Strengthening of Rating Agreement:
2.6.2.1. The Rating Agreement, signed between the CRA and its client (issuer/
borrower), shall have an additional clause stating that - 18
"The client (issuer/ borrower) agrees to disclose the history and status
(non-cooperation, non-payment of fees etc.) of previous rating relation with
the earlier CRA(s) to the new CRA along with reasons for non-
cooperation, etc. if applicable."
2.6.2.2. In order to ensure cooperation from the Issuer, as required under Regulation
14(d) of SEBI (CRA) Regulations, 1999, the following enabling clauses
maybe built in the Rating Agreement:
a. “The client (issuer/ borrower) agrees to provide the information sought
by the CRA immediately, but not later than 7 days from the date of
seeking such information by the CRA.
In cases of delay/ default in servicing debt obligations, the information
shall be provided immediately. Failure to provide the same immediately
shall be considered as suppression of material information and may
result in violation of the provisions of section 12A of the Securities and
Exchange Board of India Act, 1992 and SEBI (Prohibition of Fraudulent
17 Circular No. SEBI/ HO/ MIRSD/ MIRSD4/ CIR/ P/ 2017/ 71 dated June 30, 2017
18 Circular No. SEBI/ HO/ MIRSD/ MIRSD4/ CIR/ P/ 2016/ 119 dated November 1, 2016
26
and Unfair Trade Practices relating to Securities Market) Regulations,
2003”
b. "The client (issuer/ borrower) agrees to inform the CRA details about the
instrument in the format below immediately, but not later than 7 days
from the date of placing the debt security. For instruments already
listed, the information will be provided at the time of signing the
agreement.”
Instrume ISIN Issue Coupo Coupo Terms Redem Name Details
nt type Size (` n Rate n of ption and of top
cr) Payme Redem date conta 10
nt ption ct investo
Dates details rs
of
Deben
ture
Truste
e
c. “The client (Issuer/ borrower) undertakes to provide the CRA a No
Default Statement on a monthly basis wherein the Issuer shall explicitly
confirm that it has not delayed on any payment of interest/ principal in
the previous month. Such statement shall be provided to the CRA on
the first working day of the next month.”
2.7 Dealing with Conflict of interest19
2.7.1. A CRA shall formulate the policies and internal codes for dealing with the conflict
of interest.
2.7.2. A CRA shall ensure:
a. that its analysts do not participate in any kind of marketing and business
development including negotiations of fees with the issuer whose securities
are being rated,
b. that the employees’ involved in the credit rating process and their dependants
do not have ownership of the shares of the issuer.
c. prompt review of the credit ratings of the securities as and when any of its
employees joins the respective issuer.
2.7.3. While undertaking rating of structured finance products, apart from following all the
applicable requirements in case of non-structured ratings, the following additional
requirements shall also be complied with
a. A CRA or its subsidiaries shall not provide consultancy or advisory services
regarding the design of structured finance instrument.
19 Circular No. CIR/MIRSD/CRA/6/2010 dated May 3, 2010
27
2.7.4. Guidelines for dealing with Conflict of Interest for investment/ trading by
CRAs, Access Persons and other employees20
a. These Guidelines shall be applicable in case of investment / trading by CRAs
and Access Persons connected to CRAs and in case of disclosures to all
employees of CRAs.
Explanation: "Access Persons" means officials of CRA appointed as Chief
Executive or by any other designation (such as CEO/MD/President or by
whatever name called who are performing functions similar to those of the
Chief Executive), the employees of CRA doing the function of analyst, or
compliance, or heads of the departments or divisions or any other employee
as decided by CRA and the members of the Rating Committee of the CRA.
b. These guidelines shall cover transactions for purchase or sale of securities
either individually or jointly or in the name of their dependents or as a
member of HUF.
c. With a view to adopting best industry practices and systems by CRAs for
managing conflict of interest in case of investment/ trading in securities
(except schemes of Mutual Funds) done by CRAs or their Access Persons
as defined hereunder, the following guidelines, framed in consultation with
CRAs are laid down:
i. CRAs shall adopt adequate systems, procedures and policies to
ensure that they address conflict of interest while making their own
investments in securities.
ii. b. The CRAs, their employees and Access Persons shall not take
undue advantage of any price sensitive information that they may have
about any company.
iii. Access Persons to seek prior approval for transactions:
 An Access Person shall apply to the Compliance Officer for prior
approval of transactions for purchase or sale of securities of the
companies which have been rated or graded by the CRA or
whose securities / instruments /facilities have been rated or
graded by the CRA.
 The Compliance Officer of the CRA shall apply to the Chief
Executive of the CRA for such prior approval.
 The CEO/Compliance Officer shall ensure that there is no conflict
of interest while considering the request for prior approval.
 Such approvals, if granted, shall be valid for 7 working days from
the date of approval.
iv. Disclosures:
 Any person, who becomes an employee of the CRA, shall submit
a statement of holding of all securities in respect of persons
mentioned at 2.7.4 (b) above to the Compliance officer or Chief
20 Circular No. CIR/MIRSD/6/2013 dated August 28, 2013
28
Executive, as the case may be, within 7 working days of joining
CRA.
 All employees of CRA including the Access Persons shall submit
the following details to the CEO/Compliance Officer, as the case
may be:
o Details of purchase or sale transactions effected within 7
working days from the date of transaction.
o A consolidated statement of holding of all securities within
30 working days from the end of the Financial Year.
 The members of the Rating Committee shall upfront declare /
disclose their interest, if any, to the Chief Executive Officer or
Compliance Officer, as per the policy of the CRA, in the securities
/instruments/ facilities that are considered for rating / grading by
the CRA.
v. Restrictions on employees holding ownership of securities of the
issuer: A CRA shall ensure that employees involved in the rating /
grading process shall not have ownership of the securities of the
issuer.
2.8 Unsolicited Credit Ratings21
2.8.1. In case of unsolicited credit ratings, i.e. the credit ratings not arising out of the
agreement between a CRA and the issuer, credit rating symbol shall be
accompanied by the word “UNSOLICITED” in the same font size.
2.8.2. A CRA shall monitor and disclose credit rating during the life of the rated
securities, as if it were a solicited rating.
2.9 Policy in respect of non-co-operation by the issuer 22
2.9.1. In case of non-cooperation by the issuer (such as not providing information
required for rating, non-payment of fees for conducting surveillance), in line with
the existing Regulations, the CRA shall continue to review the instrument, on an
ongoing basis throughout the instrument’s lifetime, on the basis of best available
information, in accordance with the rating process and policies set forth in its
Operations Manual/ Internal governing document.
2.9.2. In such cases the credit rating symbol shall be accompanied by the suffix
“ISSUER NOT COOPERATING*”in the same font size. The suffix shall be
explained below and shall read as ‘Issuer did not cooperate; based on best
available information’.23
2.9.3. The rating action(s) in such cases shall be promptly disclosed through press
release(s), which shall mention, at least, the following:
21 Circular No. CIR/ MIRSD/ CRA/ 6/ 2010 dated May 3, 2010
22 Circular No. SEBI/HO/MIRSD/MIRSD4/CIR/P/2016/119 dated November 1, 2016
23 Circular No. SEBI/HO/MIRSD/MIRSD4/CIR/P/2017/28 dated March 31, 2017
29
a. Date of Press Release
b. Details of Instrument
c. Rating Action and Indicative/updated rating based on best available
information
d. A brief write-up on the non-co-operation by the Issuer/ Borrower and the
consistent follow-up done by the CRA for getting the information.
e. Hyperlink/ reference to the applicable "Criteria"
f. Limitations regarding information availability (shall have a suitable caveat
cautioning the investors/lenders /public)
g. Rating History for last three years
h. Name and contact details of the Rating Analyst(s)
2.9.4. In case an issuer, having not co-operated with a CRA in the past, approaches
another CRA for rating, the new CRA shall, in its Press Release, disclose the
aspect of non-co-operation.
