- 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.