SEBI takes Measures for regulation of activities of Credit Rating Agency

The Securities and Exchange Board of India has proposed amendments to the SEBI (Credit Rating Agencies) Regulations, 1999 to regulate and expand the permissible activities of Credit Rating Agencies (CRAs). The proposal addresses industry concerns that CRAs are currently restricted from rating certain financial instruments—such as unlisted securities—where no specific rating guidelines have been issued by the relevant Financial Sector Regulator (FSR). Recognising that such ratings are closely aligned with the core expertise of CRAs and are important for investors and market development, SEBI proposes to allow CRAs to rate instruments under other FSRs even in the absence of explicit guidelines. This expanded scope is accompanied by robust safeguards, including segregation of SEBI-regulated and other activities, clear disclosures, separate grievance mechanisms, client acknowledgements on the non-availability of SEBI protection, ring-fencing of minimum net worth, and enhanced audit oversight. Public consultation and advisory committee reviews broadly supported the proposal, with modifications introduced to balance operational feasibility with investor protection. Also Read: Minutes of SEBI Board Meeting Dated: 17th December 2025

Securities and Exchange Board of India

Measures for regulation of activities of Credit Rating Agency

1. Objective

1.1. This Board Memorandum proposes amendments to the Securities Exchange Board of India (Credit Rating Agencies) Regulations, 1999 (“CRA Regulations”) to provide measures for regulation of activities of Credit Rating Agencies(“CRA”).

2. Background

2.1. The extant CRA Regulations provides that a CRA shall not carry out any activity other than the rating of securities that are listed or proposed to be listed on a stock exchange recognized by SEBI (“the Board”). However, CRA Regulations also permit CRAs from undertaking rating of products/ securities/ issuers under the respective guidelines of a Financial Sector Regulator (“FSR”) or any authority as may be specified by SEBI subject to compliance with rating guidelines issued by such financial sector regulator.

2.2. SEBI has been receiving representation/ feedback from the industry/ other stakeholders with regard to rating of certain financial products/ instruments, under the purview of other FSR, where no guidelines in respect of rating of such products/ instruments have been issued by the relevant FSR.

3. Extant Regulatory Provisions

3.1. Extant Regulatory provision –

Regulation 9(f) of the CRA Regulations provides that –

“a credit rating agency shall not carry out any activity other than the rating of securities that are listed or proposed to be listed on a stock exchange recognized by the Board.

Nothing contained in these regulations shall preclude a credit rating agency from carrying out any activity as may be specified by the Board or rating of financial instruments under the respective guidelines of a financial sector regulator or any authority as may be specified by the Board.

Explanation: ─ For the purposes of this clause, the ratings undertaken by a credit rating agency under the respective guidelines of a financial sector regulator or authority shall be under the purview of the respective financial sector regulator or authority.

Provided that all other activities shall be segregated to a separate entity within a period of two years from the date of notification of Securities and Exchange Board of India (Credit Rating Agencies) (Amendment) Regulations, 2018.”

4. Need for review

4.1. While a CRA is permitted to carry out any activity as may be specified by the Board or rating of financial instruments under the respective guidelines of a FSR or any authority as may be specified by the Board, following has been represented by the industry/ other stakeholders –

4.1.1. CRAs in India have been rating financial instruments in India since 1987. CRAs have consistently adopted robust criteria and processes for these ratings, even as there was no rating related guidelines by an FSR. The rating symbols, policies, processes and criteria have been applied consistently across different debt instruments, was in line with the market’s expectation of a CRA.

4.1.2. CRAs were expected to obtain and follow specific guidance from the relevant FSRs. All CRAs have been jointly and regularly engaging with SEBI and other regulators for obtaining guidance on rating of various instruments. While CRAs have received regulatory clarity for some instruments, regulatory guidance for certain instruments such as unlisted securities and a few other instruments are still awaited.

4.1.3. Since the rating of such products and instruments is adjacent to the core business of CRAs, it has been represented that permitting CRAs to rate financial instruments under the purview of other FSRs, even in the absence of specific FSR guidelines, would create significant operational synergies and effectively address a critical gap within the industry.

4.1.4. Allowing CRAs to rate instruments without specific FSR guidelines would be progressive and timely step. This measure will also ensure the availability of ratings, minimizing disruptions and uncertainty amongst market participants (issuers, investors / lenders), and will address the industry concerns to foster broader market growth.

