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SEBI tightens credit rating norms after defaults, downgrades
Photo Credit: Reuters

India’s market regulator on Thursday ordered enhanced disclosure norms for credit rating agencies in an effort to increase transparency as the country reels under a slew of rating downgrades and defaults that have roiled debt and equity markets.

The Securities and Exchange Board of India (SEBI) directed ratings agencies to formulate a uniform benchmark for the “probability of default” for each rating category and disclose that on their website for the ratings of long-term and short-term instruments.

SEBI also asked them to disclose in their press release factors to which a rating is sensitive and explain operating and financial performance that could trigger a rating change.

"Such factors shall be disclosed in quantitative terms to the extent possible, discernible to the investors, and should not read like a general risk factor," SEBI said in a circular.

The regulator’s latest move comes after a string of defaults at Infrastructure Leasing and Financial Services Ltd (IL&FS) last year spooked markets and prompted the government to step in and take control of the company to limit fears of a contagion.

Last week, shares of private home mortgage lender Dewan Housing Finance Corp Ltd’s (DHFL) plummeted following sharp ratings downgrades after it missed payments on bonds fanning fears of a liquidity crisis.

SEBI has toughened regulations for credit rating agencies over the past three years to boost monitoring, bring clarity for investors and increase accountability.

On Thursday, SEBI also ordered them to frame a uniform “standard operating procedure” to track and timely recognise defaults.

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