Page 259 - DMGT512_FINANCIAL_INSTITUTIONS_AND_SERVICES

Financial Institutions and Services

Notes
"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
17.4 Summary

A credit rating estimates the credit worthiness of an individual, corporation, or even a
country.
It is an evaluation made by credit bureaus of a borrower's overall credit history.

Credit ratings are calculated from financial history and current assets and liabilities.
A Credit Rating Agency (CRA) is a company that assigns credit ratings for issuers of
certain types of debt obligations as well as the debt instruments themselves.

In some cases, the service providers of the underlying debt are also given ratings.
In most cases, the issuers of securities are companies, special purpose entities, state and
local governments, non-profit organizations, or national governments issuing debt-like
securities (i.e., bonds) that can be traded on a secondary market.
A credit rating for an issuer takes into consideration the issuer's credit worthiness (i.e., its
ability to pay back a loan), and affects the interest rate applied to the particular security
being issued.
The credit rating agencies are regulated by the Securities and Exchange Board of India.

The main credit rating organizations in India are CRISIL, CARE, DCR India and ONICRA.

17.5 Keywords

Rating: An opinion regarding securities, expressed in the form of standard symbols or in any
other standardised manner, assigned by a credit rating agency and used by the issuer of such
securities, to comply with a requirement specified by these regulations.
Securitisation: Securitization involves pooling assets together and turning them into a tradable
security. In the case of loans it is pooling the receivables from a loan and then selling them to a
third party.

17.6 Self Assessment

Fill in the blanks:
1. A credit rating for an issuer takes into consideration the issuer's ..................................
2. CARE's Credit Rating is an opinion on the relative ........................... and ........................... of
an issuer to make timely payments on specific debt or related obligations over the life of
the instrument.

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