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A credit rating is a quantified assessment of the borrower in general term or with respect to a particular debt or financial obligation. A credit rating can be assigned to any entity that seeks to borrow money- an individual, corporation, State or Provincial authority, or Sovereign Government.
In other words Credit Rating Agency means that an Individual Company that evaluates the financial condition of issuers of Debt instruments and then assigns a rating that reflects its assessment of the issuer’s ability to make the debt payment. By doing calculation on the basis of its financial history, current assets and liabilities it establishes a link between risk and returns. Any person or investor uses the rating to assess the risk level and compares the offered rate of return with his expected rate of return.
Following Points may be noted in respect of Credit Rating :
1. It is an assessment of Borrower’s willingness and ability to repay the rated obligation on the basis of its terms and conditions.
2. It is only an opinion but not a recommendation to purchase, sell or hold a borrower’s security.
3. These agencies change ratings only for a significant and permanent changes in company’s operating and financial and operating performances.
4. These agencies only rate securities and not issuers.
What is Credit Rating Agency
FAQ
Common List Of Questioner That Our Customer Ask From Us -Solved !
What are Credit rating Agencies ?
Credit Rating agencies are one of the capital market intermediary. It is a kind of Body Corporate and also is involved in the business of rating of securities which are offered by way of public issue or right issue. After seeing the ability of their debtors or repayers only they fix their credit rates so that Debtors can easily repay their debts. They only provide credit rating facility to organizations only and not to individuals. The entities may be in the form of companies, special purpose entities, state governments, Local Governmental Bodies, Non-Profit organizations and even countries.
Regulation of credit rating agency ?
It is Regulated under framework of SEBI under SEBI ( Credit Rating Agencies) Regulations, 1999. It is difficult to register itself under the framework of SEBI before commencing the activities of credit rating. These securities only covers the rating of securities and not of Fixed deposits, Foreign exchange, real estates etc.
Process of registration under SEBI?
1. The person who is willing to commence any activity of credit rating agency have to file an application in Form A to the Board as prescribed in the regulations along with the non-refundable Fee.
2. The Board shall not consider the regulation, unless an applicant is promoted by a person belonging to any of the following categories-
- A Public Financial Institution
- A Scheduled Commercial bank
- A Foreign bank Operating in India with RBI approval
3. At least five years experience in rating securities should be there of a Foreign Credit Rating Agency and recognized by the laws for the time being in force in the country of its incorporation.
4. A board before granting certificate satisfies itself that the applicant must comply with the following norms-
-An applicant must be a company registered under Companies Act, 2013 with the main object of carrying any specified rating activity in its Memorandum Of Association.
-Minimum Net worth of Rs. 5 cores.
-The infrastructure must be adequate which enables it t provide ratings services in accordance with the provisions of the Act and Regulation.
-Grant of the certificate should be in the interest of investors and the securities market.
-The applicant must be fit and proper person as per the criteria laid down in the regulations.
-Such other requirements as prescribed in the regulations.
If Board is not satisfied with the specifications written in the Applications and also if the application is not complete then Board may reject the Application. An opportunity is granted to the applicant to remove all the discrepancy but still if he fails to do so then his application is rejected.
Board also may ask the Applicant to furnish such further information or clarification as the Board may consider necessary and may also ask the applicant to appear in person if required.
After being satisfied in all respect, certificate is granted in Form B by Board to the Applicant after intimating the applicant for the receipt of payment of the requisite fees.
2. The Board shall not consider the regulation, unless an applicant is promoted by a person belonging to any of the following categories-
- A Public Financial Institution
- A Scheduled Commercial bank
- A Foreign bank Operating in India with RBI approval
3. At least five years experience in rating securities should be there of a Foreign Credit Rating Agency and recognized by the laws for the time being in force in the country of its incorporation.
4. A board before granting certificate satisfies itself that the applicant must comply with the following norms-
-An applicant must be a company registered under Companies Act, 2013 with the main object of carrying any specified rating activity in its Memorandum Of Association.
-Minimum Net worth of Rs. 5 cores.
-The infrastructure must be adequate which enables it t provide ratings services in accordance with the provisions of the Act and Regulation.
-Grant of the certificate should be in the interest of investors and the securities market.
-The applicant must be fit and proper person as per the criteria laid down in the regulations.
-Such other requirements as prescribed in the regulations.
If Board is not satisfied with the specifications written in the Applications and also if the application is not complete then Board may reject the Application. An opportunity is granted to the applicant to remove all the discrepancy but still if he fails to do so then his application is rejected.
Board also may ask the Applicant to furnish such further information or clarification as the Board may consider necessary and may also ask the applicant to appear in person if required.
After being satisfied in all respect, certificate is granted in Form B by Board to the Applicant after intimating the applicant for the receipt of payment of the requisite fees.
What is the full form of CRA?
?
Credit Rating Agency.
How is rating denoted?
It is denoted by simple alpha numeric symbol
Whether the issuer company is rated or the instrument?
A rating is assigned to a security or instrument.
Who pays for the credit rating?
In India, the issuer cmpany pays for credit ratings.
Does SEBI has a role in the rating exercise?
No, SEBI does not play any role in the assessment made by the rating agency.
