Credit rating is the evaluation of the credit worthiness of an individual or of a business concern or of an instrument of a business based son relevant factors indicating ability and willingness to pay obligations as well as net worth.
The main purpose of the credit rating is to communicate to the investors the relative ranking of the default loss probability for a given fixed income investment in comparison with of the rated instruments.
Credit rating will be given by a credit rating agency which is a body corporate engaged in or proposes to be engaged in the business of rating of securities offered by way of public or rights issue
Some of Credit Rating agencies are below
1. CRISIL (Credit rating and information services (India) Limited)
2. ICRA (Investment information and Credit rating agency of India)
3. CARE (Credit analysis and research limited)
4. India ratings and research Pvt LTD
5. Brickwork ratings pvt ltd
6. SMERA (SME Rating Agency of India limited)
These Rating Agencies are regulated by SEBI (Credit Rating Agencies Regulations) 1999
The Credit Rating Process will be
· The rating agency will assign a rating team
· The Rating team will collect the required information about the security and issuer
· The Rating team will meet the key officials and the management team
· Rating committee will conduct a meeting for Rating
· Rating agency will communicate the Rating to the issuer
· Publication of the rating
· Surveillance and annual review of the performance of the issuer operations
Factors to be considered for Rating
- Industry Risk
- Companies Market position
- Operating Efficiencies
- Accounting Quality
- Financial Flexibility
- Earning Protection
- Finacial Leverage
- Cash flow Adequecy
- Management Evaluation
- Asset Quality