Capital Markets

Credit Rating Agency

An institution that allocates the credit ratings of a borrower is known as the credit rating agency. Mainly, the basis for these types of ratings is the debt repayment capacity of a borrower. Also, it involves the likelihood of customer defaulting and the timely payment of interest rates.

Significance of Credit Rating Agency

Credit Rating Agency

                                   Credit Rating Agency

The credit rating agency determines the risk that is associated with the investing companies. Thus, it helps in making informed investment decisions. Also, the credit rating agency gives a fair judgment of the ability of an organization to fulfill its commitment.

So, when the ratings are high, it means that the possibility of giving loans is also very high. Furthermore, credit rating helps the organization in deciding the eligibility of loan for the borrower.

Also, there are various factors that gave rise to the importance of credit agencies. One of them is the easy availability of finance that resulted in increasing levels of default.

Credit rating agency plays a very important role in financial markets. The analyze the credit risk of a government or a corporate. For this, there is various relevant information available regarding the economic conditions of a borrower. This is called a credit rating.

It represents the likelihood that a borrower is going to meet the financial obligations. There are various credit rating agencies in India. Below is the information on these agencies.

CRISIL – Credit rating and information services of India limited

CRISIL is a global company that provides the research, rating, risk related advisory services. The main objective of CRISIL is to rate the quality of bonds, deposits, debentures, etc. These are assessed when companies use these tools to raise debt capital.

Thus, this rating helps an investor to understand the risk of the debt related to the company. The main shareholder of CRISIL is Standard and Poors. They are also one of the leading credit agency in India.

CIBIL – Credit information bureau of India Ltd.

CIBIL is one of the credit rating agencies in India. They also provide information related to credit in India. Transunion CIBIL is considered as one of the leading credit information agency in India. Also, it maintains one of the highest collections of consumer information available globally.

Furthermore, it also has members from leading financial institutions, banks, NBFC’s, etc. Thus, it also maintains the credit scores of businesses as well as individuals. The main objective of CIBIL is to collect the data available for all loans. These loans are availed by individuals across various banks.

ICRA – Investment information and credit agency

ICRA limited was set up in 1991 by the investment and financial institutions. It is a professional investment information company that provides credit rating information. Also, the largest investor in ICRA is Moody’s investors. They are internationally accredited rating agency.

The objective of ICRA is to provide guidance and information to individuals as well as institutions. Furthermore, it wants to enhance the ability of issuers and borrowers to access the capital and money market. Also, it assists in promoting transparency to the regulators in financial markets.

Practice Questions on Credit Rating Agency

Q. Which company is the majority shareholder in CRISIL?

A. Moody’s

B. Standard and Poors’

C. Dun and Bradstreet

D. None of the above

Answer: B. Standard and Poors’

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