4.2. Credit Rating Agencies (CRAs) are capable of rating bank loans in accordance with the guidelines issued by the Reserve Bank of India (RBI). However, they are currently constrained from rating unlisted securities since there are no rating guidelines in this regard. This inability stems from the regulatory constraint that existing regulations only permit the rating of financial instruments where specific rating guidelines have been explicitly issued by that respective FSR.

4.3. The ability to rate unlisted securities is important from an investor and market perspective, especially for large corporate groups that include both listed and unlisted entities. Comprehensive ratings of both listed and unlisted debt would provide a holistic view of the entire conglomerate’s financial health. Further, various investors, including Alternate Investment Funds, are permitted to allocate capital to unlisted debt instruments. Hence, rating of such debt instruments would be in the interest of such investors and would be beneficial for the development of overall debt market.

4.4. In light of the issues discussed regarding the activities of CRAs, it was felt that a review is necessary to understand the current operational scope and concerns of CRAs and to evaluate the following

4.4.1. Should CRA’s be permitted to undertake rating of instruments/products falling under a different FSR even if no guidelines on the same have been  provided by that FSR.

4.4.2. Proposed conditions, essential checks and balances for regulatory oversight and investor protection, if CRA’s are permitted to rate such financial instruments/products wherein no guidelines are prescribed by FSR.

5. Public consultation

5.1. SEBI issued a consultation paper on July 30, 2025, proposing that CRAs may be permitted to undertake activities that are regulated by other FSR(s), subject to the certain conditions pertaining to type of activities, separation of SEBI regulated and Non-SEBI Regulated activities by creation of separate business units, client dealing, internal audit report, disclosures, advertisement and marketing materials, minimum net worth etc. Consultation paper is placed at Annexure A for reference.

5.2. The summary of public comments received on the said consultation paper is as under:

5.3. The above public feedback also includes comments from the Association of Indian Rating Agencies (AIRA).

5.4. With regard to the proposal 1, the public feedback was in favor of the proposal.

5.5. Further, with regard to proposal 2, most respondents either agreed partially or disagreed with proposed conditions. The major comments provided by the respondents on disagreement with specific conditions, along with the proposed modification to the conditions, are summarized and placed at Annexure B to the board memorandum.

6. Consultations with CoBoSAC

6.1. The following proposals were taken for the consultation of Corporate Bonds and Securitization Advisory Committee (“CoBoSAC”), after incorporating public comments:

6.1.1. Proposal 1: In view of public feedback and submissions by the industry participants (as mentioned in Para 4.1 above), CRAs may be permitted to undertake rating of financial instruments which fall under the purview of other Financial Sector Regulators (FSR), even where no rating related guidelines may have been issued by the relevant FSR. The proposal in this regard is placed at Para 7.1 below.

6.1.2. Proposal 2: Based on public feedback on the proposed conditions, the conditions for regulatory oversight and investor protection were appropriately modified. The proposals in this regard are placed at Para 7.2 below.

6.2. CoBoSAC agreed to the proposals mentioned above.

7. Proposals for consideration:

The revised proposals after taking into account the public feedback and the recommendations of CoboSAC are as under –

Proposal 1

7.1. Regulation 9(f) of CRA Regulation shall be amended (insertions shown in bold and underlined and deletions shown in strike off) as below:

“a credit rating agency shall not carry out any activity other than the rating of securities that are listed or proposed to be listed on a stock exchange recognized by the Board.

Nothing contained in these regulations shall preclude a credit rating agency from carrying out any other activity as may be specified by the Board or carrying out rating of financial instruments under the respective guidelines purview of a any other financial sector regulator or any authority as may be specified by the Board.

Explanation: ─ For the purposes of this clause, the ratings undertaken by a credit rating agency shall be in accordance with under the respective rating  guidelines wherever specified by the of a financial sector regulator or authority and shall be under the purview of the respective financial sector regulator or authority.

Provided that all other activities shall be segregated to a separate entity within a period of two years from the date of notification of Securities and Exchange Board of India (Credit Rating Agencies) (Amendment) Regulations, 2018.”

Proposal 2

7.2. The following conditions relating to the obligations of CRA may be specified separately through issuance of circular:

7.2.1. Separation of Email ids for handling grievances and disclosures on  website

A. CRA shall handle grievances related to SEBI regulated activities and grievances related to activities under the purview of other FSR(s) through distinct and separate email IDs. Further, CRAs shall maintain separate webpages or sections on their website for disclosures related to SEBI regulated activities and disclosures related to activities under the purview of other FSR(s).

