Credit is a very wide term in Finance. It is the base for development of an individual and the company. In order to expand or to keep the business cycle flowing one has to avail credit from financial institutions. Hence its essential to check the credit score and ratings. Credit rating is the tool to measure the creditworthiness of a company or an individual. This measure enables any institution to take a decision on individual’s or company’s credit worthiness. For individuals such a rating is considered as a credit score. There have been articles regarding the Credit scoring and Credit Analysis Fundamentals. The major focus is on the Credit rating agencies and their working pattern.
Credit Rating
As explained above Credit rating is the tool to measure the creditworthiness of a person. The credit rating agencies find out the previous history, ongoing debts, Defaults on previous loans, etc. Such information shares a vital role in determining the credit rating of individuals and corporations. Such agencies extend their working not only to individuals and companies but also towards various financial instruments and schemes going on the market. The major work is related to rating of debt instruments and long term Government bonds and schemes, preferred stocks, collateral based securities etc. Some examples of such schemes are Sovereign Gold Bonds, Bonds issued by various private companies as well as government companies and many more.
Hence the working of such agencies require utmost unbiasedness. The reason is pretty simple, to keep the faith of investors in the rating agencies. Thus the rating system is transparent. An upgrade in ratings by the agencies causes a major inflow of cash in such bonds and vice versa.
Credit Rating Agency
CRA is the company assigning ratings to various financial instruments and individuals. Now the major question is what impact does such firms have on the security or individual. In case of individuals and companies it is very clear that the loan availing process becomes easy. In case of good credit score or rating the interest rate becomes negotiable as well and vice versa.
The credit agencies have a direct relation with the interest rates and the volume of a particular instrument. The better ratings suggest a higher interest rate for the instruments. The agencies also influence the volume flow of investors in the instruments. Hence such agencies play a major role in the capital markets.
CRA in India
Various Credit rating agencies of India are listed below :
CRISIL
It’s headquarters are in Mumbai. It provides its services in many international markets as well. The countries in its portfolio include UK, China, USA, Argentina, Hong Kong etc. It trades in the Indian Markets at 1950 Rs.
CARE
CARE is also registered in Mumbai. Its major operations are domestic in nature. The investors use its ratings to make decisions about the capital instruments of finance. It trades in Indian markets at a rate of 573 Rs.
ICRA
Investment Information and Credit Rating Agency works in the field of assigning ratings to corporate performances, mutual funds and corporate governance. It is a collaboration of Moody and Indian Financial and Banking Services. Its market price is 3144 Rs.
BRICKWORK
The firm BWR is accredited by RBI and it works for NCD, NSIC and MSME ratings. The company also has the permission to give gradings to corporates seeking their credit ratings from IREDA. The major stake in the company is of Canara Bank. The company has its registration with SEBI.
The interesting fact is that these agencies not only focus on big corporations but also give ratings to startup plans as well as MSMEs. This helps the angel investors to know about the company’s risk profile.
Working Of CRA
The CRA has the right to analyse any corporation and give ratings based on an unbiased report. They analyse the credit ratings of Government companies, Local authorities, Non profit organizations, State Governments and countries as well.
These ratings are a part of a report. The report is available from agencies after analysis of various important factors. The list includes the financial statements, repayment capacity, the past history, ongoing debt structure, the loan defaults, type of debt and purpose behind availing the same. This helps the company to take assumptions on the future feasibility of the plan or the company or the instruments.
One important thing is that such agencies never give advice to the investors or the financial institutions. They only provide the reports and ratings for general usage.
Facts
Credit rating is a term referring to the financial instruments and companies. The ratings are provided to them as mentioned in the article CREDIT FUNDAMENTALS. The analysis of individuals renders the credit scoring of them. Thus rating is a term for companies and financial instruments. Credit score is related to individuals. Also CIBIL Score and Credit Score are the same terminologies.
