SEBI standardises industry classification for credit rating agencies to bring uniformity

To bring in uniformity, capital markets regulator Sebi on Friday came out with a standardised framework for the classification of industry, which will be used by credit rating agencies for the purpose of rating exercise and research activities.

The industry classification will be applicable to credit rating agencies (CRAs) with effect from October 1, 2022, the Securities and Exchange Board of India (Sebi) said in a circular.

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In the meantime, any feedback and suggested changes by CRAs shall be recalibrated by exchanges, wherever feasible, it added.

The standardised framework will help bring about uniformity in the classifications being used across sectors and in securities market.

After examining the existing industry classification structures across sectors, the Market Data Advisory Committee (MDAC), a standing committee constituted by Sebi, developed a harmonised four-level industry classification framework for adoption by all stakeholders and for all relevant processes or purposes in the Indian securities market.

The committee comprises representatives from stock exchanges, depositories and other market participants.

Under this, the regulator has categorised industries on the basis of macroeconomic indicators, sector, industry and basic industry.

The regulator has asked credit rating agencies to use this standardised industry classification for the purpose of rating exercise, peer benchmarking, research activities including research for economy, industries and companies etc.

In a separate circular, Sebi has extended the deadline till June 30, 2022 for CRAs to align their rating scales.

Earlier, they were required to comply with the rules by March 31.

Under this, rating agencies will have to align their rating scales with the scales prescribed under the guidelines of respective financial sector regulator or authority in terms of CRA

Regulations, or in absence of the same, follow rating scales prescribed by Sebi.

The move is aimed at standardising the usage of rating scales.

In cases where a rating scale has not been prescribed by a financial sector regulator or authority, CRAs will only use rating scales prescribed by Sebi from time to time.

The development comes after Sebi received representation from credit rating agencies requesting for extension of the date of applicability of the provisions.