The Securities and Exchange Board of India has implemented a mandatory Credit Risk-o-Meter for debt securities that uses a six-tier color-coded system to help retail investors assess credit risk.

How the New Framework Works

The color-coded framework maps existing credit ratings ranging from AAA to D into six distinct risk levels, with each level assigned a specific color. Issuers and Online Bond Platform Providers must display the name of the credit rating agency and the actual credit rating in text format directly below the risk-o-meter.

Here are the risk tiers and their assigned colors:

AAA (A1+): Lowest credit risk using Irish Green

AA+, AA, AA- (A1): Very low credit risk using Chartreuse

A+, A, A- (A2): Low credit risk using Neon Yellow

BBB+, BBB, BBB- (A3): Moderate credit risk using Caramel

BB+, BB, BB- (A4+): Moderate risk of default using Dark Orange

B+, B, B-, C+, C, C-, D (A4, D): High to Very high risk of default using Red

Mandatory Disclosures and Operational Rules

This disclosure requirement applies to all listed and proposed to be listed debt instruments, including Non-Convertible Securities, Commercial Papers, and Structured Debt or Market Linked Debentures. If a debt security has ratings from multiple credit rating agencies, the Credit Risk-o-Meter must reflect the lowest rating provided.

For instruments that are unsecured, the term unsecured must be clearly shown in bold red text. Online bond platform providers are required to display this indicator on both their web and mobile interfaces and update rating changes within 24 hours of receiving notification from depositories like NSDL or CDSL.

The regulator emphasized that while this meter is a mandatory disclosure, it does not function as investment advice or a recommendation. Investors are reminded that debt investments also carry liquidity and market risks as platforms are strictly prohibited from manually overriding these classifications.