B. While all resources, including manpower, IT, etc., related to the investor grievance mechanism can be shared, the email IDs for receiving grievances for SEBI-regulated instruments/ activities and other activities shall be separate.

C. Further, to facilitate smooth transition and ease of doing business for CRAs already registered with the board on the date of notification, a period of twelve months will be provided from the date of notification for segregation of email ids and website disclosures as mentioned above.

7.2.2. Minimum net worth

A. CRA shall ensure that the minimum net worth requirement of a CRA, specified under the CRA Regulations, shall not be impacted by the CRA’s undertaking of activities that are regulated by other FSR(s).

B. CRAs should ensure that the net worth stipulations, if any, by other FSRs shall be in addition to the minimum net worth requirement specified by SEBI.

7.2.3. Disclosure of activities related information on CRA’s website and  advertising/ marketing material related to overall activities of CRA

A. The CRA shall duly disclose on its website the list of activities being carried out along with the name of the regulator for each activity.

B. CRA shall also ensure that its advertising or marketing material related to activities under the purview of other FSR(s) shall be separate and distinct from advertising or marketing material related to SEBI regulated activities.

C. Further, for all the activities under the purview of other FSR(s), the CRAs shall clearly disclose in its website, advertising or marketing material that the SEBI investor protection mechanisms and SEBI grievance/dispute redressal mechanisms will not be available for such activities.

7.2.4. Disclosures in rating reports and rating press releases/rating rationale

A. For all the rating reports and rating press release/rating rationaleissued after the date of coming into effect of these provisions, a CRA shall ensure the following:

i. The rating reports and press releases/rating rationales shall mention the name(s) of the regulator(s) for such instruments. Also, such rating reports and press releases/rating rationales shall clearly disclose that the SEBI investor protection mechanisms or SEBI grievance/dispute redressal mechanisms will not be available for such ratings.

ii. CRA may issue common rating report and press release/rating rationales. In cases where CRA issues common rating report and press release/rating rationales, a clear segregation and labelling of SEBI regulated instruments and instruments falling under the regulatory purview of other FSR(s) shall be provided.

7.2.5. Dealing with Client

A. While dealing with clients for activities under the purview of other FSR(s) after the date of coming into effect of these provisions, a CRA shall ensure the following before commencing any such activity:

An upfront written disclosure is made to the clients informing them that such activity fall under the regulatory purview of other FSR(s). Further, the said disclosure shall also be included in the rating agreements/engagement letters between CRA and clients.

i. A written confirmation shall be obtained from the clients stating that the clients have understood the nature of the activity, risks involved and non-availability of any SEBI investor protection mechanisms or SEBI grievance/dispute redressal mechanisms for such activity.

B. For all the existing clients for ongoing activities and outstanding ratings falling under regulatory purview of other FSR(s) as on the date of coming into effect of these provisions, a written intimation shall be sent to clients by the CRA specifying the nature of the activity, risks involved and non-availability of any SEBI investor protection mechanisms or SEBI grievance/dispute redressal mechanisms for such activities.

Further, to facilitate smooth transition and ease of doing business, CRA shall send these intimations to all existing clients and confirm the compliance of the same to SEBI within twelve months from the date of notification of these provisions.

7.2.6. Internal Audit Report

Every CRA undertaking any activity regulated by other FSR(s) shall ensure that, in respect of such activities, it submits an undertaking as part of the half-yearly internal audit report, confirming compliance with the requirements of these regulations, duly reviewed and approved by its Board of Directors.

7.2.7. Timeline for implementation of the above-mentioned proposals

To facilitate smooth transition and ease of doing business for CRAs, it is proposed that the aforementioned proposals in Para 7.2.1 to Para 7.2.6 will come into effect after the expiry of sixty days (except where a higher timeline is otherwise prescribed) from the date of notification of such proposals.

8. Proposal to the Board:

8.1. The Board is requested to –

8.1.1. consider and approve the proposals referred in paragraph 7 above and the consequent draft amendment notification at Annexure C;

8.1.2. authorize the Chairman to carry out suitable amendments to the regulations and to take any other consequential or incidental steps for implementation of the decisions of the Board.

