A Credit Rating is an evaluation/opinion of the credit risk of the prospective borrower (Individual. Institution, Business, Corporate or Government), predicting creditworthiness to repay debt on time; whether Principal or Interest in case of Fixed Income Security. Credit Rating is built up over a period of time basis Repayment Track Record, analysis of present Financial Statements and likely future income. It is also called as debt rating. The assessment could be in general terms or with respect to a particular financial debt instrument.
The Credit Rating Industry in India has evolved over a period of time. The major players in this Industry comprise of CRISIL (1987), ICRA (1991), CARE (1993), ONICRA (1993), FITCH & SMERA. CRISIL is the oldest and largest (market share 60%) credit rating agency in the Indian Rating space. It is offering rating services in the field of manufacturing, service, BFSI and SME sectors. SMERA was established as an exclusive rating agency for SME sector.
While CRISIL pioneered Credit Rating in India in 1987, other Rating agencies have also gradually established themselves in their specialized fields. These agencies serve Lenders, Investors, Issuers, Regulators and Intermediaries with a wide coverage of manufacturing companies, Banks, FIs, MFs, NBFCs, PSUs, State Governments and Urban Local Bodies.
Issuers and Borrowers make use of the ratings assigned by these Rating Agencies for raising funds from the market through debt route, alternate funding options and for reducing cost of funds. On the other hand, Investors and Lenders use ratings assigned by these Rating Agencies to strengthen internal evaluation process, and compare quality debt papers across variety of investment options. The Ratings assigned by these Rating Agencies act as a benchmark in pricing of the debt instruments and trading of these debt instruments in markets.
CRISIL Rating Symbols AAA indicates Highest Safety; AA means High Safety; A indicates Adequate Safety; BBB means Moderate Safety; BB indicates Moderate Risk; B means High Risk; C indicates Very High Risk and D mean Default. While Rating symbols could vary for other Rating Agencies but Safety and Risk indicators are more or less on similar lines that of CRISIL.
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