Credit rating agencies told to focus on risk factors that are specific to debt issuer
The ticking time bomb of debt defaults has lead the Securities and Exchange Board of India (SEBI) to put in place a rigorous disclosure regime for credit rating agencies (CRAs).

In their score card relating to a particular issuer, the CRAs now have to specify upfront key details, which they think could lead to a default. They should also provide their rationale for their rating.

Public funds in India mainly invest in debt instruments based on ratings from CRAs, which now have to list out sensitive factors, including financials and sectoral details, that could impact the rating of a debt instrument.

They should also delineate various probabilities that could constitute a default. Most importantly, the exercise should not look like a listing of general risk factors but stress on areas specific to the debt issuer.

“In order to enable investors to discern the performance of a CRA, vis-à-vis a standardised Probability of Default (PD), benchmark scale, the CRAs, in consultation with SEBI, shall prepare and disclose standardised and uniform PD benchmarks for each rating category on their website for one-year, two-year and three-year cumulative default rates, both for short-run and long-run,” SEBI said in its guidelines......................BL