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SEBI allows expected loss ratings for municipal bonds
SEBI has introduced expected loss (EL) ratings for municipal bonds, allowing credit rating agencies to assign them alongside the existing probability of default scale. The move, detailed in SEBI's Annual Report 2025-26,…
The Story in Brief
SEBI has introduced expected loss (EL) ratings for municipal bonds, allowing credit rating agencies to assign them alongside the existing probability of default scale. The move, detailed in SEBI's Annual Report 2025-26, aims to give investors a clearer view of recovery prospects on infrastructure-linked municipal bond issuances. EL ratings estimate the proportion of principal and interest an investor might lose over the life of the instrument, factoring in both the likelihood and severity of default. SEBI has not replaced the current rating methodology but added EL as an extra assessment layer.
The Indian Opinion
The municipal bond market has long been a sideshow in India's debt story. SEBI's new expected loss framework is a welcome attempt to give investors a fuller picture of project-linked risk. But the real test will be uptake: how many issuers and fund managers actually use the EL scale? And will retail investors, who are already wary of municipal paper, find this extra layer clarifying or confusing? More ratings are not the same as more liquidity or better governance at the municipal level.
Source: businesstoday.in
This story was synthesised by AI from the source linked above.
