SEBI Proposes Colour-Coded Credit Risk-o-Meter for Debt Securities

SEBI has proposed a Credit Risk-o-Meter for debt securities, using colours to show the level of credit risk, as per news reports.  

The framework is modelled on the risk-o-meter used for mutual funds and is intended to make debt investments easier to compare. 

6 Risk Levels Proposed 

The proposed meter will have 6 categories, starting with Irish Green for the lowest credit risk and ending with Red for high to very high risk of default. 

The other levels are Chartreuse for very low risk, Neon Yellow for low risk, Caramel for moderate risk and Dark Orange for moderate risk of default. 

SEBI said the system would simplify risk evaluation and help investors assess securities against their risk appetite. 

Meter to Appear Across Investor Documents 

Issuers and Online Bond Platform Providers (OBPPs) would be required to display the Credit Risk-o-Meter in offer documents, abridged prospectuses, private placement memorandums and advertisements. It would also have to appear on their websites and mobile platforms. 

The regulator has proposed that the meter be clearly identified as representing only the credit risk of the debt security. 

Lowest Rating to Determine Meter 

The credit rating agency (CRA) and the actual credit rating would have to be shown immediately below the meter. 

Where a security has ratings from multiple CRAs, the meter would be based on the lowest rating, while all ratings would continue to be disclosed. 

For unsecured debt instruments, issuers would have to place a prominent disclosure in bold red text below the meter. 

Changes to Be Updated on Bond Platforms 

OBPPs would also have to immediately communicate any change in a debt security's Credit Risk-o-Meter on their platforms. 

SEBI has invited public comments until September 3, 2026 on the proposed framework. 

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Conclusion 

SEBI's proposal would introduce a six-colour Credit Risk-o-Meter for debt securities, with the system designed to present credit risk alongside the security's actual credit rating and CRA details. 

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.  

Investments in the securities market are subject to market risks, read all the related documents carefully before investing.