Are Credit Rating Agencies actually reliable in India?
Investor’s today consider Ratings given by the Credit rating agencies as one of the very important criteria while selecting investment instruments. Today Credit Ratings are available for not only individuals or companies but also for countries (popularly known Sovereign Credit Rating).
But here is the question, are these ratings actually reliable?
If we analyze major downfalls across the world (majorly 2008 financial crisis) & recently in India, these agencies were not seen doing their jobs properly. Starting from the Downfall of IL & FS, DHFL, Bhushan Steel & Zee Group, ratings didn’t reflect the actual scenario of the company. Reducing the rating once the company is bankrupt or in liquidity crisis is pointless? What were these Rating agencies doing when the company reported consecutive losses for two quarters or defaulted on the first ever debt obligation?
According to the data collected by “Business Standard analysis team”, it has been seen that there is a widening gap between the financial ratios of the company & the credit ratings given to the company, which means they are contrary in nature. Not only this, few companies of BSE-500 with completely different credibility, financial statements & working operations are given the same ratings.
According to a few other analysts, it was also seen that Indian Credit Rating agencies are charitable while giving ratings. There is a number of companies in India with “AAA” rating as compared to any other countries in the world.
Not only this, one of the other important issues with respect to the Credit rating agencies in India is the “Model” used by them. They are seen biased the issuers of debts as they would be compensated by these Debt issuer companies only. Companies also act smart by publishing the data of the Credit Rating Agency giving them a higher rating. Thus all the above things have collectively hampered the trustworthiness of Agencies.
So, now should these agencies not be trusted anymore? There cannot be a sure shot to answer to this as at the end Agencies only reflect a probability of default & nothing more.
IBS TIMES OFFICIAL MEDIA PARTNER: NEWSWIRE
IBS TIMES OFFICIAL PROMOTIONAL PARTNER: IBS MESSENGER
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