SEBI Update – Rating of Municipal Bonds on the Expected Loss (EL) based Rating Scale (Applicable- All Registered Credit Rating Agencies (CRAs) All Registered Debenture Trustees, Issuers who have listed and/ or propose to list Non-Convertible Securities, Securitized Debt Instruments, Security Receipts, Municipal Debt Securities or Commercial Paper Recognized Stock Exchanges All Depositories registered with SEBI)

SEBI issued a circular regarding  Rating of Municipal Bonds on the Expected Loss (EL) based Rating Scale

The following has been stated 

The Master Circular for Credit Rating Agencies (CRAs) provides that in addition to the standardized rating scales prescribed for various instruments, an Expected Loss (EL) based Rating Scale may be used by CRAs for ratings of projects/ instruments associated with the infrastructure sector. Pursuant to deliberations with various stakeholders, including the Corporate Bonds and Securitisation Advisory Committee (CoBoSAC), it is felt that EL Ratings, when used along with standardized rating scale/Probability of Default (PD) Rating, can better reflect the recovery prospects of municipal bonds.

Further, Urban Local Bodies/ Municipalities issue bonds primarily for the creation/development of infrastructure. Therefore, it has been decided that CRAs may, in addition to the standardised rating scale, extend the EL based Rating Scale for rating of Municipal Bonds which are issued for financing infrastructure assets.

This circular shall be applicable with immediate effect.

Link – https://www.sebi.gov.in/legal/circulars/may-2025/rating-of-municipal-bonds-on-the-expected-loss-el-based-rating-scale_93945.html