2.10 Withdrawal of ratings24
2.10.1. Bank loans/ facilities generally being non-transferable in nature and their only
user being banks, withdrawal of ratings is permitted. All norms/ standards
prescribed in this regard at paragraph 2.12 shall continue to apply.
2.10.2. Open ended Mutual Fund schemes being perpetual in nature and having no
specified maturity, withdrawal of rating of such schemes is permitted. However,
as units of such schemes are held by many investors, such ratings shall be
placed on notice of withdrawal for at least 30 days, which shall be publicly
available on the CRA’s website.
2.10.3. Ratings of the aforementioned facilities/ securities can be withdrawn after
receiving request for withdrawal from the Asset Management Company (AMC) in
case of mutual funds; or request for withdrawal from the Borrower along with No
Objection from the lending bank(s) in case of Bank facilities.
2.10.4. At the time of withdrawal, the CRA shall assign a rating to such facility/ security
and issue a press release as per the format prescribed at the Annexure to
paragraph 2.5. The Press Release shall also mention the reason(s) for
withdrawal.
2.11 Sharing of information regarding issuer companies between Debenture Trustees
and Credit Rating Agencies25
2.11.1. SEBI (Debenture Trustee) Regulations, 1993 require the Debenture Trustees
(DTs) to share information regarding the issuer companies that are their clients,
with Credit Rating Agencies (CRAs). The purpose of the Regulations is to enable
CRAs to perform their obligations effectively.
24 Circular No. SEBI/HO/MIRSD/MIRSD4/CIR/P/2017/28 dated March 31, 2017
25 Circular No. CIR/MIRSD/3/2013 dated March 15, 2013
30
2.11.2. DTs have also expressed the need to receive relevant information on issuer
companies from CRAs.
2.11.3. In consultation with DTs and CRAs, it has been decided that registered DTs and
CRAs shall share information with each other as specified in the Annexure. DTs
and CRAs may share any other information from time to time in respect of
issues/issuer companies which would help them in effective discharge of their
duties.
2.11.4. Further, the DTs and CRAs shall assign designated email addresses for sending
and receiving such information and ensure appropriate action, if any, based on
the information received.
31
ANNEXURE: Sharing of information between Debenture Trustees (DTs) and
Credit Rating Agencies (CRAs)
A. Information from CRAs to DTs
i. Rating assigned/revised for debt securities along with the rationale for
the same.
ii. Press release, outstanding ratings etc. in respect of debt securities.
iii. Non-cooperation by the issuers with respect to sharing necessary
information for monitoring the credit quality of the rated instrument with
CRAs.
iv. Press release and separate communication to DT on withdrawal of
rating post redemption of entire amount due towards debenture-holders.
v. Default of any type committed by the issuer.
B. Information from DTs to CRAs
i. Whether the asset in respect of which security has been created is free
from any encumbrance and adequate to ensure asset cover for the
debentures or if there is any breach of the terms of creation of the
security. This information shall be shared on half yearly basis.
ii. Funds transferred to Debenture Redemption Reserve (DRR), depletion
of the DRR/invocation of guarantee which could affect the payment of
debenture obligations. This information shall be shared annually.
iii. Details of redemption of the issue.
iv. Any default committed including the default in payment of interest or
redemption of debentures or delay in creation of security.
v. Any change or restructuring of the terms of the issue.
vi. Periodic reports from lead banks about the progress of the project for
which funds have been raised through debentures and certificate from
issuer's auditors in respect of utilization of funds.
vii. Details of grievances filed by debenture-holders and action taken to
resolve them.
viii. Non-cooperation by the issuer with respect to furnishing required
reports/ certificates/ information.
Information pertaining to points iii. to viii. above shall be shared as and
when available.
32
2.12 Rating of instruments other than “securities”26
2.12.1. According to SEBI (Credit Rating Agencies) Regulations, 1999, CRA has been
defined as a body corporate which is engaged in the business of rating of
securities offered by way of public or rights issues. The term “securities” has
been defined in Clause (h) of section 2 of the Securities Contracts (Regulation)
Act, 1956.
2.12.2. However it is observed that the CRAs registered with SEBI also carry out rating
of other securities / instruments and loans / facilities provided by banks which
are not regulated by SEBI. Such ratings are being used by the other regulators
or their regulated entities for the specified purposes.
2.12.3. Therefore, it is desirable that in addition to the review/accreditation process put
in place by these regulators, if any, such ratings should also be governed by the
same stringent norms as applicable for rating of securities issued by way of
public and rights issues.
2.12.4. In view of the above, it has been decided in consultation with the CRAs and also
with other regulators that for the above mentioned ratings, CRAs shall follow the
applicable requirements pertaining to rating process and methodology and its
records, transparency and disclosures, avoidance of conflict of interest, code of
conduct, etc. as prescribed in the Regulations and circulars issued by SEBI from
time to time.
2.12.5. The half-yearly internal audit for the CRAs as prescribed by SEBI shall also
cover the above mentioned ratings.
26 Circular No. CIR/MIRSD/3/2012 dated March 01, 2012
33
SECTION 3: REPORTING AND DISCLOSURES
3.1 Default Studies27
3.1.1. Default studies are central to evaluating the performance of a credit rating
agency and whether its ratings can predict default 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 default
rates of CRA rating categories and whether the default rates of these categories
have changed over time, so that the public can understand the historical
performance of each category and if and how rating categories have changed,
and be able to draw quality comparisons among ratings given by different CRAs.
3.1.2. The default rates shall be calculated in the following manner:
a. One Year Default Rate is the weighted average of default rates of all possible
1 year static pools in the 5-year period.
b. Cumulative Default Rate: The cumulative default rate (CDR) represents the
likelihood of an entity that was rated at the beginning of any multi-year
period defaulting at any time during the multi-year period. Three-year
cumulative default rate shall be computed as:
Three-year CDR for rating category X = No. of issuers which defaulted over
the three-year period / No. of issuers outstanding at the beginning of the
three-year period.
3.1.3. For the above purposes, the following terms shall have the meaning as under:
a. Static Pool Non-defaulted ratings that were outstanding at the beginning of
any period.
b. Default: Non-payment of interest or principal amount in full on the pre-agreed
date. A CRA shall recognize default at the first instance of delay in servicing
of interest or principal on the rated debt instrument.
c. Default Rate: The number of defaults among rated entities in the static pool
as a percentage of the total number of entities in the static pool.
d. Averaging: All averaging across static pools for default rate computations
must be based on the weighted average method where the weights are the
number of ratings in each static period.
3.2 Periodic Disclosures
3.2.1. A CRA shall make all the disclosures stipulated below on their websites. In case
of listed securities, the CRA shall also make disclosures to the stock exchanges
as specified in the SEBI (Credit Ratings) Regulations, 1999. For ratings assigned
27 Circular No. CIR/MIRSD/CRA/6/2010 dated May 3, 2010
34
and their periodic reviews, the CRA shall issue press releases which shall also
be kept on their websites. Where a specific format has been prescribed, the
disclosures shall be made in that format.
3.2.1.1. Rating Procedure: A CRA shall formulate and disclose its policies,
methodology and procedures in detail regarding solicited and unsolicited
credit ratings.
