Credit Rating Agency Registration With SEBI In India
Overview of Credit Rating Agencies
The importance and level of acceptance for credit rating agencies have increased widely over the years among investors of the Indian financial market especially in the last twenty years. To put it simply, opinions of the credit rating agencies do have a significant impact on the investor’s mind compared to what was its impact two decades back. The world is growing fast and with the advent of new methods of analysis brought by powerful software, credit rating agencies are able to derive reliable data to research and give ratings.
Credit rating is generally defined as an opinion of the expert of the agency on the credit quality of a firm or the ability of a debt issuing firm to serve the instrument. Thus, credit rating agencies give a simple link between returns and risk by doing some calculations based on the company’s financial history, liabilities, and current assets. Any investors can then use this assessment of the company to make his/her decision to invest in the company by comparing the offered return to risk levels.
Credit rating agencies first appeared in the world in the year 1940 after the colossal financial crisis of 1937 in New York and the subsequent formation of rating agency Standards & Poor in 1941. By the decade of 70s, there were many credit rating agencies operating across the world. The trend reached India by 1987 when CRISIL was established. The company’s scope was further noticed after the establishment of ICRA and CARE in 1991 and 1993, respectively. In 1995, the first private sector-based credit rating institution came into being named Duffs & Phelps Credit Rating India Pvt. Ltd.
Regulation and Structure of Credit rating Agencies
Credit agencies are regulated under the framework released by SEBI under its Credit Rating Regulations of 1999. As per these regulations, any new agency willing to start the activities of credit rating agencies in India must get itself registered with the SEBI. Although the SEBI’s regulations only cover the rating of securities and not the foreign exchange, fixed deposits, real estates, etc.
These agencies act as one of the market intermediaries involved in the business of rating securities offered by way of right issues or public issues. These entities rate the debtors on their ability to pay the debt on time. The large-scale borrowers (Government Organisations or big corporate houses) are rated by these agencies and thus they do not rate any individuals. The assessed entities by credit rating agencies include companies, state governments, special purpose entities, local Government bodies, countries, and non-profit bodies.
The following points can summarize the work of Credit Rating Agencies:
Documents Required For Credit Rating Agency Registration
The following documents are required for Credit Rating Agency registration:
Procedure for Credit Rating Agency Registration
1. Public financial organization.
2. Any Foreign Bank Operating in India with RBI approval.
3. Scheduled full-service bank.
Eligibility Criteria to Get Credit Rating Registration
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Credit rating is generally defined as an opinion of the expert of the agency on the credit quality of a firm or the ability of a debt issuing firm to serve the instrument. Thus, credit rating agencies give a simple link between returns and risk by doing some calculations based on the company’s financial history, liabilities, and current assets.
The assessed entities by credit rating agencies include companies, state governments, special purpose entities, local Government bodies, countries, and non-profit bodies. These agencies act as one of the market intermediaries involved in the business of rating securities offered by way of right issue or public issues. These entities rate the debtors on their ability to pay the debt on time. The large-scale borrowers (Government Organisations or big corporate houses) are rated by these agencies and thus they do not rate any individuals.
- The applicant must be a corporation registered under the Companies Act, 2013.
- Should have adequate infrastructure to support the activities of a credit rating agency.
- The minimum net worth of rupees five crores.
- The applicant must be a fit and proper person as per the standards laid down within the regulations.
In essence, credit rating is just an opinion and not a recommendation to hold, sell, or purchase a borrower’s security. However, investors can then use this assessment of the company to make his/her decision to invest in the company by comparing the offered return to risk levels.