What is Credit Rating Agency

 

What is Credit Rating Agency
Why is it Important for the Financial Business?

A credit rating agency (CRA) measures the debtor’s ability to pay back the loan by making timely principal and interest payments and the possibility of default.
Agencies show how strong the country and institution is financial. Three Standard & Poor, Moody’s, and Fitch names in rating world. Credit rating agencies indirectly tell how strong the country, institution, or person is financially and how much loan or loan to them is dangerous or not. That is, how much debt he has the ability to repay. It basically tells investors that a firm has a track record and shows how likely it is to be able to return the money. Currently, there are three Standard & Poor, Moody’s, and Fitch names in the rating world. They occupy about 95 percent of the market.
So far, 6 credit rating agencies under SEBI, CRISIL, ICRA, CARE, SMERA, Fitch India, and Brickwork Ratings have been registered by these agencies.
The rating provided determines the loan nature. The higher the credit rating, the lower the interest rate paid to the bank / NBFC.

However, currently, there are 4 credit rating agencies are working in India

1. CRISIL

It is the largest rating agency in India, with an Indian market share of over 65%. It is serving the manufacturing, services, financial, and SME sectors. Standard & Poor’s now holds a majority stake in CRISIL. CRISIL Rating Agency was established in 1987.

2. ICRA

Moody’s ratings supported ICRA is a premier rating agency. issue ratings for mutual funds, hospitals, infrastructure development, and construction and real estate companies.

3. CARE

Financial organizations, state governments, and municipal institutions, and public utilities are rated by CARE. It is a credit rating agency established in 1993, promoted and supported by IDBI, UTI, Canara Bank, and other financial institutions and NBFC

4. ONICRA 

ONICRA is considered an important rating agency in India. ONICRA is a private rating agency founded by Sonu Mirchandani, which analyses data and provides rating solutions for individuals and small and medium enterprises (SMEs).

If we talk about various credit rating agencies at the international level, then there are three big names in the rating world at this time.

1. Standard and Poor:
The foundation of this rating agency was laid by Henry Poor in 1860. It is the oldest agency. Today, about 40% of the world’s rating business is in the possession of Standard & Poor and Moody’s.
2. Moody’s Ratings
Moody’s was founded in the year 1909 by a person named John Moody.
3. Fitch:
The third famous rating agency is Fitch; Which is a shortened form of Standard and Poor and Moody’s

Rating and its Meaning

AAA (Highest Safety): The safest and profitable to invest in the country, company, or individual.
AA (High safety): The country, company, or individual has a lot of ability to deliver on their promises.
A(Adequate Safety): Changed adversity can have an impact on the ability of the country, company, or individual to deliver on their promises.
BBB (Moderate safety): Ability to fulfill his promises in the country, company, or individual but more scope to be affected by adverse economic circumstances.
CC: Country, company, or individual currently very weak.
D (Default): Country, company, or person failed to repay the loan.
Actually, if the rating of a company is improved by the agencies, then that company does not have trouble borrowing money from the market. Also, due to the good image in the market, its stock is seen fast. So countries, companies, and individuals are always in search of good ratings.

Why Credit rating Agency Important?

Credit rating organizations are offices that give ratings to speak to target investigations and free evaluations of organizations, elements, or nations that issue such obligation protections. These ratings are a sign to the purchasers of this obligation that they are so prone to be repaid
Failure of Rating Agencies Worldwide
Enron scam – 2001
Global Economic Crisis – 2007-08
During the global economic crisis, AAA-rated mortgaged securities worth billions of dollars were put into Junk (the lowest possible rating) within two years of the original rating release (2007-08).