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SEBI tightens norms for provisional rating by credit rating agencies

The Securities and Exchange Board of India (SEBI) has strengthened regulations for provisional rating for debt instruments by credit rating agencies. According to the new norms, before the rating symbol, all provisional ratings for debt instruments must be prefixed with 'Provisional' in all communications, including rating letter, press release, or rating rational, among others. A rating will be considered provisional when it is contingent upon execution of the letter of comfort, corporate guarantee, or other forms of explicit third-party support, and execution of documents such as debenture trust deed, debenture trustee agreement, legal agreements, representations and warranties, final term sheet, etc. No rating, including a provisional rating, can be assigned to an issuer or client evaluating strategic decisions, such as funding mix for a project, acquisition, debt restructuring, scenario-analysis in loan refinancing, etc.

The provisional rating must be converted into a final rating within 90 days from the date the instrument is issued, and such final rating must be consistent with the available documents and completed steps. The deadline may be extended by an additional 90 days on a case to case basis, subject to applicable policy.

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