Question 1

Which SEBI regulations govern credit rating agencies in India?

Accepted Answer

Credit Rating Agencies are regulated under the SEBI (Credit Rating Agencies) Regulations, 1999. All ratings on listed debt instruments, commercial paper, and fixed deposits must be obtained from a SEBI-registered CRA. The RBI Master Circular on Rating of Debt Instruments additionally mandates ratings for bank loan exposures above Rs 5 crore for Basel II/III capital adequacy purposes.

Question 2

Is a credit rating mandatory before issuing Non-Convertible Debentures (NCDs)?

Accepted Answer

Yes. Under SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021, Regulation 7 requires a minimum investment-grade credit rating from at least one SEBI-registered CRA for any public issue of NCDs. For private placement under Regulation 23, a rating is mandatory if the NCDs are proposed to be listed on a recognised stock exchange.

Question 3

What financial documents does a rating agency typically require from a company?

Accepted Answer

CRAs follow their own information frameworks but typically require audited financial statements for the last 3-5 years prepared under Schedule III of the Companies Act, 2013, projected cash flow statements, loan sanction letters, the Memorandum and Articles of Association, and a management discussion note. For bank loan ratings, the RBI circular DBR.BP.BC.No.41/21.04.141/2015-16 specifies the credit information format applicable to borrowers.

Question 4

Can a company withdraw or migrate its rating to a different CRA, and what rules apply?

Accepted Answer

Yes. SEBI circular SEBI/HO/DDHS/CIR/P/2019/155 dated December 26, 2019 sets out the framework for rating migration and withdrawal. The issuer must disclose the last outstanding rating to the incoming CRA, and the outgoing CRA must publish a press release upon migration. Ratings cannot be withdrawn to avoid a downgrade — under the circular, the outgoing CRA must continue publishing the outstanding rating for 6 months if the issuer stops cooperating.

Question 5

How does a credit rating affect the cost of External Commercial Borrowings (ECB)?

Accepted Answer

Under the RBI ECB Master Direction (RBI/FED/2018-19/67, updated periodically), the all-in-cost for ECB is capped at the benchmark rate (Term SOFR) plus a permitted spread. A stronger credit rating from an internationally recognised agency can reduce the negotiated spread and help the borrower remain within the RBI all-in-cost ceiling. For rupee-denominated ECBs (Masala Bonds), a domestic rating from a SEBI-registered CRA is mandatory under the ECB framework.

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