SEBI has issued guidance to Credit Rating Agencies (CRAs) in case of defaults in repayment due to ‘technical defaults’
As per existing direction of SEBI, even an instance of a one-day delay in payment or one-rupee shortfall in payment is to be recognized by the CRA as default.
In the wake of COVID-19 pandemic, with a view to provide some flexibility to CRAs in taking appropriate view in cases of defaults corrected by the rated entity within a relatively shorter span of time, provision were introduced by SEBI on post-default curing period.
One of the recommendations of the Working Group of CRAs for Ease of Doing Business is to provide specific policy guidance on treatment of ‘technical defaults’ so that the policy is applied uniformly across CRAs.
The Working Group has highlighted that the following scenarios of non-payment of debt (principal and/ or interest) may arise due to reasons beyond the control of the issuer, namely, failure to remit payment due to absence of correct information or due to incorrect or dormant investor account furnished by the investor(s)or due to notice/ instruction received from a government authority to freeze the account of investor(s).
Accordingly, the SEBI has issued Circular No. SEBI/HO/DDHS/DDHS-PoD-3/P/CIR/2024/160 dated 18.11.2024 to mandate that in the aforesaid scenario, the CRA shall confirm and verify the availability of adequate funds with the issuer and also confirm and verify:
(i) the proof of failure of the required payment of debt (principal and/ or interest)
(ii) the reasons for failure being as specified above, and
(iii) the required amounts being duly paid into a separate escrow account maintained with a scheduled commercial bank by the issuer on the due date of payment
For all the said instances, the CRA shall furnish details and amount of default and reasons of failure to the Stock Exchanges, Depositories and Debenture Trustee on the same day as the dissemination of the rating Press Release on the CRA’s website.
CRAs is also required to sensitise their clients to avail of the penny-drop verification facility offered by banks to avoid occurrence of failure to remit the required payments of debt (principal and/ or interest) and/or other suitable measures to prevent such occurrence.
Download SEBI Circular Click Here >>
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