Dec. 31, 2018

The crisis at Infrastructure Leasing & Financial Services (ILFS) has again raised questions on the functioning and transparency of 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.

Source : The Hindu