SEBI Credit Rating Agencies Regulations
The SEBI (Credit Rating Agencies) Regulations 1999 regulate entities that assess and assign credit ratings to debt instruments in India, governing their registration, methodology standards, governance norms, and obligations to prevent conflicts of interest in the rating process.
Credit Rating Agencies (CRAs) perform a critical intermediary function in Indian debt markets, providing an opinion on the probability of timely payment of principal and interest on rated instruments. The CRA Regulations 1999 were enacted following global experience with rating failures and require all CRAs to be registered with SEBI — currently CRISIL, ICRA, CARE, India Ratings, ACUITE, Brickwork, and Infomerics are registered.
The regulations require a CRA to have a minimum net worth of ₹5 crore and to be promoted by a recognised entity (such as a bank, a financial institution, or a foreign CRA with a minimum track record). Rating processes must be based on a documented and publicly disclosed methodology that is applied consistently. The Rating Committee — the body that formally assigns ratings — must be independent of the business development function to prevent commercial considerations from influencing rating decisions.
SEBI has over the years issued multiple circulars tightening disclosure requirements for CRAs: they must now publicly disclose default studies (showing the historical accuracy of their ratings), rating committee composition, press releases for all rating actions (upgrades, downgrades, 'under watch' status), and 'Rating Outlook' alongside the rating symbol. The rating symbol must be accompanied by a suffix distinguishing the instrument type (e.g., 'AAA(CE)' for credit-enhanced instruments).
Conflict-of-interest provisions are a critical area: the 2019 SEBI circular prohibited CRAs from providing advisory or consulting services that could create a conflict with the rating function, and mandated a minimum holding period before a rated entity's employee can join the CRA. The 'issuer pays' model — where the company being rated pays the CRA — remains a structural conflict; SEBI has addressed this partly by requiring mandatory re-rating by a second CRA for perpetual debt instruments and certain AT1 bonds after high-profile rating failures (such as YES Bank AT1 bonds and DHFL NCDs).
Rating surveillance requires periodic reviews and immediate review on trigger events (default, material adverse development). CRAs must assign an 'INC' (Issuer Not Cooperating) suffix and subsequently downgrade to junk when the rated entity withholds information for more than three consecutive months.