Amendments to the Framework for Credit Rating Agencies (CRAs)
Recently the Securities and Exchange Board of India (SEBI) has amended the Framework for Credit Rating Agencies (CRAs).
SEBI had issued an operational circular on CRAs in January 2023. This circular was to be implemented from February 1. Now SEBI has issued a new circular with many changes.
New changes:
- CRAs have been asked to frame a detailed policy by the end of March on matters of non-submission of critical information by issuers.
- The MD or CEO of a credit rating agency and any other person having business responsibilities within the agency shall not be a member of the rating committees of the agency.
- CRA is a company that provides credit rating. It rates borrowers on the basis of their ability to repay the loan by making timely interest payments and the likelihood of default.
- CRISIL, ICRA, CARE etc. are some of the CRAs operating in India.
- The Securities and Exchange Board of India (Credit Rating Agencies) Regulations, 1999 empowers SEBI to regulate CRAs operating in India.
Significance of CRAs:
- Help governments borrow money from global capital markets.
- Help attract foreign investment by projecting the country as a profitable investment destination.
- Investors use these as part of a number of analytical resources to make informed investment decisions.
Issues with CRAs:
- The market is dominated by a few CRAs,
- There is lack of transparency in the methods and procedures related to ratings by CRAs etc.
Securities and Exchange Board of India (SEBI)
- SEBI is a statutory body (a non-constitutional body established by the Parliament) established on 12th April, 1992 as per the provisions of the Securities and Exchange Board of India Act, 1992.
- The basic functions of SEBI are to protect the interests of investors in securities and to promote and regulate the securities market.
- The headquarter of SEBI is located in Mumbai and regional offices are located in Ahmedabad, Kolkata, Chennai and Delhi.
- The Controller of Capital Issues was the regulatory authority before SEBI came into existence; It was empowered under the Capital Issue (Control) Act, 1947.
- SEBI was formed in April 1988 under a resolution of the Government of India as the regulator of the capital market in India.
- Initially SEBI was a non-statutory body which did not have any statutory power.
- It became an autonomous body through the SEBI Act, 1992 and was given statutory powers.
Source – Economics Times
