Credit Rating and its impact in India

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Credit Rating and its Impact in India
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  CREDIT RATING AND ITS IMPACT IN THE INDIAN MARKET  INTRODUCTION ã With the increasing market orientation of the Indian economy, investors value a systematic assessment of two types of risks, namely ―business risk‖ arising out of the ―open economy‖ and linkages between money, capital and foreign exchange markets and ―payments risk‖. ã With a view to protect small investors, who are the main target for unlisted corporate debt in the form of fixed deposits with companies, credit rating has been made mandatory. ã Given the slump faced by economies globally and the rise in the number of defaultees, it is about time that the channel had a credit rating system in place to ensure smooth operation for the entire chain.  ã Credit rating is the opinion of the rating agency on the relative ability and willingness of the issuer of a debt instrument to meet the debt service obligations as and when they arise. ã Rating is usually expressed in alphabetical or alphanumeric symbols. Symbols are simple and easily understood tools which help the investor to differentiate between debt instruments on the basis of their underlying credit quality. ã  A credit rating evaluates the credit worthiness of an issuer of specific types of debt, specifically, debt issued by a business enterprise such as a corporation or a government. ã  It is an evaluation made by a credit rating agency of the debt issuers’ likelihood of default. Credit ratings are determined by credit ratings agencies.  ã  The credit rating represents the credit rating agency's evaluation of qualitative and quantitative information for a company or government; including non-public information obtained by the credit rating agencies analysts. ã Credit ratings are not based on mathematical formulas. Instead, credit rating agencies use their judgment and experience in determining what public and private information should be considered in giving a rating to a particular company or government. SOVEREIGN CREDIT RATINGS  A sovereign credit rating is the credit rating of a sovereign entity, i.e., a national government. The sovereign credit rating indicates the risk level of the investing environment of a country and is used by investors looking to invest abroad. It takes political risk into account.
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