3.2.1.2. Credit Rating History and Defaults : A CRA shall disclose in the formats
specified below:
a. Details of new credit ratings assigned during last six-months
(Annexure I),
b. Movement of credit rating of all outstanding securities during the last
six-months:
i. Movement of each credit rating (Annexure II),
ii. Movement of each credit rating from investment grade to
noninvestment grade and vice versa (Annexure III) and
iii. Movement of each credit rating that has moved by more than
one notch (Annexure IV).
c. The history of credit rating of all outstanding securities (Annexure V),
d. On annual basis, the list of defaults separately for each rating
category (e.g. AAA, AA, A, BBB, BB, B, C) {(Annexure VI)}. This
shall include the initial credit rating assigned by the CRA, month and
year of initial rating, month and year of default, last credit rating
assigned by the CRA before the issuer defaulted, comments of
CRAs, if any.
e. On annual basis, the average one-year and three-year cumulative
default rates (based on weighted average), for the last 5 years,
separately for each following category:
i. each credit rating category (e.g. AAA, AA, A, BBB, BB, B, C),
separately (Annexure VII),;
ii. structured instruments and non-structured instruments,
separately (Annexure VII),
3.2.1.3. Income
a. A CRA shall disclose the general nature of its compensation
arrangements with the issuers.
b. A CRA shall disclose, in case of accepted ratings, its conflict of
interest, if any, including the details of relationship – commercial or
otherwise – between the issuer whose securities are being rated /
any of its associate of such issuer and the CRA or its subsidiaries.
c. A CRA shall disclose annually
35
i. its total receipt from rating services and non-rating services,
ii. issuer wise percentage share of non-rating income of the CRA
and its subsidiary to the total revenue of the CRA and its
subsidiary from that issuer, and
iii. names of the rated issuers who along with their associates
contribute 10% or more of total revenue of the CRA and its
subsidiaries.
3.2.1.4. Structured Finance Products
a. While publishing the ratings of structured finance products and their
movements, a CRA apart from following all the applicable
requirements in case of non-structured ratings shall also disclose
the track record of the originator and details of nature of underlying
assets while assigning the credit rating. The track record shall
include a brief description of the financials of the originator, rating
migrations to speculative categories and defaults.
b. A CRA shall also disclose at least once in every six months, the
performance of the rated pool, i.e., collection efficiency,
delinquencies. A CRA shall also provide a detailed description of the
underlying pools including ageing, Credit enhancements such as
liquidity supports, first and second loss guarantee provided shall
also be disclosed.
3.2.1.5. Unsolicited Credit Ratings
a. While publishing unsolicited ratings and their movements, a CRA
apart from following all the applicable requirements in case of
solicited ratings shall make the following disclosures:
i. the extent of participation by the issuer, its management,
bankers and auditors in the credit rating process.
ii. the information used and its source in arriving at and reviewing
the credit rating.
b. A CRA shall disclose annually
i. all the unsolicited ratings carried out in the last three financial
years (Annexure VIII);
ii. names of issuers, out of those mentioned in (i) above, which
were given solicited rating in the last financial year (Annexure
VIII).
3.2.1.6. Shareholding - A CRA shall disclose its shareholding pattern as prescribed
by stock exchanges for a listed company under clause 35 of Listing
Agreement.
3.2.1.7. Compliance Status of IOSCO Code of Conduct - A CRA shall disclose
the compliance status of each provision of IOSCO code of conduct.
3.2.2. The half-yearly disclosures stipulated above shall be made by the CRAs within
15 days from the end of the half-year (March / September). The yearly
36
disclosures stipulated above shall be made by the CRAs within 30 days from the
end of the financial year.
3.2.3. A CRA can make additional disclosures other than those stipulated above with
the prior approval of its Board.
3.3 Continuous Disclosures and Reporting28
3.3.1. The rating history, Press Releases and Rating Reports, including those ratings
which have been withdrawn, shall be available on the CRA's website.
3.3.2. In case no confirmation of servicing of debt obligation by the Issuer is received
by the CRA from the Debenture Trustee within 1 day post the due date, the CRA
shall immediately follow up with the Issuer for confirmation of payment. In case
no response is received from the Issuer within 2 days of such communication,
the CRA shall issue a Press Release as enlisted at paragraph 3.3.7.c. and
disseminate the same on its website and to all stock exchanges where the
security is listed.
3.3.3. The CRA shall also make a reference to SEBI regarding such suppression of
information by the issuer/ non-cooperation of Issuer with CRA. Failure to make
such reference shall be considered as aiding and abetting the Issuer in
suppression of material information by the CRA which would be in contravention
of Clause 12 of Code of Conduct of CRAs and may result in violation of the
provisions of section 12A of the Securities and Exchange Board of India Act,
1992 and SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to
Securities Market) Regulations, 2003 by the CRA.
3.3.4. Upon the occurrence of or announcement/ news of material events, as
elaborated at paragraph 2.4.2, CRAs shall publish on their website press release
regarding the rating action (including reiteration of existing rating), if warranted,
immediately, but not later than 7 days of occurrence of the said event.
3.3.5. In case there have been delays in the payment of interest/ principal by the
Issuer, the Issuers shall state the same in this statement and the CRA shall
promptly conduct a rating review and disseminate the rating action through
Press Release within 2 days of receipt of such statement.
3.3.6. Timelines of review and Press Releases
a. In order to enable CRAs to disseminate information on ratings promptly through
press releases as per requirements of Regulation 15 and 16 of SEBI (CRA)
Regulations, following is clarified:
i. Initial Rating:
Scenario Timelines – immediately but
not later than
28 Circular No. SEBI/HO/MIRSD/MIRSD4/CIR/P/2016/119 dated November 1, 2016 and SEBI/ HO/ MIRSD/
MIRSD4/ CIR/ P/ 2017/ 71 dated June 30, 2017
37
Acceptance of Rating/ Appeal for 5 working days of communication
Review of Rating by the Issuer of rating by the CRA to the Issuer
Disclosure of rating as non- In case rating is not accepted by
accepted Rating the Issuer within a month of
communication of rating by the
CRA to the Issuer, the same shall
be disclosed as Non-Accepted
Rating on the CRA’s website
Dissemination of Press Release 2 working days of acceptance of
on CRA’s website and intimation Rating by the Issuer
of same to Stock Exchange/
Debenture Trustee
ii. Periodic Surveillance:
Scenario Timeline - immediately but not
later than
Dissemination of Press Release 5 working days of Rating
on CRA’s website and intimation Committee Meeting
of same to Stock Exchange/
Debenture Trustee
iii. Dissemination of Press Release on CRA’s website and intimation of
same to Stock Exchange/ Debenture Trustee in case of event based
review:
Scenario Timeline- immediately but not
later than
Intimation from Issuer/ Debenture 2 working days of intimation
Trustee/ Bankers of the Issuer
regarding delay in servicing debt
obligation
Material Events requiring review 7 working days of occurrence of
(as stated in paragraph 2.4.2) the event.
3.3.7. Disclosures in case of considerable delay in providing information by the
Issuer:
a. As per Regulation 18(2) of SEBI (CRA) Regulations, 1999, the CRA, while
covering the analysis of the various factors justifying the assessment in press
release, shall also disclose the factors constituting a risk.
b. Accordingly, it is further clarified that if the issuer does not share information
sought by the CRA within 7 days of seeking such information from the Issuer,
even after repeated reminders (within these 7 days) from the CRA, the CRA
shall take appropriate rating action depending upon the severity of information
risk of the issuer.
38
c. The Press Release in such cases shall mention the efforts made by the CRA in
seeking such information and limitations regarding such information availability.
3.3.8. Disclosures in case of rating not accepted by an issuer
a. Each CRA shall disclose on its website details of all ratings assigned by them,
irrespective of whether the rating is accepted by the issuer or not, even in case
of non-public issues. Details disclosed shall include the name of the issuer,
name/ type of instrument, size of the issue, rating and outlook assigned, etc.
