Expected loss-based | Security Exchange Board of India

SEBI introduces 'expected loss-based' rating scale

The Security Exchange Board of India (SEBI) has introduced a new framework for the "expected loss-based rating scale".

Main points of Expected loss-based

• Under this new framework, credit rating agencies are required to provide requisite loss-based ratings for projects and equipment that are linked to the infrastructure sector.
• The expected loss-based rating introduced by SEBI is divided into a scale of seven levels.
• This new scale will be used by credit rating agencies to rate projects or equipment related to the infrastructure sector.
• All the provisions in the latest circular will be applicable to credit rating agencies with 'immediate effect', except the provision relating to standardization of rating scales.
• The circular was issued in exercise of the powers under section 11(1) of the Securities and Exchange Board of India Act, 1992.

Seven levels of damage

The seven expected levels of loss on the new scale prescribed by SEBI include:

1. least expected loss
2. very low expected loss
3. less expected loss
4. moderate expected loss
5. high expected loss
6. high expected loss
7. Most expected loss.

Standardization of Rating Scales

In order to standardize the use of rating scales, rating agencies have been asked to align their rating scales with the rating scales prescribed by the financial sector regulator or authority. In the absence of guidelines, the rating scales prescribed by SEBI will be followed.

Credit rating agency

The company which provides credit rating and assesses the debt repaying ability of the debtor is known as "Credit Rating Agency".