Defaulter norm: Sebi issues directive to credit rating agencies

By: |
March 31, 2020 3:10 AM

The relaxation announced by the market regulator is extended till the period of moratorium by the RBI.

The relaxation announced by the market regulator is extended till the period of moratorium by the RBI.The relaxation announced by the market regulator is extended till the period of moratorium by the RBI.

The Securities and Exchange Board of India (Sebi) on Monday directed credit rating agencies (CRAs) not to classify a company defaulter, if the delay in payment of interest or principle was due to the lockdown. According to the market regulator, temporary relaxations in compliance by CRAs was felt in the view of the developments arising due to novel coronavirus pandemic and in light of the moratorium permitted by the Reserve Bank of India (RBI) on loan servicing and working capital facilities for three months.

Sebi, in its circular, said: “If the CRA is of the view that the delay in payment of interest or principle has arisen solely due to the lockdown conditions creating temporary operational challenges in servicing debt, including due to procedural delays in approval of moratorium on loans by the lending institutions, CRAs may not consider the same as a default event or recognize default.” However, CRAs need to make appropriate disclosures in this regard shall be made in the press release.

A senior official from the leading rating agency said that market regulator had asked rating agencies not to classify any company as a defaulter if it missed paying interest or principal due to the lockdown. “But even now if we feel the financial condition of the company is weak and they are trying to delay the payment intentionally, we might downgrade their debt instruments,” said the official from a rating agency.

The relaxation announced by the market regulator is extended till the period of moratorium by the RBI. Further, CRAs dependent on the issuers and third parties for information collection, which is impaired due to current lockdown and relaxation from timelines for rating action or issue of press release by CRAs was also granted by the regulator.

However, CRAs should endeavour to finish the exercise on a best effort basis. Such cases shall be put up for ratification by the Rating Sub-Committee of the Board of CRA,” said Sebi. According to the June 30, 2017 circular, CRAs have to publish on their website press release regarding the rating action, if warranted, immediately, but not later than seven days of occurrence of the said event.

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