Context: Taking into account the practical issues faced by companies due to the COVID-19 pandemic, the Securities and Exchange Board of India (SEBI) has allowed credit rating agencies (CRAs) to bypass the 90-day curing period to revise ratings from default to non-investment grade.
Issue

• While current norms bar CRAs from revising the ratings before 90 days, few companies were able to meet their payment obligations a few days after the due date due to COVID-19-related delays.
• The rating agencies were, however, not able to revise the ratings due to the regulatory framework.
• The rating could not be upgraded and continued to be under sub-investment grade due to the extant provisions on post-default curing period of:
• 90 days for the rating to move from default to speculative grade.
• Generally, 365 days for default to investment grade.
• SEBI has said that CRAs can deviate from the said period of 90 days on a case-to-case basis, subject to the agencies framing a detailed policy in this regard.

About Credit Rating

• Credit Rating is an assessment of the borrower (be it an individual, group or company) that determines whether the borrower will be able to pay the loan back on time, as per the loan agreement.
• A good credit rating depicts a good history of paying loans on time in the past.
• This credit rating influences the bank’s decision of approving an applicant’s loan application at a considerate rate of interest.

How does credit rating work?

• Every credit rating agency has their algorithm to evaluate the credit rating.
• Major factors considered are credit history, credit type and duration, credit utilization, credit exposure, etc. Every month, these credit rating agencies collect credit information from partner banks and other financial institutions.
• Once the request for credit rating has been made, these agencies dig out the information and prepare a report based on such factors. Based on that report, they grade every individual or company and give them a credit rating.

Credit Rating Agencies in India

• CRISIL: Credit Rating Information Services of India Limited is the first credit rating agency of the country which was established in 1987.

It offers 8 types of credit rating which are as follows:

• AAA, AA, A – Good Credit Rating
• BBB, BB – Average Credit Rating
• B, C, D – Low Credit Rating

ICRA: Investment Information and Credit Rating Agency of India was formed in 1991. It offers comprehensive ratings to corporates via a transparent rating system.

• CARE: Credit Analysis and Research Limited (CARE) offers a range of credit rating services in areas like debt, bank loan, corporate governance, recovery, financial sector and more. Its rating scale includes two categories – long term debt instruments and short term debt ratings.
• ONICRA: Onida Individual Credit Rating Agency of India, established in 1993, offers credit assessment and credit scoring services to both individuals and businesses.
• SMERA: Small Medium Enterprises Rating Agency of India Limited has two divisions – SME Ratings and Bond Ratings. It was established in 2011 and is a hub of financial professionals.