Credit rating is an analysis of the credit risks associated with a financial instrument or entity. It assesses the creditworthiness of a borrower based on their financial statements and past borrowing and lending. Credit ratings are assigned by agencies and the rated entity pays for the rating. Securitization of debt involves converting long-term illiquid assets like loans into marketable securities that can be traded, through special purpose vehicles registered with regulatory bodies. It allows lenders to enforce security interests by taking possession of collateral in the event of a default.

1. Credit rating
Module 7

2. Credit rating is an analysis of the credit risks
associated with a financial instrument or a
financial entity.
Definition: Credit rating is an analysis of the
credit risks associated with a financial instrument
or a financial entity. It is a rating given to a
particular entity based on the credentials and the
extent to which the financial statements of the
entity are sound, in terms of borrowing and
lending that has been done in the past.

3. Definition:
An assessment of the credit worthiness of a
borrower in general terms 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.
Credit assessment and evaluation for companies
and governments is generally done by a credit
rating agency such as Standard &
Poor’s, Moody’s or Fitch. These rating agencies
are paid by the entity that is seeking a credit
rating for itself or for one of its debt issues.

38. securitization of debt
 Securitization of debt:
Meaning: securitization of debt refers to the
process of liquidating the illiquid and long term
assets like loans and receivables of financial
institutions like banks by issuing marketable
securities against them.
In other words it is a technique by which a long
term, non negotiable and high valued financial
asset like hire purchase is converted into
securities of small values which can be tradable
in the market just like shares.

39. Features of securitization
 Incorporation & Registration of Special Purpose
Vehicles:
Securitization act intends to securitize and
reconstruct the financial assets through two
special purpose vehicles (SPV’s) Securitization
Company and Reconstruction Company. Both of
these companies have to be incorporated under
the Companies act, 1956 and also having them
as the main purpose. It is a requirement for the
Securitization Company and the reconstruction
company to be registered compulsorily with the
RBI before commencing their business
operations.

40.  Enforcement of security interest:
The main aim of the Securitization act is to make
available the enforcement of security interest which is
to take possession of the assets that have been given
as security for the loan. In the event of default by a
borrower this act authorizes the lender to issue a
demand notice to both the borrower and guarantor to
pay off the dues within 60 days from the date of the
notice. Even after which the borrower fails to make
the payment the lender (Bank or financial institution)
could resort to any of the following: (i) Take
ownership of the security; (ii) Sale or lease or assign
the right over the security; (iii) Employ Manager to
manage the security; (iv) Ask any debtors of the
borrower to pay any sum due to the borrower. In
situations where there are more than one secured
creditors the provisions of this act will be valid only
when 75% of them agree on the decision.