SEBI Introduces Probability of Default Mechanism

• On 13^th June, 2019, SEBI introduced a probability of default mechanism to keep credit rating agencies (CRAs) in check.

Key Points

• Rating companies, in consultation with SEBI, will now create a uniform probability of default benchmark for each rating category on their website, for one-year, two-year and three-year cumulative default rates, both for the short term and long term.
• A default probability, for instance, of one per cent for A-rated debt papers, would mean that a rating company tracking 500 A-rated papers would be pulled up if the number of defaults exceed five in a year. The regulator would similarly set ....