Credit Rating

Credit Rating

A credit rating calculates the credit worthiness of an issuer of specific types of debt, particularly debt issued by a business enterprise such as a corporation or a government. A credit rating agency makes an evaluation of the debt issuer’s likelihood of default. Credit ratings agencies determine Credit ratings. Credit Rating is an independent third party comprehensive assessment of the overall credit worthiness of an entity. It takes into account not only the financial condition of the entity, but also various qualitative parameters that have bearing on its credit worthiness. The credit rating represents the credit rating agency’s evaluation of qualitative and quantitative information for a company or government; involving non-public information procured by the credit rating agencies analysts.

Credit ratings are not based on mathematical formulas. Instead, credit rating agencies use their judgment and experience to determine what public and private information should be considered in providing a rating to a particular company or government. The credit rating is used by individuals and entities that buy the bonds issued by companies and governments to indicate the likelihood that the government will pay its bond obligations. A poor credit rating determines a credit rating agency’s opinion that the company or government has a high risk of defaulting, on the basis of agency’s analysis of the entity’s history and analysis of long term economic aspects.

Benefits of the Credit Rating

Credit ratings help investors facilitate comparative assessment of investment options, complement the investors’ own credit analysis, and permit monitoring of asset

Advantages for Enities To Be Rated Mentioned Below:

  • Reduction in Interest Rates as per CAR to be maintained by the Bank
  • Better financial terms and confidence while negotiating with banks and FI’s
  • Financial institution looks for investment graded company in their portfolio
  • Contributes in marketing and serves as first point to promote interest among potential partners
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  • It is a “holistic health check-up of the unit” that establishes credibility, goodwill and assists to deal with large companies.
  • Enhance acceptability with Banks, Financial Institutions and provides access to cheaper and timely credit.
  • Provides assistance in risk management by highlighting parameters measuring operational, financial and business risk.
  • Better market visibility and better corporate image of the company
  • Improve the comfort level with prospective/existing lenders
  • Credibility and confidence building with business partners
  • Self Improvement Tool

Benefits For Lenders To Be Mentioned Below:

  • Offer an objective, independent and reliable opinion on quality of credit
  • Serve as an additional input in the credit decision making process
  • Provide assistance in risk pricing and capital allocation
  • Fixing upon the terms of lending – interest rate, collateral, tenure etc.
  • Reduce time and cost in data analysis
  • Detailed rating rationale improving credit assessment of Client

Limitations Of The Credit Rating

  • Possibility of Bias Exist: The information gathered by the rating agency may be subject to personal bias of the rating team. However, rating agencies try their best to provide an unbiased opinion of the credit quality of the company and/or instrument. If not, they will not be trusted.
  • Improper Disclosure May Happen: The company being rated may not disclose certain material facts to the investigating team of the rating agency. This can have impact on the quality of credit rating.
  • Impact of Changing Environment: Rating is done on basis of present and past data of the company. So, it will be typical to predict the future financial position of the company. Many changes take place due to changes in economic, political, social, technological, legal and other environments. All this will have its impact on the working of the company being rated. Hence, rating is not a guarantee for financial soundness of the company.
  • Problems for New Companies: There may be problems for new companies to collect funds from the market. This is because; a new company may not be in a position to prove its financial soundness. Thus, it may receive lower credit ratings. This will make it typical to collect funds from the market.
  • Downgrading by Rating Agency: The credit-rating agencies periodically review the ratings provided to a particular instrument. If the performance of a company is not as expected, then the rating agency will downgrade the instrument. This will have its impact on the image of the company.
  • Difference in Rating: There are cases, where different ratings are provided by different rating agencies for the same instrument. These differences may be due to many reasons. This will create confusion in the minds of the investor.

Types Of Rating

  • SME RATING – For companies registered as SSI and having Bank Limit of < Rs. 5 crores.
  • BASEL II RATING – Compulsory as per RBI guidelines having a bank limit of > Rs. 5 crores.
  • CORPORATE RATING – Mandatory as per SEBI guidelines for Corporate Instruments i.e. Bonds, Debentures, Commercial Paper, etc.

What VJM & Associates Offers

VJM & Associates providing credit rating consultancy for consulting for SME Rating and Basel II Credit Rating by offering customized, comprehensive and structured solution that aims to compensate your investment in our services with a saving of hefty interest cost and smooth platform for your future financial needs in order to achieve financial success.

With the implementation of Basel II norms, corporate now have to be more vigilant about their credit rating, to ensure not just a high rating but also adequate flow of lending in order to sustain their operations along with reasonable level of interest rate. For companies seeking finance from a bank/bank related institution, the company will require a Basel II rating.

This is all the more relevant in the SME segment where a lot of lending is now rating based as opposed to lending that is based on the name and reputation of the management. Effective corporate rating management systems and processes will enable both banks and SMEs to grow their businesses.

HOW VJM & Associates Can Help In Achieving a Higher Grade Rating:-

VJM & Associates is managed by professionals who are specialized in their domain and have a good expertise in finance industry. The team has worked in rating agencies and has built their own expertise in the related domain. Our team knows how to prepare information, how to explain company’s policy, business model, future plan, growth plans, past history and how to present company. VJM & Associates provides assurance that the company will get a rating, which will lead to higher credibility and better financing term for the company. VJM & Associates takes care of each and every need of rating agencies and will be your one stop rating solutions.
Our rating exercise process comprises following steps:


We are rating consultant and not a rating agency. Rating will be provided only by RBI / SEBI approved rating agencies but we will be your consultant to help you in getting a better rating, which will help you to avail all the advantages of a good rating. A credit rating recommendation from VJM & Associates is not a recommendation or opinion that is intended to substitute for a financial adviser’s or investor’s independent assessment about whether to lend money, extend credit in any form or purchase, sell or hold any financial products. This information and the related corporate ratings and related analysis submitted in the reports by VJM & Associates do not represent an offer to trade in securities. VJM & Associates has a belief that all of its reports are based on reliable data and information or based on information offered to us by the party requesting the analysis, but VJM & Associates has not verified this or obtained an independent verification to this effect. VJM & Associates does not guarantee with respect to the accuracy or completeness of the data relied upon, nor the conclusions derived from the data. Each rating is a relative, probabilistic assessment of the credit risk of the relevant entity and its potential to meet financial obligations. It is not a statement that default will or will not occur provided that circumstances change and management can adopt new strategies. Reports have been prepared at the request of, and for the purpose of, the subscribers to our credit and/or composite risk rating service only, and neither VJM & Associates nor any of our employees hold any responsibility on any ground whatsoever, involving liability in negligence, to any other person. Finally, VJM & Associates and its employees accept no liability whatsoever for any direct, indirect or consequential loss of any kind arising from the use of its ratings and rating research in any way whatsoever, unless & until VJM & Associates is negligent in misinterpretation or manipulation of the data, in which case, our maximum liability to our client is the amount of our fee for the report.

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