SEBI Invites Public Comments on EL-Based Municipal Bond Ratings: The Securities and Exchange Board of India (SEBI) has released a consultation paper seeking public feedback on a draft circular regarding the rating of municipal bonds using an Expected Loss (EL)-based rating scale. This proposed rating system, alongside the existing Probability of Default (PD) scale, aims to provide a more comprehensive assessment of municipal bond risks and recovery prospects. The initiative follows deliberations with stakeholders, including the Corporate Bonds and Securitisation Advisory Committee (CoBoSAC), recognizing that municipal bonds primarily finance infrastructure projects.
Public comments on the draft circular can be submitted online by April 18, 2025. SEBI has provided a web link for submissions and designated officials for addressing technical issues related to the feedback process. The circular applies to all registered credit rating agencies, debenture trustees, issuers of municipal debt securities, recognized stock exchanges, and depositories. It is issued under SEBI’s regulatory authority to safeguard investor interests and promote a well-regulated securities market.
Securities and Exchange Board of India
Consultation Paper on Draft Circular on “Rating of Municipal Bonds on the Expected Loss (EL) based Rating Scale”
SEBI- Mar 28, 2025 | Reports : Reports for Public Comments
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1. OBJECTIVE:
1.1 The objective of this consultation paper is to seek comments/ views/ suggestions from the public on the draft circular titled “Rating of Municipal Bonds on the Expected Loss (EL) based Rating Scale (“Circular”)” (placed at Annexure – A).
2. PUBLIC COMMENTS
2.1 Public comments are invited on the draft circular annexed to this consultation paper. The comments/ suggestions should be submitted latest by April 18, 2025, through the online web-based form which can be accessed using the following link: https://www.sebi.gov.in/sebiweb/publiccommentv2/PublicCommentAction.do? do Public Comments=yes
2.2 The instructions to submit comments on the consultation paper are as under:
2.3 In case of any technical issue in submitting your comment through the web- based public comments form, you may contact the following through email with the subject: “Issue in submitting comments on Consultation Paper on Draft Circular titled ‘Rating of Municipal Bonds on the Expected Loss (EL) based Rating Scale’.”
a) Sarika Kataria, DGM (sarikak@sebi.gov.in)
b) Nishtha Tewari, AGM (nishthat@sebi.gov.in)
c) Nikhil Chaudhary, Manager (nikhilc@sebi.gov.in)
Issued on: March 28, 2025
ANNEXURE – A
DRAFT CIRCULAR
SEBI/HO/DDHS/DDHS-PoD-3/P/CIR/2025/ Date
To,
All Registered Credit Rating Agencies (CRAs) All Registered Debenture Trustees,
Issuers who have listed and/ or propose to list Non-Convertible Securities, Securitized Debt Instruments, Security Receipts, Municipal Debt Securities or Commercial Paper
Recognized Stock Exchanges
All Depositories registered with SEBI
Dear Sir / Madam,
Sub: Rating of Municipal Bonds on the Expected Loss (EL) based Rating Scale
1. Para 5.6.1 of the Master Circular for Credit Rating Agencies (CRAs) (“Master Circular”) dated May 16, 2024 provides that in addition to the standardized rating scales prescribed for various instruments, an Expected Loss (EL) based Rating Scale may be used by CRAs for ratings of projects/ instruments associated with infrastructure sector.
2. Pursuant to deliberations with various stakeholders, including the Corporate Bonds and Securitisation Advisory Committee (CoBoSAC), it is felt that EL Ratings, when used along with standardized rating scale/ Probability of Default (PD) Rating, can better reflect the recovery prospects of municipal Further, Urban Local Bodies/ Municipalities issue bonds primarily for the creation/ development of infrastructure. Therefore, it has been decided that CRAs may, in addition to the standardised rating scale, extend the EL-based Rating Scale for rating of Municipal Bonds.
3. This circular shall be applicable with immediate
4. This circular is issued with the approval of competent authority, in exercise of the powers conferred by Section 11 (1) of Securities and Exchange Board of India Act, 1992 read with the provisions of Regulation 20 of CRA Regulations to protect the interest of investors in securities and to promote the development of, and to regulate, the securities market.
5. This Circular is available on the website of the Securities and Exchange Board of India at sebi.gov.in under the category “Legal” and under the drop down “Circulars”.
