Credit Rating in India

Subject – Economy

Context – Credit ratio improves in first half of FY22

Concept –

What is Credit Rating?

A credit rating is an assessment of the creditworthiness of a borrower in general terms or with respect to a particular debt or financial obligation.
A credit rating can be assigned to any entity that seeks to borrow money — an individual, corporation, state or provincial authority, or sovereign government.

What are Credit Rating Agencies?

A credit rating agency (CRA) is a company that assigns credit ratings, which rate a debtor’s ability to pay back debt by making timely principal and interest payments and the likelihood of default.
There are six credit rating agencies registered under SEBI namely, CRISIL, ICRA, CARE, SMERA, Fitch India and Brickwork Ratings.
CRAs were set up to provide independent evidence and research-based opinion on the ability and willingness of the issuer to meet debt service obligations, quintessentially attaching a probability of default to a specific instrument.
Evaluating the creditworthiness of an instrument comprises of both qualitative and quantitative assessments, making credit rating far from a straightforward mathematical calculation.