In general,credit rating is defined as qualitative & quantitative study to analyse the business and financial risks to fixed income issuers.Credit rating from at least two rating companies are expected for any issue,registered with the respective regulator like SEBI or RBI.ICRA,CARE,FITCH are the common credit rating agencies in India.
In general,nomenclature or symbols used for credit rating used are as follows.Some deviation may possible from agency to agency:
- “AAA”:Indicates Highest degree of safety regarding timely servicing of financial obligations.Instruments with ‘AAA’ ratings carries lowest risk.
- “AA”: Indicates Higher degree of safety regarding timely servicing of financial obligations.Instruments with ‘AA’ ratings carries very low risk.
- “A”:Indicates adequate degree of safety regarding timely servicing of financial obligations.Instruments with ‘A’ ratings carries low risk.
- “BBB”:Indicates moderate degree of safety regarding timely servicing of financial obligations.Instruments with ‘BBB’ ratings carries moderate degree of risk.
- “BB”:Indicates moderate risk of defaults regarding timely servicing of financial obligations.
- “B”: Indicates high risk of defaults regarding timely servicing of financial obligations.
- “C”: Indicates very high risk of defaults regarding timely servicing of financial obligations.
- “D”:Instruments with D ratings are in default or will be in default very soon.
Sometimes suffixes like ‘+’ and ‘-‘ are used from AA to C cateogary which indicates the standing of the issue within the cateogary.
Any issue need to have credit ratings from at least two agencies.It also help investors to take their investment decisions.I think banks (especially co-operative banks)should also publicize their ratings and asset quality to public or RBI should make it mandatory to show it.. Isn’t it?What do you think?
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Credit Ratings should be introduced in india because it help in identifying the regular credit defaultors and black listing them for future loan falicitation.
Thanks 🙂 What About The Credit Rating Process Used by these Regulators? Please Do Post the Credit Process of CARE.