3.3.9. Disclosures in case of delay in periodic review
a. Each CRA shall promptly disclose on its website details of all such ratings where
the review became due but was not completed by the due date, as per the
timelines specified in the CRA’s Operations Manual/ Internal governing
document. Details disclosed shall include the name of the issuer, name/ type of
instrument, size of the issue, date of last review, reasons for delay in periodic
review, hyperlink to the last Press Release, etc.
3.3.10. Disclosure of guidelines for dealing with Conflict of Interest:29
a. The policies adopted by the CRAs for effective implementation of guidelines for
dealing with Conflict of Interest for investment/ trading by CRAs, Access
Persons and other employees, shall be disclosed on the CRAs’ website.
29 SEBI Circular No. CIR/MIRSD/6/2013 dated August 28, 2013
39
ANNEXURE I to VIII
Annexure I - Details of new credit ratings assigned during last six-months
New Ratings assigned between Apr-Sep / Oct - Mar
S. No Name of the Instrument Type Issue Size (` Rating
Issuer million)
Annexure II–Movement* of Each Credit Rating
Rating Movements between Apr-Sep / Oct - Mar
S. No Name of the Issuer Rating prior to Revision Rating post Revision
*Will cover only rating changes. Reaffirmations shall be excluded
Annexure III - Movement of each credit rating from investment grade to non-
investment grade and vice versa
Rating Movement from Investment Grade and Non-investment Grade
between Apr-Sep / Oct - Mar
From Investment Grade to Non-investment Grade
S. No Name of the Issuer Rating prior to Revision Rating post Revision
From Speculative Grade to Investment Grade
S. No Name of the Issuer Rating prior to Revision Rating post Revision
40
Annexure IV: Movement of each credit rating that has moved by more than one
notch30
Rating Movement by more than one notch between Apr-Sep/ Oct -Mar
Date of
Rating
S. No. Name of the Issuer Rating post revision Notch Difference Change
Rating prior to revision- AAA category
1.
2.
Rating prior to revision- AA category
1.
2.
Rating prior to revision- A category
1.
2.
Rating prior to revision- BBB category
1.
2.
Rating prior to revision- BB category
1.
2.
Rating prior to revision- B category
1.
2.
Rating prior to revision- C category
1.
2.
30 Circular No. SEBI/HO/MIRSD/MIRSD4/CIR/P/2016/119 dated November 1, 2016
41
Annexure V – History of Credit Rating of all Outstanding Securities
History of Credit Rating of all Outstanding Securities
S. Nam Initial Date Rating Date of Rating Date of Rating Date of ……
N e of Ratin of after 1st 1st after 2nd after 3rd …
o the g Initial Revisio Revisio 2nd Revisio 3rd Revisio
Issu Ratin n n Revisio n Revisio n
er g n n
Annexure VI – List of Defaults Separately for Each Rating Category
Annexure VI A – Long Term Scale
Rating Movement by more than one notch between Apr-Sep/ Oct -Mar
Date of Default
S. No. Name of the Issuer Initial rating Date of Initial Rating Recognition
Rating prior to default- AAA category
1.
2.
Rating prior to default- AA category
1.
2.
Rating prior to default- A category
1.
2.
Rating prior to default- BBB category
1.
2.
Rating prior to default- BB category
1.
2.
Rating prior to default- B category
1.
2.
Rating prior to default- C category
1.
2.
Annexure VI B – Short Term Scale
Rating Movement by more than one notch between Apr-Sep/ Oct -Mar
Date of Default
S. No. Name of the Issuer Initial rating Date of Initial Rating Recognition
Rating prior to default- A1 category
42
1.
2.
Rating prior to default- A2 category
1.
2.
Rating prior to default- A3 category
1.
2.
Rating prior to default- A4 category
1.
2.
Annexure VII – Average Default Rates for the last 5-Financial Year Period
Annexure VII A- STRUCTURED INSTRUMENTS
Rating Category 1-Year Default Rate 3-Year Cumulative Default
Rate
AAA
AA
A
BBB
BB
B
C
Annexure VII B- NON - STRUCTURED INSTRUMENTS
Rating Category 1-Year Default Rate 3-Year Cumulative Default
Rate
AAA
AA
A
BBB
BB
B
C
ANNEXURE VIII
Unsolicited Credit rating*
S. No. Name of the Rating assigned
Issuer
Financial Year Financial Year Financial Year 3
1 2
43
* If in a particular financial year, a rating has subsequently been changed, then that shall
also be disclosed
Solicited Credit Ratings assigned to those issuers mentioned in the table above in the
last financial year**
S. No. Name of the Issuer Rating assigned
** Any subsequent revision of the rating in the same year shall also be disclosed
44
3.4 Rating Criteria, Rating Process and their Disclosure31
3.4.1 Rating 'Criteria’
a. Each CRA shall frame detailed rating criteria, include the same in its Operations
Manual/ Internal governing document and disclose the same on its website.
b. Periodicity of review shall be disclosed on the CRA's website. While disclosing
the revised criteria on their website, CRAs shall also provide a reference/
hyperlink to the original criteria (before revision), so as to enable investors to
discern the changes made to the same.
c. The criteria shall be placed on the CRA’s website in a user-friendly manner in
order to facilitate easy and ready access of the same by investors.
d. Press Release, related to rating action, shall provide a reference/ hyperlink to
the specific criteria applied for the rating.
3.4.2 Rating Process and Policies
a. CRAs are mandated to have in place a proper rating process and disclose the
same on their website
b. Each CRA shall frame detailed guidelines in line with policies mentioned at para
2.2.5 above, include them in its Operations Manual/ Internal governing
document and disclose the same on its website.
c. Any change in the rating process or policies shall be disclosed on the CRA's
website, while also providing a reference/ hyperlink to the original provision/
process/ policy, to enable the investors to discern the changes made to the
same.
3.5 Periodical report to be submitted to SEBI32
3.5.1 All CRAs shall report the following change(s) to SEBI while submitting the Action
Taken Report in accordance with SEBI Circular No. SEBI/ MIRSD/ CRA/ Cir-01/
2010 dated January 06, 2010:
a. Amalgamation, demerger, consolidation or any other kind of corporate
restructuring falling within the scope of section 391 of the Companies Act, 1956
(1 of 1956) or the corresponding provision of any other law for the time being in
force;
b. Change in Director, including managing director/ whole-time director;
c. Change in shareholding not resulting in change in control.
31 Circular No. SEBI/HO/MIRSD/MIRSD4/CIR/P/2016/119 dated November 1, 2016
32 Circular No. CIR/MIRSD/8/2011 dated June 17, 2011
45
3.5.2 If there is no change during the relevant half year, it shall be indicated in the
report.
3.6 Centralized Database for Corporate Bonds/ Debentures33
3.6.1. SEBI, in consultation with various stakeholders, decided to create a centralized
database regarding corporate bonds which are available in demat form for public
dissemination. Both the depositories, viz. NSDL and CDSL, jointly, made the
repository of information pertaining to the corporate bonds/ debentures.
3.6.2. Contents of Database: The various data fields for
which the information has to be made available in the centralized database of
bonds/ debentures by CRAs in first phase are as under:
a. Credit Rating with name of Credit Rating Agency and Date of Credit Rating:
i. Current rating (if rated by multiple Credit Rating Agencies, include all
such ratings):
ii.
Name of the CRA Credit Rating Date of Credit Rating
iii. Earlier rating and date of rating (if any):
Name of the CRA Credit Rating Date of Credit Date of Rating
Rating change
3.6.3. Information providers:
a. The issuers shall provide the ISIN details to the CRAs, along with the
reference number and date of the rating letter, pursuant to issue of
instruments for review/ updation of credit ratings by CRAs in the database,
within 2 days after allotment of ISIN.
b. CRAs shall be provided secure logins by the depositories for verification and
updation of the requisite information in the database on an ongoing basis.
c. CRAs shall access the database and shall update the credit rating provided
by the agency and the subsequent rating migrations, within the time
stipulated below:
Sr. Activity Remarks
No.
