Sebi tweaks norms on municipal bonds
Regulator comes out with Expected Loss-Based Ratings scale for Municipal Bonds
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New Delhi: Markets regulator Sebi on Thursday extended the ‘expected loss-based rating scale’ for the rating of municipal bonds. This would be in addition to the standardised rating scale, according to a circular issued by Sebi. Before this, credit rating agencies used expected loss-based ratings for projects and instruments, which were associated with the infrastructure sector, in addition to the standardised rating scales.
“It is felt that EL Ratings, when used along with standardized rating scale/ Probability of Default(PD) Rating, can better reflect the recovery prospects of municipal bonds. Further, urban local bodies/ municipalities issue bonds primarily for the creation/development of infrastructure. Therefore, it has been decided that CRAs may, in addition to the standardised rating scale, extend the EL-based Rating Scale forrating of Municipal Bonds which are issued for financing infrastructure assets,” Sebi said.
The circular will be applicable with immediate effect, it added. The EL-based rating framework is a combination of the probability of default and the loss-given default (LGD). It aims to provide a measure of risk in the municipal bonds. Last month, Sebi came out with a proposal in this regard and sought public comments on the same.
Expands internal audit base for CRAs
The markets regulator has expanded the list of eligible professionals, who can be part of the internal audit team for Credit Rating Agencies (CRAs), making it more inclusive. Earlier, the internal audit team for CRAs was required to include a Chartered Accountant (ACA/FCA), and a Certified Information Systems Auditor (CISA) or someone with a Diploma in Information System Audit (DISA).
“The audit team must be composed of at least a Chartered Accountant (ACA/FCA) or a Cost Accountant (ACMA/FCMA) and a Certified Information Systems Auditor/ Diploma in Information System Auditor/ Diploma in Information System Security Audit (CISA/ DISA/ DISSA),” Sebi said in its circular. With the latest update, the revised criteria now allow for either a Chartered Accountant (ACA/FCA) or a Cost Accountant (ACMA/FCMA), along with a professional holding one of the following qualifications: CISA, DISA, or DISSA (Diploma in Information System Security Audit from ICMAI). The new requirements are applicable with immediate effect.
