Q. Consider the following statements:

  1. In India, credit rating agencies are regulated by Reserve Bank of India.
  2. The rating agency popularly known as ICRA is a public limited company.
  3. Brickwork Ratings is an Indian credit rating agency.

Which of the statements given above are correct?

  • 1 and 2 only
  • 2 and 3 only
  • 1 and 3 only
  • 1, 2 and 3

Answer: (b) 2 and 3 only

Notes:
  • Credit Rating Agencies form an essential part of the financial markets. They are regulated by SEBI and not by RBI under the powers derived from the Securities and Exchange Board of India (Credit Rating Agencies) Regulations, 1999.
  • ICRA Limited was set up in 1991 by leading financial/investment institutions, commercial banks and financial services companies as an independent and professional investment Information and Credit Rating Agency. ICRA is a Public Limited Company, with its shares listed on the Bombay Stock Exchange and the National Stock Exchange.
  • Brickwork Ratings (BWR) is a SEBI registered Indian Credit Rating Agency. It has also been accredited by RBI offers rating services on Bank Loans, NCD, Commercial Paper, Fixed deposits, Securitized paper, Security receipts etc.
Credit Rating Agencies
  • A credit rating agency (CRA, also called a ratings service) is a company that assigns credit ratings, which rate a debtor’s ability to pay back debt by making timely principal and interest payments and the likelihood of default.
  • An agency may rate the creditworthiness of issuers of debt obligations, of debt instruments, and in some cases, of the servicers of the underlying debt, but not of individual consumers.
  • Credit ratings are usually expressed as letter grades. Whereas, credit scores usually help determine the creditworthiness of individuals and are calculated on the basis of the credit history found in the credit report. 
  • The rating scales used by the Credit Rating Agencies are scaled from ‘AAA’ to ‘D’, wherein ‘AAA’ stands for highest ratings and ‘D’ as lowest or Bad Credit Rating. Similarly, Credit score is a 3-digit number ranging between 300 to 900, wherein any score above 750 and as close to 900 is considered good by the potential lenders.
  • Credit scores are computed by four major credit bureaus in India including TransUnion CIBIL, Equifax, Experian and CRIF High Mark.
  • The global credit rating industry is highly concentrated, with three leading agencies: Moody’s, Standard & Poor’s, and Fitch.
  • Credit Rating Agencies in India:
    • Credit Rating Information Services of India Limited (CRISIL)
    • Investment Information and Credit Rating Agency of India Limited (ICRA)
    • Credit Analysis & Research (CARE)
    • Onida Individual Credit Rating Agency of India (ONICRA)
    • Fitch India
    • Brickwork Ratings (BWR)
    • SME Rating Agency of India Limited (SMERA)
Securities and Exchange Board of India (SEBI)
  • SEBI is a statutory body established on April 12, 1992 in accordance with the provisions of the Securities and Exchange Board of India Act, 1992.
    • Headquartered in Mumbai, the Securities and Exchange Board of India (SEBI) has four regional offices located in Ahmedabad, Chennai, Delhi and Kolkata.
  • The basic functions of the Securities and Exchange Board of India is to protect the interests of investors in securities and to promote and regulate the securities market.
  • Structure of SEBI:
    • SEBI Board consists of a Chairman and several other whole time and part time members.
    • SEBI also appoints various committees, whenever required to look into the pressing issues of that time.
    • Further, a Securities Appellate Tribunal (SAT) has been constituted to protect the interest of entities that feel aggrieved by SEBI’s decision.
    • SAT consists of a Presiding Officer and two other Members.
    • It has the same powers as vested in a civil court. Further, if any person feels aggrieved by SAT’s decision or order can appeal to the Supreme Court.
  • Powers and Functions of SEBI:
    • SEBI is a quasi-legislative and quasi-judicial body which can draft regulations, conduct inquiries, pass rulings and impose penalties.
    • It functions to fulfill the requirements of three categories –
      • Issuers – By providing a marketplace in which the issuers can increase their finance.
      • Investors – By ensuring safety and supply of precise and accurate information.
      • Intermediaries – By enabling a competitive professional market for intermediaries.
    • By Securities Laws (Amendment) Act, 2014, SEBI is now able to regulate any money pooling scheme worth Rs. 100 cr. or more and attach assets in cases of non-compliance.
    • SEBI Chairman has the authority to order “search and seizure operations”. SEBI board can also seek information, such as telephone call data records, from any persons or entities in respect to any securities transaction being investigated by it.
    • SEBI perform the function of registration and regulation of the working of venture capital funds and collective investment schemes including mutual funds.
    • It also works for promoting and regulating self-regulatory organizations and prohibiting fraudulent and unfair trade practices relating to securities markets.