Kakul Bhatela, Gujarat National Law University, Gandhinagar, Gujarat
ABSTRACT
Credit rating is a sought after opinion by a professional entity about the relative creditworthiness of a prospective debtor or instrument. In other words, it is a calculated opinion on the magnitude of risk associated with timely repayment of debt plus interest by the borrower.
The business of credit rating started back in the early 1900s, when John Moody’s rating of rail bonds was conducted. Over the last century, credit rating has been been developed into a sophisticated business. Presently, globally, a vast majority of this business is conducted by three credit rating agencies (‘CRAs’)- Moody’s, Standard & Poor’s and Fitch. In India, however the business of credit rating was first started in 1987 by large financial institutions and creditors through CRISIL.
CRAs have now become an quintessential part of the Indian financial system. They are regulated by the Securities and Exchange Board of India (‘SEBI’) through the SEBI (Credit Rating Agencies) Regulations, 1999 and circulars issued thereunder. However, the adequacy of this regulatory framework and the relevance of credit rating agencies have come to the forefront in the last few years. This paper aims to address this crucial question. This research examines the process and role of credit ratings in the financial system and analyses the regulatory regime for CRAs in India in comparison with that of the USA. Ultimately, the author would make recommendations to improve the regulation of CRAs in India so as to improve the functioning of these agencies in the market.
Keywords: Credit Rating, Creditworthiness, SEBI, RBI, CRISIL
