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Capital Market and Securities Laws · Securities Market Intermediaries

Credit Rating Agencies, Debenture Trustees and Bankers to an Issue

Updated 11 October 2026 · Fact-checked

These are three SEBI-registered intermediaries. A credit rating agency gives an opinion on the creditworthiness of a debt instrument. A debenture trustee protects debenture holders and enforces the security. A banker to an issue collects and refunds application money. Each needs a SEBI certificate of registration under Section 12 of the SEBI Act, 1992.

Understand Credit Rating Agencies, Debenture Trustees and Bankers to an Issue

Capital market intermediaries help issuers raise money and protect investors. Three of them are often asked together: credit rating agencies, debenture trustees and bankers to an issue. Each does a different job in the life of an issue.

A credit rating agency (CRA) gives an independent opinion on how likely an issuer is to repay a particular debt instrument on time. The rating is a symbol, not a recommendation to buy or sell. Investors in debentures and bonds rely on it to judge risk. It is the instrument that is rated, not just the company.

A debenture trustee is appointed by the issuer to act for the debenture holders. Debenture holders are many and scattered, so one trustee holds the security, watches the issuer's compliance and acts if the issuer defaults. Think of the trustee as the debenture holders' representative against the company.

A banker to an issue is a bank that handles the money side of a public issue. It accepts application money from investors, keeps it in the issue accounts, transfers it to the issuer after allotment and refunds it where shares or debentures are not allotted.

The legal base is Section 12 of the SEBI Act, 1992. Section 12(1) names bankers to an issue and trustees of trust deed among the intermediaries who cannot buy, sell or deal in securities except under a SEBI certificate of registration. Section 12(1A) covers credit rating agencies in the same way. The detailed conditions sit in SEBI regulations, which the Board makes under Section 30 of the Act.

Key rules to remember

Registration requirement for bankers to an issue and debenture trustees
Section 12(1): no banker to an issue or trustee of trust deed shall buy, sell or deal in securities except under a certificate of registration from SEBI
The certificate must be obtained in accordance with the regulations made under the Act. Dealing means acting within the intermediary's activity in the securities market.
Registration requirement for credit rating agencies
Section 12(1A): no credit rating agency shall buy or sell or deal in securities except under a certificate of registration from SEBI
Same condition: the certificate is obtained in accordance with the regulations made under the Act.
Application for registration
Section 12(2): application in the manner and with the fees determined by regulations
Manner and fees are set by regulations, not by the Act itself.
Suspension or cancellation
Section 12(3): SEBI may by order suspend or cancel a certificate in the manner determined by regulations, after giving a reasonable opportunity of being heard
Natural justice is a mandatory condition. An order without a hearing is not valid.
Source of regulation-making power
Section 30(2)(d): regulations may provide for conditions of registration, fee and manner of suspension or cancellation under Section 12
This links Section 12 to the CRA, debenture trustee and banker regulations.
Role in one line each
CRA = rates the instrument | Debenture trustee = protects holders | Banker to an issue = handles application money
Use this to answer difference questions quickly.

How to solve Credit Rating Agencies, Debenture Trustees and Bankers to an Issue questions

Use the same method for any question on these intermediaries, whether it asks for a role, a duty or a difference.

  1. 1Identify which intermediary the question is about and name it with its regulatory source: SEBI Act, 1992 and the relevant SEBI regulations.
  2. 2State the legal basis: Section 12 requires a SEBI certificate of registration. Use Section 12(1) for bankers and trustees and Section 12(1A) for CRAs.
  3. 3Define the intermediary in one or two plain lines, covering what it does and for whom.
  4. 4List the main functions and duties. Group them logically, for example before the issue, during the issue and after the issue.
  5. 5Add the registration and control points: application and fee under Section 12(2), suspension or cancellation under Section 12(3) with a hearing.
  6. 6Apply the points to the facts given, such as a company issuing debentures, a failure to act or an unregistered entity.
  7. 7Close with a clear conclusion that answers exactly what was asked.

Quickest way: Three-line role grid

When to use it: Use this for short notes, differences or when you are short of time in a 3-hour written paper.

  1. Write the three intermediaries in a row and give each a one-line role: rates, protects, collects money.
  2. Under each, write who it serves: investors for the rating, debenture holders for the trustee, issuer and applicants for the banker.
  3. Add the common thread: all need SEBI registration under Section 12, with suspension or cancellation only after a hearing.
  4. Add two or three specific duties for each from your notes and finish with a one-line conclusion.

Common mistakes in Credit Rating Agencies, Debenture Trustees and Bankers to an Issue

  • Saying a credit rating is a recommendation to buy, hold or sell.

    Students confuse ratings with investment advice.

    Fix: Write that a rating is an opinion on creditworthiness of a specific instrument. It is not advice and not a guarantee of repayment.

  • Treating the debenture trustee as the agent of the company only.

