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Credit Rating Factors & Importance
1.
2. Credit rating is a mechanism by which the
reliability and viability of a credit instrument
is brought out.
When a company borrows or when a
businessman raises loan, the lenders
are interested in knowing the credit worthiness
of the borrower not only in the present
condition but also in future
3. Credit rating is resorted to :
a) Companies
b) Individuals
c) Countries
4. RATING OF INDIVIDUALS : Individuals go for
credit rating when they want to
borrow from recognized institutions. In India, we
have Onida Individual Credit Rating
Agency (ONICRA) which gives credit rating for
individuals.
b) RATING OF COMPANIES: As per the guidelines
of SEBI and RBI, companies
have to resort to credit rating when they :
(i) accept public deposits
(ii) issue credit instruments in domestic market
(iii) issue credit instruments in overseas market.
5. c) RATING OF COUNTRIES: Credit rating is
resorted to by countries for borrowing
in international market or for attracting
foreign investments or for raising funds from
the
international institutions like IMF and IBRD
6. a. Business Analysis
b. Evaluation of industrial risks
c. Market position of the company within the industry
d. Operating efficiency of the company
e. Legal position in terms of prospectus
f. Financial analysis based on accounting quality
g. Statement of profits
h. Earnings protection
i. Cash flow and their adequacy
j. Financial flexibility
k. Track record of management
l. Capacity to overcome adverse situations
m. Goals philosophy and strategy
n. Labour turnover
o. Regulatory and competitive environment
p. Asset quality
q. Financial position-interest/tax sensitivity
7.
8. Credit rating companies were started in India
during the late 1980s. Credit Rating
Information Services of India Ltd (CRISIL) was
started in 1988 as a subsidiary of ICICI.
Information and Credit Rating Services Ltd.,
(ICRA)was started in 1990, which is a
subsidiary of IDBI. In 993, Credit Analysis and
Research Ltd. (CARE) was started.
9. 1. Equity rating
2. Bond rating
3. Promissory note rating
4. Commercial paper rating
5. Sovereign rating
