Market regulator the Securities and Exchange Board of India (Sebi) today asked credit rating agencies (CRAs) to adopt standard symbols and definitions devised by it within four months, a move that will help investors to better understand financial health of firms.
“It has been felt that there need to be common rating symbols and definitions for easy understanding…By investors and to achieve high standards of integrity and fairness in ratings,” the regulator said.
Currently, CRAs registered with Sebi use different rating symbols and definitions.
The regulator has devised standard symbols and their definitions for long and short term debt instruments, structured finance instruments and mutual funds schemes. It has been done in consultation with CRAs and in line with international practices.
“The new symbols and definitions shall henceforth be used for the new ratings/reviews by the CRAs,” it said, adding, the CRAs shall ensure compliance as early as possible but not later than four months.
This has been done, Sebi said, to protect the interest of investors in securities and to promote the development of, and to regulate securities market.
The decision for standard symbols was taken after Sebi’s Corporate Bonds and Securitisation Advisory Committee recommended for the same.
For the existing outstanding ratings, the CRAs have been asked to disclose new symbols and definitions on their website and inform their clients about the changes.
Credit rating to a company help investors understand financial health of the entity and make investment decisions based on the rating assigned.