A Study on Standardisation of Rating Scales across Indian Rating Agencies

Credit Rating Agencies (CRAs) acts an important financial intermediary and gatekeeper. They work with regulators in framing policies and laws for regulating the market. They are mentioned in many statutory regulations of SEBI, IRDA, RBI, NSIC etc. There are seven registered credit rating agencies in India including three new agencies that entered into the market after the financial crisis of 2007. Four rating agencies constitute major market share (more than 80%) and there is a need for promoting fair competition among the credit rating agencies for the growth debt market. 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 through regulation.. There are other instrument and institution ratings that are yet to be standardised. Financial literacy is still in the nascent stage in India and standardised rating scales will help the investor community to better understand the repaying capability of the issuer. Moreover, for fair competition to emerge and for the benefit of all the investors it is important that all the rating symbols are standardised. This paper attempts to find if there is any difference between earlier and standardised rating scales among all rating agencies. There are rating scales used for various instruments/ institutions that are not yet standardised. This paper also compares the non standardised rating scales to infer if there is any difference in their symbols and definition. There is essentially a growing need for having standardised rating scales for all entities across the world to promote healthy competition and evaluate the rating agencies on a common scale