On March 28, 2025, the Securities and Exchange Board of India (“SEBI”) issued a consultation paper on the rating of municipal bonds on the Expected Loss (“EL”) based rating scale (“Consultation Paper”).[1] The Consultation Paper invites public comments and feedback on the draft circular, which is placed at Annexure-A of the Consultation Paper, latest by April 18, 2025.
SEBI has proposed a framework for rating municipal bonds based on the EL rating scale. Since Urban Local Bodies/ Municipalities issue bonds primarily for infrastructure development, SEBI proposes that CRAs may be permitted extend the EL-based rating scale to municipal bonds alongside the existing standardized rating scale. The objective of the same is to introduce a structured methodology for assessing municipal bonds, ensuring greater transparency and risk evaluation.
[1]https://www.sebi.gov.in/reports-and-statistics/reports/mar-2025/consultation-paper-on-draft-circular-on-rating-of-municipal-bonds-on-the-expected-loss-el-based-rating-scale-_93117.html