CREDIT RATING AGENCIES (CRAs)

Credit ratings:

• Credit ratings are assigned to debt instruments (not to equity instrument) by a Credit Rating agency (CRA).
  
  
• Rating is denoted by a simple alphanumeric symbol, for e.g. AA+, A-, etc.
  
  
• Rating indicates that whether the issuer company can repay its debt obligation in full and on time.
  
  
• Credit rating serves 2 main purpose:
  1. Borrowing cost: It Influences the borrowing cost of country in international market.
     
     
  2. Investment: Credit rating Influences foreign investors decision to invest I.E. by seeing this, the investor decides whether to buy, hold, or sell a debt instrument.
     
     
  
  
  

Credit rating agencies (CRAs):

• A credit rating agency is an entity which assesses the ability and willingness of the issuer company for timely payment of interest and principal on a debt instrument.
  
  

Credit rating agencies are regulated by SEBI under the SEBI (Credit Rating Agencies) Regulations, 1999.

• Some of the Global CRAs are: Fitch, Moody, S&P.
  
  
• Some of the Indian CRAs are: Credit Analysis & Research Ltd. (CARE), Credit rating information services of India (CRISIL), Investment and credit rating agencies (ICRA) etc.
  
  

News Norms:

• CRAs should disclose parameters such as liquid investments or cash balances, access to any unutilised credit lines and adequacy of cash flows in a specific section on liquidity.
  
  
• For reviewing rating criteria, SEBI has directed rating agencies, to assess inter-linkages of holding company and subsidiaries, holding company’s liquidity, financial flexibility and support to the subsidiaries.