SEBI standardizes industry classification for credit rating agencies to bring uniformity

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To bring uniformity, capital markets regulator Sebi on Friday released a standardized framework for industry classification, which will be used by credit rating agencies for purposes of rating exercise and research activities.

The sector classification will be applicable to Credit Rating Agencies (CRAs) from October 1, 2022, the Securities and Exchange Board of India (Sebi) said in a circular.

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In the meantime, any feedback and changes suggested by credit rating agencies will be recalibrated by the exchanges, where possible, he added.

The standardized framework will help standardize classifications used across industries and the securities market.

After reviewing existing industry classification structures across all sectors, the Market Data Advisory Committee (MDAC), a standing committee formed by Sebi, has developed a harmonized four-tier industry classification framework. for adoption by all stakeholders and for all relevant processes or purposes in India. securities market.

The committee includes representatives of stock exchanges, depositories and other market participants.

Under this, the regulator has classified industries on the basis of macroeconomic, sector, industry and basic industry indicators.

The regulator has required credit rating agencies to use this standardized industry classification for purposes of rating exercise, peer benchmarking, research activities including economic research, industries and businesses, etc.

In a separate circular, Sebi extended the deadline until June 30, 2022 for rating agencies to align their rating scales.

Previously, they had to comply with the rules by March 31.

Under this, rating agencies will have to align their rating scales with the scales prescribed by the guidelines of the respective regulator or financial sector authority in terms of CRA

Regulations, or in the absence thereof, follow the grading scales prescribed by Sebi.

This decision aims to standardize the use of grading scales.

In cases where a rating scale has not been prescribed by a financial industry regulator or authority, rating agencies will only use rating scales prescribed by Sebi from time to time.

The development comes after Sebi received a representation from credit rating agencies requesting an extension of the provisions’ applicability date.

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