SEBI MULS RATING OF Municipal Bonds on Expected Damage Based Rating Scale

Markets Regulator Sebi is extending the ‘expected loss-based rating scale’ for the rating of municipal bonds. This will be in addition to the standard rating scale.

Currently, credit rating agencies use the expected loss based ratings for projects and instruments, which are associated with the infrastructure sector, in addition to certified rating scales.

Sebi said in its consultation paper, “It seems that when EL rating, when used with a certified rating scale/ default (PD) rating, it can better reflect the possibility of a re -recovery of municipal bonds. Further, urban local bodies/ mucus.” Sebi stated in his consultation paper.

Accordingly, it has been suggested that the CRA, in addition to a certified rating scale, can extend the EL-based rating scale for the rating municipal bonds.

The EL-based rating framework is a combination of the probability of a default lt and a loss-upslist default (LGD). The purpose is to provide a risk measure in municipal bonds.

The Securities and Exchange Board India F India (SEBI) sought public comments on the proposal by April 18.