The board of the Securities and Exchange Board of India (Sebi) will consider and approve on 28 December as many as 17 reforms, including new norms for credit rating agencies and investment advisers, according to two people with direct knowledge of the development.

“We are re-looking all regulations and ensuring that all circulars are captured in regulations," Ajay Tyagi, chairman of Sebi, said at a 20 December industry event.

An email sent to Sebi on Friday seeking comment did not elicit a response.

Under Tyagi, who took over as chairman in March, the capital markets regulator is bringing in sweeping reforms to enhance transparency and increase ease of doing business.

The Sebi board will also discuss the issue of disclosure of loan defaults and publish a discussion paper on it, the people cited above said, requesting anonymity.

In August, Sebi had mandated that listed companies disclose all loan defaults within a day. It withdrew the directive on 30 September, a day before it was to take effect, citing feedback from banks and industry that it needs a granular definition of loan default.

Mint could not ascertain the details of the new norms but one of the two people cited above said that Sebi could take a discussion paper approach.

“If the regulator ensures that technical defaults are not taken as a benchmark for disclosures, then the move will help in enhancing transparency," said an official with a public sector bank who did not wish to be named.

Sebi on 8 September had issued a discussion paper to strengthen governance and shareholding norms for credit rating companies. On 22 June, it had issued a consultation paper to define who is a registered investment adviser and who is a mutual fund distributor.

“Sebi board proposes to cap cross-holding among credit rating agencies (CRAs) at 10%, and have stringent net worth and ownership criteria. During the course of previous years, Sebi had issued a number of circulars to improve standards at rating agencies, the final regulations will capture all of them," said the first person cited earlier.

Currently there is no shareholding cap in rating agencies. The expected norms will also restrict individual shareholders and they cannot have a 10% (or more) stake in two rating agencies. Sebi’s 10% cap draws parallels with such norms in the banking industry.

Reserve Bank of India norms say that a bank cannot hold more than a 10% in another bank. Sebi’s move comes after Crisil Ltd bought an 8.82% stake in Care Ratings Ltd on 29 June.

The regulator would also increase the minimum net worth required to start a credit agency. Currently, it stands at Rs5 crore, a number stipulated in 1999.

Rating agencies had come under criticism after the Amtek Auto bond default, when Crisil and Care sharply downgraded and withdrew ratings on the bonds. The rating withdrawal led to a redemption crisis in JP Morgan India Treasury Fund and JP Morgan India Short Term Income Fund (

To prevent such incidents, a rating agency will be allowed to suspend a rating only if it had been assessing the instrument for considerable time or specific duration of the tenure of an instrument, said the second person.

“Ratings firms may need to hive off any activity other than the rating of financial instruments and financial research," he added.

“All these proposals are welcome steps with a cross holding cap; the regulator is ensuring that there is no monopoly in the market and adequate competition is present. Rating agencies do a work similar to an auditor, so rotation of rating agency will ensure independence. The increased networth criteria will act as an entry gate for serious players," said D. Ravishankar, founder director at Brickwork Ratings.

After the Sebi board approves new norms, a mutual fund distributor may not be allowed to offer any advice but can only suggest a product suitable to an investor’s profile.

“This attempt at the investment adviser regulations will clearly segregate advisory and the role of a distributor; however a distributor would need to suggest a product based on its suitability. The Investment Advisor Regulations of 2013 will be amended post the board nod," said the second person.

In October 2016, Sebi had issued a paper that outlined the road map of distribution and advice.

But in January, Sebi’s international advisory board suggested to the regulator to study the financial viability of the advisory business in India. This forced the regulator to issue a fresh discussion paper.