1 Verification of initial rating information In case of any variation,
provided by the Issuer in respect of the ISINs CRAs to update the
33 Circular No. CIR/IMD/DF/17/2013 dated October 22, 2013.
46
for the instruments. same within 3 working
days.
2 Updation of subsequent rating migrations Within one working day
information in the database. from the press release
3.6.4. Updation of database: The information mentioned in this
circular shall be provided by the issuer at the time of applying for ISIN to
Depositories and shall hosted by the Depositories. In case of any changes/
updation to the information, as available in the database, the Issuer must
promptly inform the Depositories and the information providers such as Stock
Exchanges, Credit Rating Agencies and Debenture Trustees shall update the
same.
47
SECTION 4: INTERNAL AUDIT FOR CREDIT RATING AGENCIES
(CRAs)
4.1 Internal Audit for Credit Rating Agencies (CRAs)34
4.1.1 The audit envisaged under Regulation 22 of the SEBI (Credit Rating
Regulations), 1999 shall include an internal audit to be undertaken in the
following manner:
a. It shall be conducted on a half yearly basis.
b. It shall be conducted by Chartered Accountants, Company Secretaries or
Cost and Management Accountants who are in practice and who do not
have any conflict of interest with the CRA.
c. It shall cover all aspects of CRA operations and procedures, including
investor grievance redressal mechanism, compliance with the
requirements stipulated in the SEBI Act, Rules and Regulations made
thereunder, and guidelines issued by SEBI from time to time.
d. The report shall state the methodology adopted, deficiencies observed,
and consideration of response of the management on the deficiencies.
e. The report shall include a summary of operations and of the audit, covering
the size of operations, number of transactions audited and the number of
instances where violations / deviations were observed while making
observations on the compliance of any regulatory requirement.
f. The report shall comment on the adequacy of systems adopted by the
CRA for compliance with the requirements of regulations and guidelines
issued by SEBI and investor grievance redressal.
4.2 Requirements related to Internal Audit of CRAs 35
4.2.1 Eligibility of Auditors for conducting the Internal Audit of the CRA
a. The audit firm shall have a minimum experience of three years in the
financial sector.
b. The internal auditor of a CRA shall declare that
34 Circular No. SEBI/MIRSD/CRA/Cir-01/2010 dated January 06, 2010
35 Circular No. SEBI/HO/MIRSD/MIRSD4/CIR/P/2016/119 dated November 1, 2016
48
i. The firm has not been employed by other CRAs for any other services
(such as statutory audit, taxation, consultancy/ retainership etc.) in the
past two years, and
ii. The partners/ firm do not have any association with any other CRA.
c. The audit team must be composed of, at least, a Chartered Accountant
(ACA/FCA) and a Certified Information Systems Auditor (CISA).
4.2.2 Rotation of Internal Auditors: An auditor shall be appointed for a maximum
term of five years, with a cooling-off period of two years.
4.2.3 Scope of the Internal Audit: The scope of the internal audit shall be expanded
to include the following additional checks:
a. CRA and its employees, who are associated directly or indirectly with the
rating business, have complied with the regulations and code of conduct.
b. CRA has defined processes for operations that have been followed during
the rating exercise.
c. Rating analysts have adhered to their roles and responsibilities laid down in
the Operations Manual/Internal governing document and processes
disclosed on the CRA's website, during the rating
d. Policy in respect of non-cooperation by the issuer, including procedures to
be followed for the same, have been complied with.
e. CRA has framed a policy for default recognition, consistent with regulatory
guidelines, and is adhering to the same. At a minimum, it shall be checked if
any irregularities/ delays/ defaults in debt servicing had been indicated by
any of the below mentioned entities and suitable action with regard to the
same was taken by the CRA:
i. The issuer/ borrower
ii. The Company’s statutory auditor
iii. The borrower’s bankers, during interactions with the CRA
iv. Debenture Trustees
Cases where there are deviations to the checklist shall be documented by
the auditor as part of the audit report submitted to the board.
f. Review of ratings has been carried out as per the review policy of the CRA.
g. Dissents, if any, have been recorded for each committee meeting, as stated
in the Operations Manual/ Internal governing document.
h. CRA has complied with the timelines for publication of press release/ rating
rationale for the ratings assigned, as set out in its Operations Manual/
Internal governing document.
49
i. The Press Releases issued are broadly in line with the standard template
prescribed by SEBI.
j. Verify the rating disclosures made by the CRAs on their website.
k. Comment on the conflict of interest, if any, arising due to composition of the
rating committee and participation in the rating committee meetings.
4.2.4 Action on the Internal Audit Report:
a. The CRA shall receive the report of the internal audit within two months
from the end of the half-year.36
b. Upon receipt of the internal audit report, the Compliance Officer of the CRA
shall provide detailed comments on each of the observations therein and
place the same before the Board of the CRA.
c. The final action taken report, including the comments/ recommendations
made by Compliance Officer and the Board of the CRA as well as the
corrective steps taken by the CRA, shall be submitted to SEBI within 2
months from the date of receipt of the internal audit report or 1 month from
the date of Board Meeting of the CRA, whichever is later, in the following
format:
Sr. Observations Remarks by the Comments Corrective
No. of the auditor Compliance of the Board actions taken
Officer of the CRA
36 Circular No. SEBI/MIRSD/CRA/Cir-01/2010 dated January 06, 2010
50
SECTION 5: REDRESSAL OF INVESTOR GRIEVANCES
5.1 Designated e-mail ID for regulatory communication with SEBI37
5.1.1. SEBI has been communicating with the registered market intermediaries
through circulars, letters, directions etc. In order to facilitate the issuance of
digitally signed circulars, all registered intermediaries are required to create a
designated email id for regulatory communications. This email id shall be an
exclusive email id only for the above purpose and should not be a person
centric email id.
5.1.2. The Designated e-mail ID shall be communicated to SEBI by emailing a file to
intermediary@sebi.gov.in , as per the format prescribed below:
a. The file should be an excel file.
b. The name of the file and the subject of the email shall specify the type of
intermediary and the name of the intermediary. For example – “Credit
Rating Agency – ABC co. Ltd.”
c. The file shall contain the following details:
Name Address Category Registrati Designated Name of
on No. email id compliance officer
5.2 Redressal of investor grievances through SEBI Complaints Redress System
(SCORES) platform38
5.2.1. SEBI launched a centralized web based complaints redress system ‘SCORES’
in June 2011. The purpose of SCORES is to provide a platform for aggrieved
investors, whose grievances, pertaining to securities market, remain
unresolved by the concerned listed company or SEBI registered Credit Rating
Agencies after a direct approach. SCORES also provides a platform, overseen
by SEBI through which the investors can approach the concerned listed
company or SEBI registered Credit Rating Agencies in an endeavor towards
speedy redressal of grievances of investors in the securities market. It would,
however, be advisable that investors may initially take up their grievances for
redressal with the concerned listed company or SEBI registered Credit Rating
Agencies, who are required to have designated persons/ officials for handling
issues relating to compliance and redressal of investor grievance.
5.2.2. The salient features of SCORES are:
a. Centralized database of all complaints.
b. Online movement of complaints to the concerned SEBI registered Credit
Rating Agencies
37 SEBI Circular No. MIRSD/ DPSIII/ Cir-21/ 08 dated July 7, 2008.
38 Circular No. CIR/ OIAE/ 1/ 2014 dated December 18, 2014
51
c. Online upload of Action Taken Reports (ATRs) by the concerned entities,
and
d. Online viewing by investors of action on the complaints and its current
status.
