Rating agencies which are popular with Credit Rating Agencies (CRA) are those organizations which determine the rate of different type of loans and debts and also fix and assigns the level of quality of companies who issue these debts in the form of loan, debt, bonds and debentures. Rate is given after analysis of many things like ability to pay back the loan, credit-worthiness, measurements of relative credit risk
Benefits and Merits of rating agencies
- Most benefits of rating agencies is to all the bodies who invest their money in companies or major projects. In these bodies, we can include
- small investors
2. Rating agencies act as Google search engine. Google search engine gives page rank 10 to great website. Same work is done by credit rating agencies. They fix the credit rating score. Good companies are included zero risk at A or AAA credit score, then B with medium and low risk companies, C is low risk companies. Many rating agencies use BBB for medium risk. These are small code for providing score and it is very important for investor to check these rating score before invest his hard earned money in bad schemes.
Credit Rating System in Japan
Demerits of Rating Agencies
- When rating agencies do not act honestly, then it is very dangerous for small investors. You can read wikipedia’s criticism of credit rating agencies . Wikipedia’s is crying and saying that downgrade company’s rate is not mention correctly. But now India rating agencies has started to downgrade companies ( read economics times report )
- They also have relationship with company management, so partiality or undue influence is possible.
- Because, these rates are created by human being so it may possible errors of judgment
Which are the best rating agencies in world financial market?
After analysis merits and demerits of rating agencies, all investor’s first duty is to find best rating agencies in world financial market.
- Moody's (U.S.)
- Fitch Ratings (U.S.)
- CRISIL (India)
- Credit Analysis and Research Ltd (CARE) (India)
- ICRA (India)
- Brickwork Ratings India Private Ltd.,(BWR) (India)
How can a company get high score from rating agency?
1. providing high return on investment
2. low risk of bad debts
3. stability of income
4. liquidity of fund
If any company provides above to his investors, then it may possible that it will get highest credit score in rating.
So, it is very essential for every investor to check the report of credit rating agencies of your own country before taking any investment decision.