.png)
SEBI Clears Expansion of Credit Rating Agencies’ Mandate
- Ripradaman R
- 14 hours ago
- 2 min read
Introduction
The Securities and Exchange Board of India (SEBI) has approved an expansion of the mandate of credit rating agencies (CRAs).
This move allows CRAs to operate beyond traditionally SEBI-regulated instruments.
The decision aims to improve risk evaluation, transparency, and consistency across financial markets.
What Has SEBI Approved
SEBI’s board has cleared a broader scope of activities for credit rating agencies.
Key highlights include:
Permission to rate products outside SEBI-regulated securities
Expanded coverage across financial instruments and entities
Clear regulatory framework to avoid conflict of interest
This marks a structural shift in how credit risk is assessed in India.
Why SEBI Is Expanding the CRA Mandate
The decision addresses long-standing gaps in risk assessment.
Primary objectives:
Reduce information asymmetry in credit markets
Strengthen investor confidence
Improve early risk detection in non-traditional instruments
SEBI aims to bring uniformity where ratings already influence investor decisions.
What Changes for Credit Rating Agencies
CRAs will operate under enhanced responsibility and scrutiny.
Implications for CRAs:
Wider business scope with stricter governance norms
Higher accountability for rating quality
Stronger disclosure and compliance requirements
Regulatory oversight remains firmly with SEBI.
Connect on LinkedIn:
Impact on Investors and Market Participants
The move has direct relevance for investors, lenders, and institutions.
Expected outcomes:
Better-informed investment decisions
Improved comparability of risk across products
Reduced dependence on informal or unregulated opinions
For retail investors, this adds an additional layer of protection.
Effect on Mutual Funds and Debt Markets
Debt-oriented products stand to benefit the most.
Potential impact:
More granular risk assessment of issuers
Enhanced portfolio transparency
Stronger credit discipline among borrowers
Also Read:
Regulatory Safeguards and Boundaries
SEBI has clarified that expansion does not mean dilution of standards.
Safeguards include:
Clear separation between regulated and non-regulated ratings
Disclosure of rating purpose and limitations
Periodic reviews and inspections
This ensures credibility remains intact.
Worth Checking:
Why This Matters Long Term
This reform aligns India with global best practices.
Long-term significance:
Deeper and more resilient credit markets
Reduced systemic risk
Greater trust in independent risk evaluation
Watch This Video:
Conclusion
SEBI’s approval to expand the mandate of credit rating agencies is a measured regulatory step.
It strengthens transparency, enhances risk assessment, and supports long-term market stability.
Execution and oversight will determine its ultimate success.
FAQ
Q1. What is a credit rating agency (CRA)?
A CRA evaluates the creditworthiness of issuers or financial instruments and assigns ratings indicating risk levels.
Q2. What exactly has SEBI changed?
SEBI has allowed CRAs to rate products beyond SEBI-regulated securities under a defined regulatory framework.
Q3. Does this increase risk for investors?
No. The move aims to reduce risk by improving transparency and consistency in credit assessment.
Q4. Will CRAs be less regulated now?
No. SEBI continues to regulate CRAs with strict governance, disclosure, and compliance norms.
Q5. How does this impact mutual fund investors?
It improves credit visibility in debt portfolios, helping investors better understand underlying risks.
Citations
Securities and Exchange Board of India (SEBI)
Reserve Bank of India (RBI)
Ministry of Finance, Government of India
International Organization of Securities Commissions (IOSCO)
Leading Indian financial dailies and market research reports
Comments