INDIA

A credit rating agency gives a forward-looking opinion about the creditworthiness of a borrower with respect to a specific financial obligation, a specific class of financial obligations, or a specific financial program. A rating takes into consideration the creditworthiness of guarantors, insurers, or other forms of credit enhancement on the obligation and takes into account the currency in which the obligation is denominated. Issue of credit ratings can be either long term or short term depending on the nature of the obligations. In the US, for example, that means obligations with an original maturity of no more than 365 days–including commercial paper. The United States, which till now enjoyed the highest credit rating of AAA from S&P, has just seen a down grade for the first time in ithe country’s history to AA+, which means ‘very strong capacity to meet financial commitments’. India’s current credit rating by S&P is BBB- (BBB minus), which, according to S&P definitions is considered lowest investment grade by market participants. Despite the weak rating, S&P in its statement said “We expect India’s fiscal consolidation to continue in the next few years, supported by a strong growth momentum. The stable outlook reflects our view that India’s external flexibility and fiscal performance will temper the effects of inflation and political uncertainty.”Different agencies use different symbols and definitions for credit ratings and their ratings for the same entity can also vary. The definition of ratingsThe general meaning of S&P’s credit rating opinions is summarised below:AAA: Extremely strong capacity to meet financial commitments. This the highest Rating.AA: Very strong capacity to meet financial commitments.A: Strong capacity to meet financial commitments, but somewhat susceptible to adverse economic conditions and changes in circumstances.BBB: Adequate capacity to meet financial commitments, but more subject to adverse economic conditions.BBB-: Considered lowest investment grade by market participants.BB+: Considered highest speculative grade by market participants.BB: Less vulnerable in the near-term but faces major ongoing uncertainties to adverse business, financial and economic conditions.B: More vulnerable to adverse business, financial and economic conditions but currently has the capacity to meet financial commitments.CCC: Currently vulnerable and dependent on favorable business, financial and economic conditions to meet financial commitments.CC: Currently highly vulnerable.C: Currently highly vulnerable obligations and other defined circumstances.D: Payment default on financial commitments.(Note: Ratings from ‘AA’ to ‘CCC’ are often modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories.) [More]
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