Registration of a credit rating agency

The importance and level of acceptance for credit rating agencies have increased widely over the years among investors of the Indian financial market especially in the last twenty years. To put it simply, opinions of the credit rating agencies do have a significant impact on the investor’s mind compared to what was its impact two decades back. The world is growing fast and with the advent of new methods of analysis brought by powerful software, credit rating agencies are able to derive reliable data to research and give ratings. 

Credit rating is generally defined as an opinion of the expert of the agency on the credit quality of a firm or the ability of a debt issuing firm to serve the instrument. Thus, credit rating agencies give a simple link between returns and risk by doing some calculations based on the company’s financial history, liabilities, and current assets. Any investors can then use this assessment of the company to make his/her decision to invest in the company by comparing the offered return to risk levels. 

"Register your credit rating agency effortlessly. Navigate regulations and compliance requirements for transparent financial assessments."

Regulation and Structure of Credit rating Agencies

Credit agencies are regulated under the framework released by SEBI under its Credit Rating Regulations of 1999. As per these regulations, any new agency willing to start the activities of credit rating agencies in India must get itself registered with the SEBI. Although the SEBI’s regulations only cover the rating of securities and not the foreign exchange, fixed deposits, real estates, etc. 

These agencies act as one of the market intermediaries involved in the business of rating securities offered by way of right issues or public issues. These entities rate the debtors on their ability to pay the debt on time. The large-scale borrowers (Government Organisations or big corporate houses) are rated by these agencies and thus they do not rate any individuals. The assessed entities by credit rating agencies include companies, state governments, special purpose entities, local Government bodies, countries, and non-profit bodies. 

redit rating is simply the assessment of the borrower’s willingness or ability or repays the rated debt according to the terms and conditions of the grant.
 
If only there are significant changes observed in a company’s operating and financial aspects, its credit rating is changed.
 
In essence, credit rating is just an opinion and not a recommendation to hold, sell, or purchase a borrower’s security.
 
Only entities and not the issuers are rated by Credit Rating Agencies.

Documents Required For Credit Rating Agency Registration

  • The Incorporation Certificate of the applicant agency.
  • Details of the directors/administration related to the company and documents regarding their professional profile.
  • Information regarding the contact information about the applicant.
  • Proofs showing a minimum net worth of Rs. 5 crores.
  • Other sorts of business information associated with the company.
  • Infrastructure certificates or documents stating adequacy of infrastructure to run the activities of the Credit Rating Agency.
  • Memorandum of Association (MOU) and Articles of Association (AOU) of the Entity stating its objectives.
  • Any other relevant document as asked during document verification

Procedure for Credit Rating Agency Registration

The person/entity willing to commence any activity as a Credit Rating Agency has got to apply to the Board within the sort of application made in Form A as prescribed within the SEBI regulations alongside a non-refundable fee.
 
The board shall not consider the regulations unless the applicant is promoted by an individual belonging to any of the subsequent categories:
1. Public financial organization.
2. Any Foreign Bank Operating in India with RBI approval.
3. Scheduled full-service bank.
 
A foreign Credit Rating Agency having a minimum of five years’ experience in rating securities and recognized by the laws effective within the country of its operation.
 
The board before granting the certificate satisfies itself on whether the applicant suits the subsequent parameters of registration or not.
 
The board could reject an incomplete application or if there are any mistakes in the application. Other cause of rejection could be the company’s failure to meet the standards set for registration. However, the SEBI in most cases gives 1-month time to all applicants to rectify any mistakes or submit any necessary document asked by them. if the board is satisfied with the application and all the documents then it will intimate the applicant and upon receipt of the required licensing fee, it will grant a registration certificate in form B as per the regulations. The registration certificate granted by SEBI for this entity is valid for 5 years.

Eligibility Criteria to Get Credit Rating Registration

  • The applicant must be a corporation registered under the Companies Act, 2013 to carry any specified rating activity in its Memorandum of Association (MOA).
  • The minimum net worth of rupees five crores
  • The infrastructure must be adequate which enables it to supply rating services as per the provisions of the Act and Regulations.
  • The applicant must be a fit and proper person as per the standards laid down within the regulations.

FAQs

What is a credit rating agency (CRA)?

A credit rating agency is a company that assesses the creditworthiness of entities and assigns them credit ratings, indicating their ability to meet financial obligations.

Why is registration necessary for a credit rating agency?

Registration is necessary to ensure that CRAs adhere to regulatory standards, maintain integrity, and provide accurate and reliable credit assessments to the market.

Who regulates the registration of credit rating agencies?

In many jurisdictions, including India and the United States, the registration and regulation of credit rating agencies are overseen by the financial regulatory authorities such as the Securities and Exchange Board of India (SEBI) and the Securities and Exchange Commission (SEC) respectively.

Practice area's of B K Goyal & Co LLP

Company Registration Services in major cities of India

Complete CA Services

RERA Services

Most read resources