5.2.3. All SEBI registered Credit Rating Agencies are hereby advised to send their
details, as per Form - B annexed, to SEBI in hard copy and by email to
scores@sebi.gov.in and obtain SCORES user id and password immediately
within a period of one month from the date of registration. The email id to be
furnished by the SEBI registered Credit Rating Agencies for receiving SCORES
user id and password from SEBI has to be preferably a corporate email id and
necessarily a permanent one. Failure by any SEBI registered Credit Rating
Agency to obtain the SCORES user ID and password would not only be
deemed as non-redressal of investor grievances but also indicate willful
avoidance of the same.
5.2.4. The SEBI registered Credit Rating Agencies shall submit the details in hard
copy (Form - B) to the Department/ Division of SEBI which has granted them
registration to operate in the securities market. SCORES user id and password
of the Credit Rating Agencies shall be created only after receiving approval
from the concerned Department/ Division of SEBI.
5.2.5. All SEBI registered Credit Rating Agencies shall review their investors’
grievances redressal mechanism so as to further strengthen it and correct the
existing shortcomings, if any. The SEBI registered Credit Rating Agencies to
whom complaints are forwarded through SCORES, shall take immediate efforts
on receipt of a complaint, for its resolution, within thirty days. The SEBI
registered Credit Rating Agencies shall keep the complainant duly informed of
the action taken thereon.
5.2.6. The SEBI registered Credit Rating Agencies shall update the ATR along with
supporting documents, if any, electronically in SCORES. ATR in physical form
need not be sent to SEBI. The proof of dispatch of the reply of the SEBI
registered Credit Rating Agencies to the concerned investor should also be
uploaded in SCORES and preserved by the SEBI registered intermediary, for
future reference.
5.2.7. Action taken by the SEBI registered Credit Rating Agencies will not be
considered as complete if the relevant details/ supporting documents are not
uploaded in SCORES and consequently, the complaints will be treated as
pending.
5.2.8. A complaint shall be treated as resolved/ disposed/ closed only when SEBI
disposes/ closes the complaint in SCORES. Hence, mere filing of ATR by a
SEBI registered Credit Rating Agencies with respect to a complaint will not
mean that the complaint is not pending against them.
5.2.9. Failure by SEBI registered Credit Rating Agencies to file ATR under SCORES
within thirty days of date of receipt of the grievance shall not only be treated as
failure to furnish information to SEBI but shall also be deemed to constitute
non-redressal of investor grievance.
52
5.2.10. The Board of Directors/ Proprietor/ Partner of the SEBI registered Credit Rating
Agencies shall be responsible for ensuring compliance with the provisions of
this Circular.
53
FORM - B
AUTHENTICATION FOR SCORES BY SEBI REGISTERED CREDIT RATING
AGENCIES
1. Name of SEBI registered Credit Rating Agency:
2. Nature of registered intermediary:
3. SEBI registration no.
4. PAN of SEBI registered Credit Rating Agency:
5. Date of SEBI registration of Credit Rating Agency:
6. SEBI registration valid upto:
7. Office address of the Credit Rating Agency:
8. The details of the concerned person of the Credit Rating Agency to whom
User id and password will be sent:
Name:
Designation:
Email id: (corporate and permanent email id)
Mobile no.
Telephone No. :
Fax No.:
Place: Signature:
Date: Name:
Designation:
Seal:
Note: A scanned copy to be sent by email to scores@sebi.gov.in followed by
hard copy to the concerned Department/Division of Securities and Exchange
Board of India, Plot No. C4-A, 'G' Block, Bandra Kurla Complex, Mumbai - 400
051
Important: Please note that SCORES has the provision for updating SEBI
registered Credit Rating Agency’s details by the Credit Rating Agency itself. Any
field (except the e-mail id which is permanent) such as registered office address,
name/ details of the compliance officer, telephone numbers, etc. should be
changed by the SEBI registered Credit Rating Agency immediately when
warranted.
54
5.3 Information regarding Grievance Redressal Mechanism39
5.3.1. For information of all investors who deal/ invest/ transact in the market, it has
now been decided that the information as provided below shall be prominently
displayed in the offices of the CRAs:
Dear Investor,
In case of any grievance / complaint against the Credit Rating Agency:
 Please contact Compliance Officer of the Credit Rating Agency
(Name and Address) / email-id (xxx.@email.com) and Phone No. -
91-XXXXXXXXXX.
 You may also approach CEO / Partner / Proprietor (Name) /
email-id (xxx.@email.com) and Phone No. - 91-XXXXXXXXXX.
 If not satisfied with the response of the CRA you can lodge your
grievances with SEBI at http://scores.gov.in or you may also write
to any of the offices of SEBI. For any queries, feedback or
assistance, please contact SEBI Office on Toll Free Helpline at
1800 22 7575 / 1800 266 7575.
39 Circular No. CIR/MIRSD/3/2014 dated August 28, 2014
55
SECTION 6: OTHERS
6.1 Guidelines on Outsourcing of Activities by Credit Rating Agencies40
6.1.1. SEBI Regulations for various intermediaries require that they shall render at all
times high standards of service and exercise due diligence and ensure proper
care in their operations.
6.1.2. It has been observed that often intermediaries resort to outsourcing with a view
to reduce costs, and at times, for strategic reasons.
6.1.3. Outsourcing may be defined as the use of one or more than one third party –
either within or outside the group - by a registered intermediary to perform the
activities associated with services which the intermediary offers.
6.1.4. The principles for outsourcing by intermediaries have been framed (placed as
Annexure). These principles shall be followed by all intermediaries registered
with SEBI.
6.1.5. The SEBI registered Credit Rating Agencies desirous of outsourcing their
activities shall not, however, outsource their core business activities and
compliance functions. A few examples of core business activities may be –
execution of orders and monitoring of trading activities of clients in case of
stock brokers; dematerialization of securities in case of depository participants;
investment related activities in case of Mutual Funds and Portfolio Managers.
Regarding Know Your Client (KYC) requirements, the SEBI registered Credit
Rating Agencies shall comply with the provisions of SEBI {KYC (Know Your
Client) Registration Agency} Regulations, 2011 and Guidelines issued
thereunder from time to time.
6.1.6. The SEBI registered Credit Rating Agencies shall be responsible for reporting
of any suspicious transactions / reports to FIU or any other competent authority
in respect of activities carried out by the third parties.
40 SEBI Circular No. CIR/MIRSD/24/2011dated December 15, 2011.
56
Annexure
PRINCIPLES FOR OUTSOURCING FOR INTERMEDIARIES
1. An intermediary seeking to outsource activities shall have in place a
comprehensive policy to guide the assessment of whether and how those
activities can be appropriately outsourced. The Board / partners (as the case
may be) {hereinafter referred to as the “the Board”} of the intermediary shall
have the responsibility for the outsourcing policy and related overall
responsibility for activities undertaken under that policy.
1.1 The policy shall cover activities or the nature of activities that can be outsourced,
the authorities who can approve outsourcing of such activities, and the selection of
third party to whom it can be outsourced. For example, an activity shall not be
outsourced if it would impair the supervisory authority’s right to assess, or its ability
to supervise the business of the intermediary. The policy shall be based on an
evaluation of risk concentrations, limits on the acceptable overall level of
outsourced activities, risks arising from outsourcing multiple activities to the same
entity, etc.
1.2 The Board shall mandate a regular review of outsourcing policy for such activities in
the wake of changing business environment. It shall also have overall responsibility
for ensuring that all ongoing outsourcing decisions taken by the intermediary and
the activities undertaken by the third-party, are in keeping with its outsourcing
policy.
