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Unit 10: Credit Rating and Consumer Finance

"In the short-term, these relatively new insurance companies are well capitalised, well Notes
managed and have good solvency margins, much more than the requirements specified
by the IRDA. All the foreign partners have already brought in capital commensurate with
their equity stake," said Mr. Rajesh Mokashi, Executive Director, Care Ratings.
But this situation could change in the long term if the foreign partners are unable to bring
in more capital for fuelling the expansion plans of companies.
"In the long term, if the foreign partner is unable to bring in the required capital, the
Indian partner always has the option to buy him out or look for another partner. Besides,
the insurance companies even have the option of listing themselves on the bourses to
raise funds," Mr. Mokashi added.
The global financial crisis could lead to a change in the foreign ownership of many domestic
insurance companies, said Mr. Ashu Dutt, MD, Asia Financial Services Practice, Northbridge
Capital.
As India and China are considered among the fastest growing markets in the world, other
companies would be keen on entering the sector and would look for tie-ups with companies
here.
"Even if the Government raises the cap on foreign direct investment to 49 per cent from the
existing 26 per cent, the foreign partners might decide not to raise their stake due to their
inability to bring in the requisite amount of capital. It could even lead to the foreign
partners selling off their stakes to other European entities that have escaped unscathed in
the current crisis," said Mr. Dutt.

Question
Why companies go for credit rating? Discuss.

Source: http://www.thehindubusinessline.in

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