2019 – Posted in: Daily News – Tags: credit rating agency, sovereign credit rating

India’s sovereign credit rating

For: Preliminary & Mains

Topics covered:

About India’s sovereign credit rating
What do these credit ratings mean?
Credit rating agencies (CRAs)

News Flash

Ratings agency Moody’s has lowered India’s outlook from stable to negative because of risks to economic growth, prospects of a more entrenched slowdown, poor or weak job creation, and a credit squeeze being faced by NBFC (Non-Banking Finance Companies).

India’s sovereign credit rating from Moody’s is now Baa2.
Rating is denoted by a simple alphanumeric symbol, for e.g. AA+, A-, etc.

What do these credit ratings mean?

Credit rating agencies rate on a scale the financials and business models of companies, as well as economic management by sovereign governments. The agency analyse the official and other data and interact with government officials, business leaders, and economists.
These agencies then rate instruments such as bonds, debentures, commercial papers, deposits, and other debt offerings of companies or governments to help investors make informed decisions.
The agencies do this on a continuous basis, either upgrading or downgrading the instrument based on performance.

Significance/ Benefits

A better rating helps raise funds at a cheaper rate
Helps in Investment decision
Easy understandability of Investment Proposal
Helps in growth and expansion
Act as a marketing tool

Two main purposes of Credit rating:

Borrowing cost: It Influences the borrowing cost of country in international market.
Investment: Credit rating Influences foreign investors decision to invest I.E. by seeing this, the investor decides whether to buy, hold, or sell a debt instrument.

Credit rating agencies (CRAs)

Credit rating agencies have taken a knock after the global financial crisis of 2008 when they were exposed after the collapse of highly-rated banks and other institutions.
CRAs provide assessments about the creditworthiness of bonds issued by corporations, governments, and packagers of asset-backed securities.
Credit rating agencies are regulated by SEBI under the SEBI (Credit Rating Agencies) Regulations, 1999.
Some of the Global CRAs are: Fitch, Moody, S&P.
Indian CRAs are: Credit Analysis & Research Ltd. (CARE), Credit rating information services of India (CRISIL), Investment and credit rating agencies (ICRA) etc.

Source: Indian Express