CREDIT RATING

SUBMITTED BY: ANKITA KAUSHIK PGDM- II

DEFINATION
Credit rating is the assessment of the capacity of an issuer of debt security, by an independent agency, to pay interest and repay the principal as per the terms of the issue of debt. It is an indicator expressing the underlying credit quality of financial instrument.

GOAL OF RATING AGENCIES

Increased Disclosure Better Accounting Standard Evaluate the capacities of the firms Assess the relative worth and strength of the corporate in the market.

FUNCTIONS OF CREDIT RATINGS

Superior Information: Reliable and unbiased source of information. Basis for a Proper Risk-Return Trade-off: If ratings are accepted by investors then a tradeoff can be established. Healthy Discipline on Corporate Borrowers: Public exposure has influence on management Formulation of Public Policy Guidelines

MERITS OF CREDIT RATING

Low cost Information: Investors can drive information of any corporate at low cost. Quick Investment Decision: Assists the investors in taking quickest possible decisions. Independent Investment Decision: Investors do not require to rely on financial intermediaries. Investors Protection: Ratings provide investors with confidential information.

CREDIT RATING AGENCIES IN INDIA

Credit Rating Information Service Ltd.(CRISIL) Investment Information and Credit Rating Agency of India(ICRA) Credit Analysis and Research(CARE) Duff Phelps Credit Rating Pvt. Ltd.(DCR India) Onida Individual Credit Rating Agency Ltd.(ONICRA)

REGULATORY FRAMEWORK
CRAs need to get registered under SEBI in Form A, accompanied by a non fundable fees of Rs 50,000.  CRA should enter into a written agreement with the client containing various provisions.  CRAs should continuously monitor the security rated by it during the lifetime.  Every CRA should appoint a compliance officer to monitor compliance with SEBI guidelines.


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