SEBI directs raters to use symbols and explain them

The move is aimed at helping investors to understand the ratings, which are used in mutual fund schemes, long- and short-term debt instruments and structured finance instruments. Credit rating agencies use different rating symbols and definitions for debt instruments, in line with international practices. “It will help investors distinguish between ratings offered by different credit rating agencies, given that the new nomenclature will feature the name of the agency as a prefix. We believe it is important for investors to make the choice of which ratings to consider, based on their assessment of the track record, robustness of criteria and analytical rigour of a rating agency,” said Roopa Kudva, MD and CEO, Crisil. Sebi said rating agencies will have to use the new symbols and definitions for all the new ratings and reviews. Besides the ratings symbols will require to have the credit rating agencies first name as prefix. However, industry players say the regulator should provide clarity on usage of suffix for international and national ratings as they are done on different scales. “Sebi’s ongoing initiatives to harmonise the rating scales should benefit domestic investors. However, Indian entities also raise money from foreign investors and so carry both national and international ratings. We will need to ensure that there is no scope for confusion when investors look at both ratings together, as they do for most large issuers in India,” said Ananda Bhoumik, senior director, Fitch Ratings. For existing outstanding ratings, credit rating agencies would have to disclose new rating symbols and definitions on their websites and update their rating lists. For longterm debt instruments, with maturity exceeding one-year, ratings range from AAA to D, with the former rating considered as a very safe with the lowest credit risk while those with D rating are in default.