When Are Multiple Ratings Required for a Capital Market Instrument?

While a single credit rating satisfies the regulatory minimum for most capital market instruments, certain larger issuances, specific instrument types, and particular investor expectations lead many issuers to voluntarily or, in some specific cases, mandatorily obtain ratings from more than one SEBI-registered agency.

The General Regulatory Position on Single vs Multiple Ratings

For most standard debt capital market instruments in India, SEBI's regulatory framework generally requires a minimum of one credit rating from a SEBI-registered agency, rather than mandating multiple ratings as a universal requirement across all instrument types and sizes. However, certain specific circumstances — particular instrument categories, issuance sizes above certain thresholds, or specific investor requirements — can lead to a practical or, in some defined cases, a regulatory expectation of more than one rating, and companies should confirm the currently applicable specific requirement for their particular instrument and issuance size.

Why Issuers Voluntarily Obtain a Second Rating

•      To broaden market credibility and investor confidence, particularly for larger issuances where a wider, more diverse investor base is being targeted and a second independent opinion can support broader comfort

•      To satisfy the specific internal investment policy of certain institutional investors, some of whom prefer or require dual ratings for larger positions as part of their own internal risk management practice, independent of the strict regulatory minimum

•      To provide a degree of cross-validation where a company's business or financial profile involves some genuine complexity or judgement calls that the company believes benefit from more than one agency's independent perspective

•      To support access to specific investor categories or markets where a second rating, even if not strictly mandatory, is a common market practice or expectation for comparable transactions

How Rating Agencies Handle Assignments Where Multiple Ratings Exist

Where a company obtains ratings from more than one agency for the same instrument, each agency conducts its own genuinely independent assessment using its own methodology, and the two ratings, while often broadly consistent given they are assessing the same underlying credit, are not required to be identical and can occasionally diverge to some degree, reflecting differing methodological emphasis or, in some cases, differing information available to each agency at the point of its specific assessment. Companies obtaining multiple ratings should be prepared for the possibility of some divergence and should generally disclose both ratings transparently to the market rather than selectively emphasising the more favourable one, which is both a matter of good disclosure practice and, in many cases, a specific regulatory expectation.

Cost and Practical Considerations

Obtaining a second rating involves a genuine additional cost and an additional ongoing surveillance commitment, discussed in the dedicated surveillance pillar of this content series, since each rating agency conducts its own independent annual and event-driven review process for as long as the instrument remains outstanding. Companies should weigh this additional cost and ongoing commitment against the specific, concrete benefit a second rating is expected to provide for their particular issuance — a benefit that is often genuinely significant for larger, more complex, or more broadly marketed issuances, but proportionately less compelling for smaller, more routine transactions targeting a familiar, limited investor base.

Illustrative Example

Consider a hypothetical large diversified conglomerate planning a very substantial public bond issue intended to attract a broad base of both institutional and retail investors. On its investment bankers' advice, the company obtains ratings from two separate SEBI-registered agencies, both arriving at closely aligned AA-category assessments, which the company's marketing materials present transparently side by side, a presentation its bankers indicate has meaningfully supported investor confidence and demand breadth for an issue of this scale. A smaller peer company undertaking a considerably more modest private placement to a limited group of familiar institutional investors, by contrast, proceeds with a single rating, its bankers advising that the additional cost and surveillance commitment of a second rating would not be proportionate to the benefit for a transaction of this more limited scale and audience — illustrating how the multiple-rating decision reflects a genuine cost-benefit judgement specific to each transaction's scale and audience rather than a fixed, universal rule.

Frequently Asked Questions

Is a second rating ever legally mandatory in India?

Certain specific instrument categories or issuance circumstances can carry a mandatory dual-rating requirement under SEBI's or another regulator's specific framework, so companies should confirm the currently applicable requirement for their specific instrument rather than assuming a single rating is always sufficient or always required.

What happens if two agencies give meaningfully different ratings for the same instrument?

Both ratings are generally disclosed transparently to the market, and investors and analysts typically examine the specific rationale behind each agency's assessment to understand the basis for any divergence, rather than the company being able to simply rely on the more favourable of the two.

Does obtaining two ratings from agencies with different methodologies improve investor confidence?

It can, particularly for larger or more widely marketed issuances, since independent corroboration from more than one recognised agency is generally viewed favourably by a broad investor base, though the specific benefit should be weighed against the additional cost for each individual transaction.

Do both ratings need to be updated at the same surveillance frequency?

Each agency conducts its own independent surveillance on its own schedule, which is broadly similar in principle across agencies but not necessarily perfectly synchronised, meaning companies with dual ratings should expect and plan for engagement with both agencies' surveillance processes on an ongoing basis.

Talk to FinMen Advisors — for help preparing for a rating exercise, write to marketing@finmen.in or call +91 77387 14680.

Disclaimer: This article is intended for general informational and educational purposes only and does not constitute financial, credit, investment, or legal advice. Credit ratings are assigned solely by SEBI-registered Credit Rating Agencies (such as CRISIL, ICRA, CARE Ratings, India Ratings, Brickwork, Acuite, and Infomerics) based on their own methodologies, policies, and the information available to them at the time of assessment. FinMen Advisors provides preparatory and advisory support to companies undergoing a rating exercise and does not issue, influence, or guarantee any rating outcome. Readers should exercise independent judgement and consult qualified professionals before making business or financial decisions.