Encls.: 1. Annexure A to Board Memorandum

2. Annexure B to Board Memorandum

3. Annexure C to Board Memorandum

Measures for regulation of activities of Credit Rating Agency

9. Objective

1.2. This addendum proposes certain changes in the Board Memorandum titled “Measures for regulation of activities of Credit Rating Agency”.

10. Deletion of the proviso under Regulation 9 (f) of the CRA Regulations

10.1. Paragraph 7.1 of the Board Memorandum deals with proposals related to amendment in Regulation 9 (f) of the CRA Regulations. The extant Regulation 9 (f) contains the following proviso which was inserted in the year 2018:

“Provided that all other activities shall be segregated to a separate entity within a period of two years from the date of notification of Securities and Exchange Board of India (Credit Rating Agencies) (Amendment) Regulations, 2018.”

10.2. Prior to the insertion of the above proviso, CRAs were allowed to undertake even non-rating activities not falling under the purview of any FSR. Vide the insertion of this proviso, CRAs were mandated to hive of such non-rating activities not falling under the purview of any FSR within a period of two years from the date of such notification (notification dated September 11, 2018). Since the period of two years has elapsed, the above proviso is redundant as on date.

10.3. Further, since Regulation 9(f) permits CRAs to undertake any other activity as may be specified by the Board, retaining the above proviso may create confusion.

10.4. Hence, it is proposed to omit the above proviso.

11. Proposal to the Board:

11.1. The Board is requested to –

11.1.1. consider and approve the proposals referred in paragraph 2 above and the consequent revised draft amendment notification at revised Annexure C to the memorandum;

11.1.2. authorize the Chairman to carry out suitable amendments to the regulations and to take any other consequential or incidental steps for implementation of the decisions of the Board.

Encls.: Revised Annexure C to Board Memorandum

CONSULTATION PAPER

DEPARTMENT OF DEBT AND HYBRID SECURITIES – POD II

Measures for regulation of activities of Credit Rating
Agencies (CRAs)

JULY 2025

Timeline to Respond

Comments on the Consultation paper (CP) may be sent by July 30, 2025

1. Objective and Background

1.1. The objective of this consultation paper is to seek comments/ views/ suggestions from the public on the proposed amendment to SEBI (Credit Rating Agencies) Regulations, 1999 (“CRA Regulations”) to introduce measures for regulation of activities of Credit Rating Agencies (CRAs).

1.2. The extant CRA Regulations provide that a CRA shall not carry out any activity other than the rating of securities that are listed or proposed to be listed on a stock exchange recognized by SEBI (“the Board”). However, CRA Regulations do not preclude CRAs from undertaking rating of products/ securities/ issuers under the respective guidelines of a financial sector regulator or any authority as may be specified by SEBI.

1.3. SEBI has been receiving representation/ feedback from the industry/ other stakeholders with regard to rating of certain financial products/ instruments, under the purview of other Financial Sector Regulators (FSR), where no guidelines in respect of rating of such products/ instruments have been issued by the relevant FSR.

1.4. Accordingly, detailed proposals in respect of activities by CRAs that are not regulated by SEBI are made in the ensuing section of this consultation paper.

2. Measures for regulation of activities of CRAs

2.1. Extant Regulatory Provisions:

2.1.1. Regulation 9(f) of the CRA Regulations provides that –

“a credit rating agency shall not carry out any activity other than the rating of securities that are listed or proposed to be listed on a stock exchange recognized by the Board.

Nothing contained in these regulations shall preclude a credit rating agency from carrying out any activity as may be specified by the Board or rating of financial instruments under the respective guidelines of a financial sector regulator or any authority as may be specified by the Board.

Explanation: ─ For the purposes of this clause, the ratings undertaken by a credit rating agency under the respective guidelines of a financial sector regulator or authority shall be under the purview of the respective financial sector regulator or authority.

Provided that all other activities shall be segregated to a separate entity within a period of two years from the date of notification of Securities and Exchange Board of India (Credit Rating Agencies) (Amendment) Regulations, 2018.”

2.2. Rationale for proposed change:

2.2.1. The extant CRA Regulations permit CRAs to undertake credit ratings of only listed/ proposed to be listed issuers/ securities or rating of financial instruments under the guidelines of a FSR/ any authority specified by SEBI.

