Skip to main content

RATING AND SYMBOLS

Image
By

It has been observed by the SEBI that the Credit Rating Agencies are using different rating symbols. Such different types of Credit Rating create confusion in the minds of investors. Therefore, SEBI introduced the common rating symbols:

(a) For easy understanding of the rating symbols; and

(b) To achieve high standards of integrity and fairness in ratings. 

Thereafter, SEBI standardized the rating symbols and their definitions have been devised for the following:

(a) Long – term debt instruments
(b) Short – term debt instruments
(c) Long – term structured finance instruments
(d) Short – term structured finance instruments
(e) Long – term mutual fund schemes, and
(f) Short – term mutual fund schemes 

Rating symbols should have CRA‟s first name as prefix. For Example: CARE AAA, CARE AA etc.

Long Term Debt Instruments

These instruments are with original maturity exceeding one year.

AAA: Instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligation. Such instruments are lowest credit risk.

AA: Instruments with this rating are considered to have high degree of safety regarding timely servicing of financial obligations. Such instruments carry very low credit risk. 

A: Instruments with this rating are considered to have adequate degree of safety regarding timely servicing of financial obligations. Such instruments carry low credit risk. 

BBB: Instruments with this rating are considered to have moderate degree of safety regarding timely servicing of financial obligations. Such instruments carry moderate credit risk.

BB: Instruments with this rating are considered to have moderate risk of default regarding timely servicing of financial obligations. 

B: Instruments with this rating are considered to have high risk of default regarding timely servicing of financial obligations. 

C: Instruments with this raring are considered to have very high risk of default regarding timely servicing of financial obligations. 

D: Instruments with this rating are in default or are expected to be in default soon.

Modifiers {“+” (plus)/ “-“ (minus)} can be used with the rating symbols for the categories AA to C. The modifiers reflect the comparative standing within the category.

Short Term Debt Instruments

These instruments are with original maturity of upto one year.

A1 Instruments with this rating are considered to have very strong degree of safety regarding timely payment of financial obligations and carry lowest credit risk. 

A2 Instruments with this rating are considered to have strong degree of safety regarding timely payment of financial obligations. Such instruments carry low credit risk. 

A3 Instruments with this rating are considered to have moderate degree of safety regarding timely payment of financial obligations. Such instruments carry higher credit risk as compared to instruments rated in the two higher categories. 

A4 Instruments with this rating are considered to have minimal degree of safety regarding timely payment of financial obligations. Such instruments carry very high credit risk and are susceptible to default. 

D Instruments with this rating are in default or expected to be in default on maturity.

Modifiers {“+” (plus)} can be used with the rating symbols for the categories A1 to A4. The modifier reflects the comparative standing within the category.

Comments

Post a Comment

Popular posts from this blog

BANKING BACKGROUND AND ITS GROWTH:

By
BANKING BACKGROUND AND ITS GROWTH For having a healthy economy there has to be a sound and effective banking system. The banking system of India should be able to meet new challenges posed by the technology and any other internal and external factors. For the past three decades several significant achievements have been observed in Indian banking system especially towards credit facilities. In fact, Indian banking system has reached gradually to remote places of the country also. The government’s regular policy for Indian bank since 1969 has paid rich dividends with the nationalization of 14 major private banks in India. The first bank in India (although conservative/rigid) was established in 1786. From 1786 till today, the journey of Indian Banking System can be segregated into three distinct stages. Stage-I:  Early phase from 1786 to 1969 of Indian Banks. Stage-II: Nationalization of Indian Banks and unto 1991 prior to Indian banking sector reforms. Stage-III:   New ...
3 comments
Read more

MORTGAGE BACKED SECURITIES

By
Mortgage – backed securities (MBS) are bonds secured by home and other real estate loans. They are created when a number of these loans, usually with similar characteristics, are pooled together. These securities assure a fixed return which is derived from the performance of the specific assets. They are issued with a maturity period of 3 to 10 years and backed by pooled assets like mortgages, credit card receivables, etc.  Example: A bank offering home loan might round up Rs.20 crore worth of such loans. That pool is then sold to a Government Agency or a government sponsored – enterprise (GSE), or to others to be used as the collateral for the new MBS.  Features of assets to be securitized: The assets to be securitized shall have the following features:- (a) The cash flows generated from the assets should be received periodically in accordance with a Pre – determined schedule. (b) The actual cash flows generated from the assets should be predictable. (...
Post a Comment
Read more

HEDGE FUNDS

By
Hedge means Fence, Barrier & Hurdle (other meaning – Protection & Security). In other words, it is a process of reducing and controlling future risk by taking some steps in advance.  Hedge fund refers to an alternative investment vehicle that is designed to protect investment portfolios from market uncertainty, while generating positive returns in both up and down markets. Hedge funds are unregistered private investment partnerships, funds or pools that may invest and trade in many different markets, strategies and instruments (including securities, non – securities and derivatives) to provide certain periodic and standardized pricing and valuation information to investors.  In short, it is an alternative investment that is designed to protect the Capital (investment amount) of an investor from market uncertainty and generate positive returns from the market fluctuations.  What is Hedging Concept?  Case Study: STEEL INDUSTRY  Facts: An...
Post a Comment
Read more