SEBI Allows EL-Based Ratings for Infra Municipal Bonds

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  • Last Updated on 17 May, 2025

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EL-based ratings

Circular No. SEBI/HO/DDHS/DDHS-PoD-2/P/CIR/2025/ 70, Dated 15.05.2024

In a move aimed at enhancing transparency and improving the credit rating framework for infrastructure-related securities, the Securities and Exchange Board of India (SEBI) has extended the applicability of the Expected Loss (EL)-based Rating Scale to Municipal Bonds.

1. Background

Under Para 5.6.1 of SEBI’s Master Circular for Credit Rating Agencies (CRAs) dated 16th May 2024, SEBI had previously permitted CRAs to use an Expected Loss-based Rating Scale, alongside the traditional standardised credit rating scales, specifically for infrastructure projects and instruments. This approach allows investors to better assess the probability and extent of potential credit losses.

2. New Development – Applicability Extended to Municipal Bonds

SEBI has now decided that CRAs may also apply the EL-based Rating Scale to Municipal Bonds, provided these bonds are issued for financing infrastructure assets. This means that municipalities raising funds through bonds for development projects like roads, water supply, sanitation, etc., can now have their instruments rated using the EL framework.

3. Objective and Impact

This move is intended to –

  • Improve investor confidence in municipal bonds by providing a more nuanced risk assessment.
  • Align credit ratings more closely with the expected performance and risk of infrastructure-backed municipal debt.
  • Promote infrastructure financing by enabling better-informed investment decisions in the municipal finance space.

4. Conclusion

By extending the use of EL-based ratings to municipal infrastructure bonds, SEBI continues to refine India’s credit rating ecosystem, especially in the context of urban infrastructure development. CRAs must ensure compliance with SEBI’s guidelines while applying this alternative rating methodology.

Click Here To Read The Full Circular

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Author: Taxmann

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

  • The statutory material is obtained only from the authorized and reliable sources
  • All the latest developments in the judicial and legislative fields are covered
  • Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
  • Every content published by Taxmann is complete, accurate and lucid
  • All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
  • The golden rules of grammar, style and consistency are thoroughly followed
  • Font and size that's easy to read and remain consistent across all imprint and digital publications are applied