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SEBI introduces expected loss-based rating scale

The Securities and Exchange Board of India (SEBI) has introduced an expected lossbased rating scale for rating agencies. Rating agencies will be required to provide expected loss-based ratings for projects and instruments associated with the infrastructure sector, with SEBI putting in a new framework. The rating will be divided into a scale of seven levels, spanning from lowest to highest expected loss. All the provisions in the circular except those pertaining to standardisation of rating scales, will be applicable with "immediate effect" for Credit Rating Agencies (CRAs)

In order to standardise the usage of rating scales, CRAs have been asked to align their rating scales with the rating scales prescribed under the guidelines of respective financial sector regulator or authority in terms of CRA Regulations, or in the absence of these guidelines, follow rating scales prescribed by SEBI. CRAs have been advised to confirm compliance of the circular to SEBI latest by April 15, 2022.

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