2. The intermediary shall establish a comprehensive outsourcing risk management
programme to address the outsourced activities and the relationship with the
third party.
2.1 An intermediary shall make an assessment of outsourcing risk which depends on
several factors, including the scope and materiality of the outsourced activity, etc.
The factors that could help in considering materiality in a risk management
programme include-
a) The impact of failure of a third party to adequately perform the activity on the
financial, reputational and operational performance of the intermediary and on
the investors / clients;
b) Ability of the intermediary to cope up with the work, in case of non-performance
or failure by a third party by having suitable back-up arrangements;
c) Regulatory status of the third party, including its fitness and probity status;
d) Situations involving conflict of interest between the intermediary and the third
party and the measures put in place by the intermediary to address such
potential conflicts, etc.
2.2 While there shall not be any prohibition on a group entity / associate of the
intermediary to act as the third party, systems shall be put in place to have an
arm’s length distance between the intermediary and the third party in terms of
infrastructure, manpower, decision-making, record keeping, etc. for avoidance of
potential conflict of interests. Necessary disclosures in this regard shall be made as
part of the contractual agreement. It shall be kept in mind that the risk management
57
practices expected to be adopted by an intermediary while outsourcing to a related
party or an associate would be identical to those followed while outsourcing to an
unrelated party.
2.3 The records relating to all activities outsourced shall be preserved centrally so that
the same is readily accessible for review by the Board of the intermediary and / or
its senior management, as and when needed. Such records shall be regularly
updated and may also form part of the corporate governance review by the
management of the intermediary.
2.4 Regular reviews by internal or external auditors of the outsourcing policies, risk
management system and requirements of the regulator shall be mandated by the
Board wherever felt necessary. The intermediary shall review the financial and
operational capabilities of the third party in order to assess its ability to continue to
meet its outsourcing obligations.
3. The intermediary shall ensure that outsourcing arrangements neither diminish its
ability to fulfill its obligations to customers and regulators, nor impede effective
supervision by the regulators.
3.1 The intermediary shall be fully liable and accountable for the activities that are
being outsourced to the same extent as if the service were provided in-house.
3.2 Outsourcing arrangements shall not affect the rights of an investor or client against
the intermediary in any manner. The intermediary shall be liable to the investors for
the loss incurred by them due to the failure of the third party and also be
responsible for redressal of the grievances received from investors arising out of
activities rendered by the third party.
3.3 The facilities / premises / data that are involved in carrying out the outsourced
activity by the service provider shall be deemed to be those of the registered
intermediary. The intermediary itself and Regulator or the persons authorized by it
shall have the right to access the same at any point of time.
3.4 Outsourcing arrangements shall not impair the ability of SEBI/SRO or auditors to
exercise its regulatory responsibilities such as supervision/inspection of the
intermediary.
4. The intermediary shall conduct appropriate due diligence in selecting the third
party and in monitoring of its performance.
4.1 It is important that the intermediary exercises due care, skill, and diligence in the
selection of the third party to ensure that the third party has the ability and capacity to
undertake the provision of the service effectively.
4.2 The due diligence undertaken by an intermediary shall include assessment of:
a) third party’s resources and capabilities, including financial soundness, to
perform the outsourcing work within the timelines fixed;
b) compatibility of the practices and systems of the third party with the
intermediary’s requirements and objectives;
58
c) market feedback of the prospective third party’s business reputation and track
record of their services rendered in the past;
d) level of concentration of the outsourced arrangements with a single third party;
and
e) the environment of the foreign country where the third party is located.
5. Outsourcing relationships shall be governed by written contracts / agreements /
terms and conditions (as deemed appropriate) {hereinafter referred to as
“contract”} that clearly describe all material aspects of the outsourcing
arrangement, including the rights, responsibilities and expectations of the parties
to the contract, client confidentiality issues, termination procedures, etc.
5.1 Outsourcing arrangements shall be governed by a clearly defined and legally binding
written contract between the intermediary and each of the third parties, the nature
and detail of which shall be appropriate to the materiality of the outsourced activity in
relation to the ongoing business of the intermediary.
5.2 Care shall be taken to ensure that the outsourcing contract:
a) clearly defines what activities are going to be outsourced, including appropriate
service and performance levels;
b) provides for mutual rights, obligations and responsibilities of the intermediary
and the third party, including indemnity by the parties;
c) provides for the liability of the third party to the intermediary for unsatisfactory
performance/other breach of the contract
d) provides for the continuous monitoring and assessment by the intermediary of
the third party so that any necessary corrective measures can be taken up
immediately, i.e., the contract shall enable the intermediary to retain an
appropriate level of control over the outsourcing and the right to intervene with
appropriate measures to meet legal and regulatory obligations;
e) includes, where necessary, conditions of sub-contracting by the third-party, i.e.
the contract shall enable intermediary to maintain a similar control over the
risks when a third party outsources to further third parties as in the original
direct outsourcing;
f) has unambiguous confidentiality clauses to ensure protection of proprietary and
customer data during the tenure of the contract and also after the expiry of the
contract;
g) specifies the responsibilities of the third party with respect to the IT security and
contingency plans, insurance cover, business continuity and disaster recovery
plans, force majeure clause, etc.;
h) provides for preservation of the documents and data by third party ;
i) provides for the mechanisms to resolve disputes arising from implementation of
the outsourcing contract;
j) provides for termination of the contract, termination rights, transfer of
information and exit strategies;
k) addresses additional issues arising from country risks and potential obstacles
in exercising oversight and management of the arrangements when
59
intermediary outsources its activities to foreign third party. For example, the
contract shall include choice-of-law provisions and agreement covenants and
jurisdictional covenants that provide for adjudication of disputes between the
parties under the laws of a specific jurisdiction;
l) neither prevents nor impedes the intermediary from meeting its respective
regulatory obligations, nor the regulator from exercising its regulatory powers;
and
m) provides for the intermediary and /or the regulator or the persons authorized by
it to have the ability to inspect, access all books, records and information
relevant to the outsourced activity with the third party.
6. The intermediary and its third parties shall establish and maintain contingency
plans, including a plan for disaster recovery and periodic testing of backup
facilities.
6.1 Specific contingency plans shall be separately developed for each outsourcing
arrangement, as is done in individual business lines.
6.2 An intermediary shall take appropriate steps to assess and address the potential
consequence of a business disruption or other problems at the third party level.
Notably, it shall consider contingency plans at the third party; co-ordination of
contingency plans at both the intermediary and the third party; and contingency
plans of the intermediary in the event of non-performance by the third party.
6.3 To ensure business continuity, robust information technology security is a
necessity. A breakdown in the IT capacity may impair the ability of the intermediary
to fulfill its obligations to other market participants/clients/regulators and could
undermine the privacy interests of its customers, harm the intermediary’s
reputation, and may ultimately impact on its overall operational risk profile.
Intermediaries shall, therefore, seek to ensure that third party maintains appropriate
IT security and robust disaster recovery capabilities.
6.4 Periodic tests of the critical security procedures and systems and review of the
backup facilities shall be undertaken by the intermediary to confirm the adequacy of
the third party’s systems.
7. The intermediary shall take appropriate steps to require that third parties protect
confidential information of both the intermediary and its customers from
intentional or inadvertent disclosure to unauthorized persons.
7.1 An intermediary that engages in outsourcing is expected to take appropriate steps
to protect its proprietary and confidential customer information and ensure that it is
not misused or misappropriated.
7.2 The intermediary shall prevail upon the third party to ensure that the employees of
the third party have limited access to the data handled and only on a “need to
know” basis and the third party shall have adequate checks and balances to ensure
the same.
7.3 In cases where the third party is providing similar services to multiple entities, the
intermediary shall ensure that adequate care is taken by the third party to build
safeguards for data security and confidentiality.
