SEBI introduces expected loss-based rating scale for rating agencies.

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The Securities and Exchange Board of India vide its notification dated 16th July 2021 has introduced an expected loss-based rating scale and standardization of rating scale used by credit rating agencies for ratings of projects/ instruments associated with the infrastructure sector.

The expected loss (EL) based rating is divided into a scale of seven levels, spanning from lowest to highest expected loss.

Instruments rated ”EL (Expected Loss) 1” will be considered to have the lowest expected loss over the life of the instruments while those rated ”EL 7” will indicate the highest expected loss.

Further for the existing outstanding ratings, the CRAs shall: 

(i)    disclose new rating symbols and definitions on their websites;

(ii)    update their rating lists on their websites; and

(iii)   inform their clients about the change in the rating symbols and definitions and specifying that this should not be construed as a  change in the ratings.

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