INDIA’S CREDIT RATING SYSTEM & SEBI’s ROLE
India’s credit rating system is a system used by credit rating agencies such as CRISIL, CARE, and ICRA to assess the creditworthiness of Indian companies and other entities. An analysis of financial information, business trends, and industry analysis determines the assignment of ratings. Investors and financial institutions use these ratings to assess the risk linked with investing in a specific company.
One of the key indicators of a company’s creditworthiness is its credit rating. The higher the credit rating, the lower the risk associated with investing in that company. Credit rating agencies use various criteria to rate the creditworthiness of companies, such as the company’s financial strength, management competence, and corporate governance. Companies are usually rated on a scale from AAA (the highest rating) to D (the lowest rating).
India’s credit rating system provides investors and financial institutions with important information about companies and helps them make informed decisions. Investors or lenders may hesitate to finance low-rated companies, as they consider them risky investments. On the other hand, high-rated companies enjoy greater access to funds at lower interest rates.
SEBI’S ROLE
With the progress of global integration, the credit rating system and debt capital valuation have gained more importance in India. To ensure the efficiency and reliability of the credit rating system in India, SEBI (Securities and Exchange Board of India) has taken a laudable role in ensuring the integrity of India’s credit rating practices. India’s scheme of credit rating is mainly based on credit rating agencies that it has set up. Primary responsibility for assessing and assigning credit ratings to listed companies and instruments lies with these rating agencies. SEBI’s role in this regard has been exemplary. It has drafted new guidelines to approve credit rating companies in India and has also taken steps to ensure that credit rating agencies adhere to ethical norms and practices. Adding to this, SEBI also regulated the businesses to be conducted by credit rating companies, making sure that good governance is followed.
Recently, SEBI formed a Credit Rating Advisory Committee to review and amend existing rules and regulations related to credit rating activities. This committee will monitor, advise, and recommend regulatory developments in the credit rating space in India. Ensuring credit rating activities occur fairly, transparently, and without discrimination is the goal.
SEBI has also increased surveillance to ensure compliance with the norms mentioned in the guidelines prescribed under the SEBI Act. Guidelines for the disqualification of rating agencies that are found to have breached credit rating norms have been laid down. As per this guideline, rating agencies that fail to comply with credit rating norms will be disqualified from operating.
CONCLUSION
SEBI’s exemplary role in safeguarding India’s credit rating practices has been admirable. The steps taken by SEBI to ensure the ethical functioning of credit rating agencies have been beneficial to the country and its investors. Now, investors can make better decisions about their investments and also enhance the corporate governance quality.
ADDITIONAL READING-