60
8. Potential risks posed where the outsourced activities of multiple intermediaries
are concentrated with a limited number of third parties.
8.1. In instances, where the third party acts as an outsourcing agent for multiple
intermediaries, it is the duty of the third party and the intermediary to ensure that
strong safeguards are put in place so that there is no co-mingling of information
/documents, records and assets.
61
6.2 Unauthenticated news circulated by SEBI Registered Market Intermediaries
through various modes of communication41
6.2.1. It has been observed by SEBI that unauthenticated news related to various
scrips are circulated in blogs/ chat forums/ e-mail etc. by employees of Broking
Houses/ Other Intermediaries without adequate caution as mandated in the
Code of Conduct for Stock Brokers and respective Regulations of various
intermediaries registered with SEBI
6.2.2. Further, in various instances, it has been observed that the Intermediaries do
not have proper internal controls and do not ensure that proper checks and
balances are in place to govern the conduct of their employees. Due to lack of
proper internal controls and poor training, employees of such intermediaries are
sometimes not aware of the damage which can be caused by circulation of
unauthenticated news or rumours. It is a well-established fact that market
rumours can do considerable damage to the normal functioning and behaviour
of the market and distort the price discovery mechanisms.
6.2.3. In view of the above facts, SEBI registered Credit Rating Agencies are directed
that:
a. Proper internal code of conduct and controls should be put in place.
b. Employees/temporary staff/voluntary workers etc. employed/working in
the
Offices of SEBI registered CRAs do not encourage or circulate rumours or
unverified information obtained from client, industry, any trade or any
other sources without verification.
c. Access to Blogs/Chat forums/Messenger sites etc. should either be
restricted under supervision or access should not be allowed.
d. Logs for any usage of such Blogs/Chat forums/Messenger sites (called by
any nomenclature) shall be treated as records and the same should be
maintained as specified by the respective Regulations which govern the
concerned intermediary.
e. Employees should be directed that any market related news received by
them either in their official mail/personal mail/blog or in any other manner,
should be forwarded only after the same has been seen and approved by
the concerned SEBI registered CRAs’ ' Compliance Officer. If an
employee fails to do so, he/ she shall be deemed to have violated the
various provisions contained in SEBI Act/ Rules/ Regulations etc. and
shall be liable for action. The Compliance Officer shall also be held liable
for breach of duty in this regard.42
41 Circular No. CIR/ISD/1/2011 dated March 23, 2011
42 Circular No. CIR/ISD/2/2011 dated March 24, 2011
62
6.3 General Guidelines for dealing with Conflicts of Interest of Credit Rating
Agencies and their Associated Persons in Securities Market43
6.3.1. All intermediaries, recognised stock exchanges, recognised clearing
corporations and depositories (hereinafter collectively referred to as "such
entities") are presently governed by the provisions for avoidance of conflict of
interest as mandated in the respective regulations read with relevant circulars
issued from time to time by SEBI. On the lines of Principle 8 of the International
Organisation of Securities Commissions (IOSCO) Objectives and Principles of
Securities Regulations, it has been decided to put in place comprehensive
guidelines to collectively cover such entities and their associated persons, for
elimination of their conflict of interest, as detailed hereunder.
6.3.2. Such entities shall adhere to these guidelines for avoiding or dealing with or
managing conflict of interest. They shall be responsible for educating their
associated persons for compliance of these guidelines.
6.3.3. For the purpose of these guidelines "intermediaries" and "associated persons"
have the same meaning as defined in Securities and Exchange Board of India
Certification of Associated Persons in the Securities Markets) Regulations,
2007.
6.3.4. Such entities and their associated persons shall,
a. lay down, with active involvement of senior management, policies and
internal procedures to identify and avoid or to deal or manage actual or
potential conflict of interest, develop an internal code of conduct
governing operations and formulate standards of appropriate conduct in
the performance of their activities, and ensure to communicate such
policies, procedures and code to all concerned;
b. at all times maintain high standards of integrity in the conduct of their
business;
c. ensure fair treatment of their clients and not discriminate amongst them;
d. ensure that their personal interest does not, at any time conflict with their
duty to their clients and client’s interest always takes primacy in their
advice, investment decisions and transactions;
e. make appropriate disclosure to the clients of possible source or potential
areas of conflict of interest which would impair their ability to render fair,
objective and unbiased services;
f. endeavor to reduce opportunities for conflict through prescriptive
measures such as through information barriers to block or hinder the flow
of information from one department/ unit to another, etc.;
43 SEBI Circular No. CIR/ MIRSD/ 5/ 2013 dated August 27, 2013
63
g. place appropriate restrictions on transactions in securities while handling
a mandate of issuer or client in respect of such security so as to avoid any
conflict;
h. not deal in securities while in possession of material non - published
information
i. not to communicate the material non-published information while
dealing in securities on behalf of others
j. not in any way contribute to manipulate the demand for or supply of
securities in the market or to influence prices of securities;
k. not have an incentive structure that encourages sale of products not
suiting the risk profile of their clients;
l. not share information received from clients or pertaining to them,
obtained as a result of their dealings, for their personal interest;
6.3.5. The Boards of such entities shall put in place systems for implementation of
this circular and provide necessary guidance enabling identification, elimination
or management of conflict of interest situations. The Boards shall review the
compliance of this circular periodically.
6.3.6. The said guidelines shall be in addition to the provisions, if any, contained in
respective regulations/ circulars issued by the Board from time to time
regarding dealing with conflict of interest, in respect of such entities
64
SCHEDULE: List of Circulars
1. Circular No. SEBI/MIRSD/DR-2/SRP/Cir - 2/ 2005 dated January 4, 2005.
2. Circular No. MIRSD/ DPSIII/ Cir-21/ 08 dated July 7, 2008.
3. Circular No. SEBI/MIRSD/CRA/Cir-01/2010 dated January 06, 2010
4. Circular No. CIR/MIRSD/CRA/6/2010 dated May 3, 2010
5. Circular No. CIR/ISD/1/2011 dated March 23, 2011
6. Circular No. CIR/ISD/2/2011 dated March 24, 2011
7. Circular No. CIR/MIRSD/4/2011 dated June 15, 2011
8. Circular No. CIR/MIRSD/8/2011 dated June 17, 2011
9. Circular No. CIR/MIRSD/14/2011 dated August 02, 2011
10. Circular No. Cir. /IMD/DF/17/2011 dated September 28, 2011
11. Circular No. CIR/MIRSD/24/2011 dated December 15, 2011
12. Circular No. CIR/MIRSD/3/2012 dated March 01, 2012
13. Circular No. CIR/MIRSD/3/2013 dated March 15, 2013
14. Circular No. CIR/ MIRSD/ 5/ 2013 dated August 27, 2013
15. Circular No. CIR/MIRSD/6/2013 dated August 28, 2013
16. Circular No. CIR/IMD/DF/17/2013 dated October 22, 2013.
17. Circular No. CIR/MIRSD/3/2014 dated August 28, 2014
18. Circular No. CIR/ OIAE/ 1/ 2014 dated Dec 18, 2014
19. Circular No. SEBI/HO/MIRSD/MIRSD4/CIR/P/2016/119 dated November 1, 2016
20. Circular No. SEBI/HO/MIRSD/MIRSD4/CIR/P/2017/28 dated March 31, 2017
21. Circular No. SEBI/HO/MIRSD/MIRSD1/CIR/P/2017/38 dated May 02, 2017
22. Circular No. SEBI/HO/GSD/T&A/CIR/P/2017/42 dated May 16, 2017
23. Circular No. SEBI/ HO/ MIRSD/ MIRSD4/ CIR/ P/ 2017/ 71 dated June 30, 2017
65