Credit rating is an analysis of the credit risks associated with a financial instrument or a financial entity.
Definition: Credit rating is an analysis of the credit risks associated with a financial instrument or a financial entity. It is a rating given to a particular entity based on the credentials and the extent to which the financial statements of the entity are sound, in terms of borrowing and lending that has been done in the past.
Description: Usually, is in the form of a detailed report based on the financial history of borrowing or lending and credit worthiness of the entity or the person obtained from the statements of its assets and liabilities with an aim to determine their ability to meet the debt obligations. It helps in assessment of the solvency of the particular entity. These ratings based on detailed analysis are published by various credit rating agencies like Standard & Poor’s, Moody’s Investors Service, and ICRA, to name a few.
NSIC – CREDIT RATING
Performance & Credit Rating Scheme
NSIC – CREDIT RATING
Need of a Performance and Credit Rating Mechanism for SSIs (now Micro and Small Enterprises) was highlighted in Union Budget’04-05. A scheme for SSIs (now Micro and Small Enterprises) has been formulated in consultation with Indian Banks’ Association(IBA) and Rating Agencies. NSIC has been appointed the nodal agency for implementation of this scheme through empanelled agencies.
Benefits of Performance and Credit Rating
An independent, trusted third party opinion on capabilities and credit-worthiness of SSIs
Availability of credit at attractive interest
Recognition in global trade
Prompt sanctions of Credit from Banks and Financial Institutions
Subsidized rating fee structure for SSIs
Facilitate vendors/buyers in capability and capacity assessment of SSIs
Enable SSIs to ascertain the strengths and weaknesses of their existing operations and take corrective measures.
Benefits to Banks and Financial Institutions
Availability of an independent evaluation of the strength and weaknesses of an SSI unit seeking credit and thereby enabling banks and financial institutions manage their credit risk
A combination of credit and performance factors including operations, finance, business and management risk
Uniform Rating Scale for all empanelled rating agencies.
SSIs have the liberty to choose among the empanelled Rating Agencies.