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Expected Loss (EL) based Rating Scale for CRAs

Published on July 20, 2021
Current Context: The Securities and Exchange Board of India (SEBI) has launched a new standard called as ‘Expected Loss (EL) based Rating Scale’ particularly for Credit Rating Agencies (CRAs).
Expected Loss (EL) based Rating Scale for CRAs
  • The standard will help to protect the interest of investors in the security market.
  • The EL based rating will be used by CRAs when they will be rating projects or instruments related to the infrastructure field.
  • The EL based ratings are divided into 7 scales, spanning from the lowest to the highest expected loss.
  • The rating symbol should have CRA’s first name as a prefix. Following is the significance of each EL symbol.
  • EL 1: It will be considered to have the lowest expected loss, over the life of the instrument.
  • EL 2: It will be considered to have a very low expected loss, over the life of the instrument.
  • EL 3: It will be considered to have a very low expected loss, over the life of the instrument.
  • EL 4: It will be considered to have a moderate expected loss, over the life of the instrument.
  • EL 5: It will be considered to have a high expected loss, over the life of the instrument.
  • EL 6: It will be considered to have a very high expected loss, over the life of the instrument.
  • EL 7: It will be considered to have highest expected loss, over the life of the instrument.
  • To have the standardization usage of rating scales, the CRAs are directed by SEBI to align their rating scales with the rating scales which are mentioned under the guidelines of the respective finance sectors in terms of CRA regulations.
  • And in the case of the absence of guidelines, the SEBI has directed CRAs to follow the rating scales mentioned by SEBI itself.
  • Henceforth, the CRAs will provide expected loss-based ratings with an appropriate symbol for each instrument or project.
  • Static Part: 
    • HQ of SEBI: Mumbai
    • Chairperson of SEBI: Ajay Tyagi

Question: 

Q.1 Which entity launched a new standard called as ‘Expected Loss (EL) based Rating Scale’ for Credit Rating Agencies (CRAs)?
a. CDSL
b. IRDA
c. SEBI
d. RBI

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