Page 252 - DMGT512_FINANCIAL_INSTITUTIONS_AND_SERVICES

Unit 17: Credit Rating

17.1.15 Effect of Suspension and Cancellation of Registration of Notes
Credit Rating Agency

On and from the date of suspension of the certificate of registration, the credit rating agency
ceases to carry on any rating activity during the period of suspension and shall be subject to such
directions of the Board with regard to any records, documents securities or reports that may be
connected with in its rating activities, as the Board may specify.
On and from the date of cancellation of the certificate of registration, the credit rating agency:
1. ceases to carry in any rating activity and

2. is subject to such directions of the Board with regard to the transfer of records, documents,
securities or reports connected with its rating activities which may be in its custody or
control as the Board may specify.

Notwithstanding the suspension or cancellation of certificate of a credit rating agency, if the
Board is satisfied that it is in the interest of the investors to grant such permission, the Board
grants to the credit rating agency permission to carry on such activities relating its assignments
undertaken prior to such suspension or cancellation, as the Board may specify.

Publication of Order of Suspension or Cancellation

The order of suspension or cancellation of certificate of registration is published by the Board in
at least two daily newspapers.

Appeal to the Securities Appellate Tribunal

Any person aggrieved by an order of the Board made, on and after the commencement of the
Securities Laws (Second Amendment) Act, 1999, (i.e., after 16th December 1999), under these
regulations may prefer an appeal to a Securities Appellate Tribunal having jurisdiction in the
matter.

17.2 Credit Rating Process

Credit ratings are calculated from financial history and current assets and liabilities. Typically,
a credit rating tells a lender or investor the probability of the subject being able to pay back a
loan. However, in recent years, credit ratings have also been used to adjust insurance premiums,
determine employment eligibility, and establish the amount of a utility or leasing deposit.
A poor credit rating indicates a high risk of defaulting on a loan, and thus leads to high interest
rates, or the refusal of a loan by the creditor. The credit rating process can be categorized in four
steps namely:
1. Receiving the completed application form: This is the first step in the rating process. The
company that wants it to achieve a credit rating approaches the appropriate credit rating
agency and submits the completed application form. As soon as the agency receives the
completed form, the movement towards the next step starts.
2. Representatives visiting the company: Thereafter, the representatives of the credit rating
agency visit the company that requested for the rating.

3. Analysts having a short discussion with the management of the company: This step
ensures the agencies about the vision and operational nitty gritties of the company and
helps the credit rating agency in the preparation of the credit report.

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