CREDIT RATING AGENCIES

REGULATORY FRAMEWORK

SUBMITTED TO: Prof. Paramjit kaur

SUBMITTED BY: Pooja Miglani
ROLL NO: 22
COURSE: M.com(hons) 1st year
SEBI CREDIT RATING AGENCIES REGULATIONS
➔ Registration
➔ Obligations
➔ Restriction on securities
➔ Guidelines
➔ Inspection/Investigation
➔ Action in default
1) REGISTRATION OF CREDIT RATING AGENCIES
➢ Application for grant of certificate made to SEBI in Form A
with non refundable fee of INR 50000.
A credit rating agency means a body corporate proposed to be
engaged in the business of rating of securities by way of
public/right issues.
It should follow the eligibility criteria as specified by the
SEBI.
 PROMOTER OF CREDIT RATING AGENCY
● Public financial institution (defined in sec 4a of companies act)
● Scheduled bank
● Foreign bank operating in India with RBI approval
● Foreign credit rating agency, incorporated in FATF member
jurisdiction and recognised under their law, having at least five
years experience in rating securities.
● Any company incorporated under the companies act, having a
continuous net worth of minimum of 100 crore as per its
audited annual account for previous five years.
 GRANT OF CERTIFICATE OF REGISTRATION
The SEBI will grant to eligible applicants a certificate of
registration on the payment of a fee of INR 26,66,700. The
recurring registration fee for every three years is INR 15,00,000.
Conditions of registration:
● Compliance with provisions of SEBI
● Prior approval for change in control
● CRA should at least maintain a minimum net worth of 25 crore
and its promoter should maintain a minimum shareholding of
26% for atleast 3 years from the date of registration.
2) GENERAL OBLIGATIONS
The credit rating agencies are required to fulfill all the general
obligations in a prompt, ethical and professional manner with all
efforts to protect the interest of investors.
It should also disclose the rating methodology and all the relevant
information to clients, users and public.
It should ensure that there is no misuse of any privileged
information including prior knowledge of rating decisions or
changes.
OTHER OBLIGATIONS
➢ Agreement with the client
➢ Monitoring of ratings
➢ Procedure for review of rating
➢ Internal procedures
➢ Disclosure of rating definitions and rationale
➢ Submission of information to the SEBI
➢ Compliance with circulars issued by the SEBI
➢ Appointment of compliance officer
➢ Maintenance of books of accounts and records
➢ Auditor’s report; confidentiality; rating process
➢ Shareholding in CRA
3) RESTRICTIONS ON RATING OF SECURITIES
Securities issued by promoters: A CRA is prohibited from rating
securities issued by its promoter(s), who holds 10 percent or more
of its business.
Securities issued by certain entities: The securities of an entity
can not be rated by a CRA if it is:
A. Borrower of its promoter
B. A subsidiary of its promoter
C. An associate of its promoter
4) GUIDELINES FOR CREDIT RATING AGENCIES
➢ Rating process
➢ Default studies
➢ Dealing with conflict of interest
➢ Obligations in respect of structured financial products
➢ Unsolicited ratings
➢ Disclosures
➢ Rating procedures
➢ Rating history, defaults
➢ Income
➢ Structured financial products; Additional disclosures
➢ Unsolicited ratings; shareholding; compliance; Implementation
 5) INSPECTION/INVESTIGATION
The SEBI is empowered to appoint inspecting officer to undertake
inspection of accounts/records/documents of the CRAs:
● To ascertain the compliance of SEBI regulations
● To ascertain whether they are being maintained properly
● To investigate into complaints from investors/clients
● In the interest of securities market
After consideration of inspection/investigation report, the SEBI
chairman would take such action as deemed fit and appropriate
including action under the SEBI Intermediaries Regulation,2008.
6) ACTION IN CASE OF DEFAULT
The CRA that
A. Fail to comply with any condition, subject to which
certificates of registration had been granted, or
B. Contravene any of the provisions of the SEBI act/these
regulations/any other regulation under the SEBI act,
Would be dealt with in the manner provided under the SEBI
Intermediaries Regulation.
REFERENCES
https://www.sebi.gov.in/acts/CreditRatingAgencies.pdf
M.Y. Khan, Financial services, Tenth edition, Mc Graw hill
education.