    The company appoints and pays the trustee, so students assume the trustee serves the company.

    Fix: State that the trustee acts for the debenture holders and protects their interests, including enforcing security on default.

  • Saying the banker to an issue arranges or underwrites the issue.

    Bankers, merchant bankers and underwriters are mixed up.

    Fix: Limit the banker's role to collecting application money, holding it, transferring it to the issuer and refunding it. Marketing and underwriting belong to other intermediaries.

  • Quoting the wrong sub-section for credit rating agencies.

    All intermediaries seem to be in Section 12(1).

    Fix: Remember that bankers and trustees are named in Section 12(1), while credit rating agencies fall under Section 12(1A).

  • Forgetting the hearing before suspension or cancellation.

    Students focus on SEBI's power and skip the proviso.

    Fix: Always add that under Section 12(3) no order can be made unless the person has been given a reasonable opportunity of being heard.

  • Giving detailed figures such as net worth or fees from memory without being sure.

    Students try to add precision to look thorough.

    Fix: If you are not certain of a figure, state the rule in words, for example that eligibility and fees are as specified in the regulations.

Worked examples

Example 1

Briefly explain the legal requirement for a person who wishes to act as a banker to an issue, and say what SEBI can do if the banker breaks the conditions.

Show the solution
  1. Provision: Section 12(1) of the SEBI Act, 1992 names a banker to an issue among the intermediaries associated with the securities market.
  2. Such a person cannot buy, sell or deal in securities except under, and in accordance with, the conditions of a certificate of registration obtained from SEBI under the regulations.
  3. Application: under Section 12(2) the application must be made in the manner and with the fees determined by regulations.
  4. Action on breach: under Section 12(3) SEBI may by order suspend or cancel the certificate in the manner provided in the regulations.
  5. Safeguard: no such order can be made unless the banker has been given a reasonable opportunity of being heard.

Answer: A banker to an issue must hold a SEBI certificate of registration under Section 12(1) and work within its conditions. If it breaches them, SEBI may suspend or cancel the certificate under Section 12(3), but only after giving a reasonable opportunity of being heard.

Example 2

Aarav Infra Ltd plans to issue debentures to the public. Explain the role of a credit rating agency and a debenture trustee in this issue, and state how the two differ.

Show the solution
  1. Credit rating agency: it gives an independent opinion on the creditworthiness of the debentures, shown as a rating symbol. Investors use it to judge the risk of default.
  2. The agency must hold a SEBI certificate of registration under Section 12(1A) of the SEBI Act, 1992.
  3. Debenture trustee: it is appointed for the debenture holders and holds the security on their behalf. It watches whether the company meets its obligations and acts for holders on default.
  4. The trustee must hold a SEBI certificate of registration as a trustee of trust deed under Section 12(1).
  5. Difference: the CRA assesses and communicates credit risk, while the trustee protects holders and enforces their rights. The CRA rates an instrument. The trustee represents the holders.
  6. Both are registered and supervised by SEBI, and SEBI can suspend or cancel their registration under Section 12(3) after a hearing.

Answer: The credit rating agency rates the debentures to show credit risk, and the debenture trustee protects the debenture holders and enforces the security. They differ in function and in whom they serve, and both must be registered with SEBI under Section 12.

Exam tips

  • For difference questions, write a two-column style answer in bullet form: function, who is served, main duty, registration section.
  • Always cite Section 12 and the right sub-section. It shows precision and earns marks without needing details you may not recall.
  • Do not invent figures such as net worth limits or fees. Say they are as prescribed in the regulations unless you are certain.
  • Use the facts in case-style questions: name the company, the intermediary and the breach, then give the conclusion.
  • Keep short notes to 5-6 lines: meaning, role, registration, key duties and SEBI's control.

Practice questions from Securities Market Intermediaries

Credit Rating Agencies, Debenture Trustees and Bankers to an Issue in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Credit Rating Agencies, Debenture Trustees and Bankers to an Issue: frequently asked questions

What does a credit rating agency do?

It gives an independent opinion on the creditworthiness of a specific debt instrument, shown as a rating. The rating helps investors judge risk. It is not advice to buy or sell.

What is the role of a debenture trustee?

A debenture trustee acts for the debenture holders. It holds the security, monitors the issuer's compliance and takes action for the holders if the issuer defaults.

What does a banker to an issue do?

It collects application money from investors, keeps it in the issue accounts, passes it to the issuer after allotment and refunds money where there is no allotment.

Which section of the SEBI Act requires these intermediaries to register?

Section 12. Bankers to an issue and trustees of trust deed fall under Section 12(1), and credit rating agencies fall under Section 12(1A). Each must hold a SEBI certificate of registration.

Can SEBI cancel the registration of an intermediary without a hearing?

No. Under Section 12(3) SEBI may suspend or cancel a certificate by order, but only after the person concerned has been given a reasonable opportunity of being heard.