Finance · Credit Rating Agencies and Regulations
A Chief Financial Officer (CFO) of a medium-sized company, 'Tech Innovate', is seeking a term loan from a consortium of banks. The consortium mandates that the CFO must provide a credit rating report for the company from at least three different agencies registered with SEBI to assess the creditworthiness. The CFO provides reports from CRISIL, CARE, and Fitch. The consortium rejects the Fitch report (as an international entity) stating that domestic credit assessments require SEBI-registered rating entities. Which of the following describes the regulatory status of Fitch in the Indian context, and what is the primary function of a domestic credit rating agency in the lending process?
- 1Fitch is a SEBI-registered Credit Rating Agency (CRA) and its report should be accepted. Primary Function: To set the benchmark interest rate for the loan.
- 2Fitch is a Registered Insurance Broker with IRDAI. Primary Function: To provide a guarantee on the loan repayment to the bank.
- 3Fitch is a Foreign Credit Rating Agency (FCRA) that operates in India through a registered Indian subsidiary (India Ratings). Primary Function: To provide an independent opinion on the probability of default by the borrower, facilitating regulatory capital allocation (risk weighting) for the bank.✓
- 4Fitch is a Non-Banking Financial Company (NBFC) in India. Primary Function: To verify the authenticity of collateral provided by the borrower.
Correct answer
Fitch is a Foreign Credit Rating Agency (FCRA) that operates in India through a registered Indian subsidiary (India Ratings). Primary Function: To provide an independent opinion on the probability of default by the borrower, facilitating regulatory capital allocation (risk weighting) for the bank.
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