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Posted 12 Apr 2024

2 min read

  • It cited moderation in credit growth and profitability due to decline in interest margins as the reason for downgrade. 
  • Credit Rating is an assessment of the ability of a borrower to pay his/her dues in full and on time.
    • It also indicates the credit risk associated with a specific credit facility or a specific security.
    • Credit ratings are provided by specialized agencies called Credit Rating Agencies (CRAs). 

 

  • About CRAs
    • CRAs assign credit ratings after assessment of companies or governments that issues securities. CRAs also rate bank loans, commercial papers, fixed deposits etc. 
    • Ratings range from AAA (highest credit quality) to D (default). 
    • Seven CRAs are registered with SEBI namely, Acuite, CRISIL, ICRA, CARE, India Ratings, INFOMERICS and Brickwork.
      • Except Brickwork Ratings, all six CRAs are RBI accredited domestic CRAs.

 

  • Regulation of CRAs: 
    • Primarily regulated by SEBI and governed through SEBI (Credit Rating Agencies) Regulations, 1999. 
    • RBI issues accreditation to CRAs as External Credit Assessment Institutions for rating bank loan/facilities.

 

  • Concerns with CRAs: Rating Shopping, opaque and flawed methodologies, personal bias etc.

 

  • Way forward: Switching from ‘issuer pays’ model to ‘investor’ or ‘regulator pays’ model, transparent rating methodologies, rotation of CRAs, etc.
  • Tags :
  • Banking
  • Securities and Exchange Board of India (SEBI)
  • Credit Rating
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