Sebi comes out with Expected Loss-Based Ratings scale for Municipal Bonds
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.
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"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.
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Sebi comes out with Expected Loss-Based Ratings scale for Municipal Bonds
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.
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"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.
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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.
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