2. INTRODUCTION
• Creditworthiness : focal point of debt processing
• Credit rate reflects creditworthiness
• Lending party ensures management of risk
3. Meaning
• Credit rating is analysis of credit risks
• Based on credentials and financial statements
• To determine ability to meet debt obligations
• Assessment of solvency
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4. Who evaluates?
• Credit Rating Agency ( CRA)
• 3 prominent: Moody’s, Standard and Poor’s and Fitch
• Indian agencies: Authorized by SEBI; CRISIL, ICRA, CARE, India Ratings
and Research private ltd., SMERA
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5. Sources used by CRAs
INTERNAL SOURCES
• Audited financial statements, annual reports
EXTERNAL SOURCES
• Analyst reports, published news articles, industry analysis
6. Who uses credit ratings?
• Institutional and individual investors
• Intermediaries
• Debt issuers
• Businesses and corporations
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7. Types of Credit Ratings
• Equity credit ratings
• Preferential shares credit ratings
• Bonds and debentures credit rating
8. Why in news in India recently?
• Economic survey 2021
• India’s sovereign rating does not reflect its fundamentals.
• Economist Subramaniam said “ Make India’s credit rating
methodology transparent.”
• Moody’s credit rating India : Baa3 (lowest in 22 years)
• High NPAs, low GDP growth
9. Conclusion
• Credit rating Important as determines approval for loans
• Determines interest rate
• Helps investors determine whether to purchase bonds
• Crucial in Banking and corporate arena