2.2.2. SEBI has been receiving representation/ feedback from the industry/ other stakeholders towards permitting CRAs to undertake rating of financial products/ instruments under the purview of other FSR, even where no rating related guidelines may have been issued by the relevant FSR, e.g. rating of unlisted securities. It has also been represented that since rating of said products/ entities is adjacent to the current business of CRAs, permitting the same may lead to significant synergies, while also addressing a gap in the industry.

2.3. Proposal:

Accordingly, it is proposed that CRAs may be permitted to undertake activities that are not regulated by SEBI, subject to the following conditions:

2.3.1. CRA may undertake rating of financial instruments, which fall under the purview of any other FSR, provided it shall comply with the regulatory framework, if any, as may be specified by the respective FSR for the matters relating to policy, eligibility criteria, risk management, investor grievance or dispute handling mechanism, inspection, enforcement and claims;

“Financial Sector Regulator” shall mean an authority or body constituted under any law for the time being in force to regulate services or transactions in the financial sector and includes the Reserve Bank of India (RBI), Insurance and Regulatory Development Authority (IRDA), Pension Funds Regulatory and Development Authority (PFRDA), International Financial Services Centres Authority (IFSCA), Ministry of Corporate Affairs (MCA), Insolvency and Bankruptcy Board of India (IBBI) or such other Authority as may be specified by the Board, from time to time.

2.3.2. CRA may only undertake rating activities that are fee-based and non-fund based.

2.3.3. CRA shall undertake such activity(ies) that are not regulated by SEBI only at arm’s length basis through one or more Separate Business Unit (SBU) of the CRA, segregated by a Chinese Wall and ring-fenced from the SEBI regulated activities.

2.3.4. CRA shall ensure that it transfers its activities not regulated by the Board to separate business unit(s) within a period of six months from the date of notification of such proposal.

2.3.5. CRA shall ensure that the grievance redressal mechanism, including the escalation mechanism, if any, with respect to activities not regulated by SEBI, is part of the SBU and is separate and distinct from the grievance redressal mechanism provided for activities regulated by SEBI.

2.3.6. CRA shall prepare and maintain separate records in the SBU, for the non-SEBI regulated activities. Further, the staff engaged in such activities, should be distinct from the staff handling activities regulated by SEBI. However, the staff can cross the Chinese Wall, subject to due procedures approved by the Board of Directors of the CRA and documentation. Such Chinese Wall shall not be applicable for the key managerial personnel.

2.3.7. The other resources, including the information technology infrastructure, may be shared between the activities regulated by SEBI and activities that are not regulated by SEBI subject to due procedures approved by the Board of Directors of the CRA.

2.3.8. The minimum net worth requirement of a CRA, specified under the CRA Regulations, shall be ring fenced from any impact arising out of undertaking the activities that are not regulated by SEBI.

2.3.9. The CRA shall duly disclose on its website the list of the activities that are not SEBI regulated, along with a disclosure that none of the SEBI investor protection mechanisms will be available for any grievances or disputes arising out of or pertaining to such activities. A CRA undertaking such activity(ies), as on the date of notification of such proposal, shall make the said disclosure on its website within thirty days from the date of notification of such proposal. Further, the said disclosure/ disclaimer shall also be prominently displayed by the CRA in the rating report pertaining to the non-SEBI regulated activities.

2.3.10. CRA shall ensure that its advertising or marketing material and its webpage/ website displaying information pertaining to non-SEBI regulated activities shall be separate and distinct from regulated activities.

2.3.11. Before undertaking any activities which are not regulated by SEBI, there shall be an upfront written disclosure by the CRA to the relevant stakeholders including clients, beneficiaries and counterparties. The said disclosure shall be made, on all engagement letters, contracts, agreements, and business communication that such activity(ies) do not fall within the regulatory purview of SEBI. In this regard, confirmation shall also be obtained from the stakeholders, at the time of engagement, that they have understood the nature of the activity, risks involved and non-availability of any SEBI investor protection mechanism.

Further, for the existing and ongoing arrangements with regard to such activities, a CRA shall make necessary disclosures and obtain necessary confirmation/ acknowledgement from the stakeholders including clients, beneficiaries and counterparties, and submit a compliance report to SEBI, within a period of six months from notification of such proposal.

2.3.12. Every CRA undertaking any activity not regulated by the Board shall ensure that, in respect of such activities, it submits an undertaking as part of the half-yearly internal audit report, confirming compliance with the requirements of these regulations, duly reviewed and approved by its Board of Directors.