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Need for Uniform Rating Scales Across All Rating Agencies

Abstract

Credit Rating Agencies (CRAs) play an important role in the financial markets and in India, they work along with the regulator in regulating the market. They are mentioned in many statutory regulations of SEBI, IRDA, RBI, NSIC etc. Corporate debt market in India has developed manifold over the last decade and regulators believe that CRAs credit assessment capabilities is a necessary input for obtaining quality rating. Entry of new agencies with good analytical abilities and fair competition will help in the growth of debt market. They are five registered rating agencies in India out of which few agencies hold the major market share. The rating given by the CRAs is on an ordinal scale denoted by a rating symbol. Each rating agencies rate debt instruments with different rating symbols and SEBI achieved standardization of rating symbols for debt instruments (includes mutual fund schemes and structured obligations) alone. There are other ratings that are yet to be standardized. Financial literacy is still in the nascent stage in India and uniform rating scale will help the investor community to better understand the repaying ability of the issuers. Moreover, for fair competition to emerge and for the benefit of all the investors it is important that the rating symbols are standardized. This paper deals with the need for standardization and perspective of the regulators (who influence the ratings market at the international level) regarding standardization of rating scale. It is also important to view the rating symbols of various rating agencies in a comparable scale to infer if there is any difference in their symbols and definition.

Charumathi B, Mangaiyarkarasi T

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