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TMI BlogHow do Indian Credit Rating Agencies Work?X X X X Extracts X X X X X X X X Extracts X X X X ..... How do Indian Credit Rating Agencies Work? X X X X Extracts X X X X X X X X Extracts X X X X ..... that help investors, lenders, and regulators make informed decisions. 🔹 Key Credit Rating Agencies in India * CRISIL (Credit Rating Information Services of India Ltd.) * ICRA (originally Investment Information and Credit Rating Agency) * CARE Ratings (Credit Analysis and Research Limited) * India Ratings and Research (subsidiary of Fitch) * Brickwork Ratings * SMERA (now Acui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... té Ratings) All these are registered with SEBI (Securities and Exchange Board of India), which regulates their functioning. 🔹 How Credit Rating Agencies Work in India 1. Rating Mandate * The process begins when an issuer (company, bank, NBFC, government body) approaches a CRA to get a credit rating for its debt instrument or itself. * A rating agreement is signed, which inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... des confidentiality clauses, fees, and cooperation clauses. 2. Data Collection * The issuer provides detailed information including: * Financial statements (audited) * Business plans and projections * Industry reports * Loan and debt details * Management profile * Operational data (production, capacity, utilization, etc.) 3. Analytical Evaluation CRAs evaluate the entity using bot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h quantitative and qualitative factors: ✅ Quantitative Analysis: * Financial ratios (leverage, liquidity, profitability, coverage) * Historical financial performance * Cash flow projections * Capital structure and debt service obligations ✅ Qualitative Analysis: * Industry risk and competition * Regulatory environment * Management quality and corporate governance * Le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gal structures and contractual protections (e.g., guarantees, covenants) * Business model and diversification 4. Rating Committee Review * A rating committee of senior analysts and industry experts reviews the analysis. * This committee discusses all aspects and assigns a rating based on standardized criteria. * The rating reflects the probability of default and credit risk associated wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the issuer or instrument. 5. Rating Communication & Acceptance * The assigned rating is communicated to the issuer. * The issuer can: * Accept the rating, and it becomes public. * Appeal the rating, leading to a review. * Not accept, in which case the rating may not be published (unless required by regulation). 6. Publication of Rating * Once accepted, the rating is published on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e agency's website and disclosed through press releases. * This includes a rating rationale explaining the key factors behind the rating decision. 7. Surveillance and Review * Ratings are not permanent. Agencies conduct periodic surveillance (typically quarterly or annually). * Ratings can be upgraded, downgraded, or reaffirmed based on updated data and performance. * If an issuer default ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or is likely to default, the rating is reviewed immediately. 🔹 Rating Scale Example (for long-term instruments) Rating Meaning AAA Highest safety, lowest credit risk AA High safety A Adequate safety BBB Moderate safety BB Moderate risk B High risk C Very high risk D Default (Prefixes like "CRISIL", "CARE", or "ICRA" are used, e.g., CRISIL AA, ICRA BBB.) 🔹 Reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulatory Oversight
* SEBI regulates CRAs under the SEBI (Credit Rating Agencies) Regulations, 1999.
* CRAs must follow transparency, disclosure norms, and maintain confidentiality and independence.
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