Top 100+ Credit Rating Agency Interview Questions And Answers
Question 1. What Is A Credit Rating?
Answer :
A credit score score represents the score company's opinion on the probability of a rated debt obligation being repaid in complete and on time. A simple alphanumeric symbol is commonly used to carry a credit score.
Question 2. What Is The Full Form Of Cra?
Answer :
The full form of CRA is Credit Rating Agency.
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Question 3. How Does A Credit Rating Agency Differ From A Credit Bureau?
Answer :
A credit score rating employer gives an opinion referring to destiny debt repayments via borrower's. A credit bureau gives records on beyond debt repayments by borrower's.
Question four. What Is A Credit Rating Agency?
Answer :
A credit score score company is an entity which assesses the capacity and willingness of the company business enterprise for well timed charge of hobby and main on a debt instrument.
Question 5. Is A Credit Rating A Recommendation To Invest In A Debt Instrument ?
Answer :
A credit score is not a advice to shop for, maintain, or promote a debt tool. A credit score rating is one of the inputs utilized by traders to make an funding selection.
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Question 6. How Is A Rating Denoted ?
Answer :
Rating is denoted with the aid of a easy alphanumeric symbol, for e.G. AA+, A-, and many others.
Question 7. What Is The Difference Between Credit Rating And Equity Research ?
Answer :
Credit rankings are assigned to debt instruments, at the same time as equity studies relates to fairness shares. A credit score is targeted at the threat of non-charge, the primary variable in debt gadgets. Equity studies is targeted on boom possibilities, for that's what drives equity valuations.
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Question eight. Whether The Issuer Company Is Rated Or The Instrument ?
Answer :
The score is assigned to a safety or an instrument.
Question nine. How Does A Credit Rating Differ From An Audit ?
Answer :
A credit rating employer is predicated on a spread of statistics resources, consisting of published annual reports. An audit process is designed to locate fraud or misrepresentation of records, while the credit rating method isn't.
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Question 10. What Does Credit Rating Convey?
Answer :
Credit rating is an assessment of the opportunity of default on payment of hobby and main on a debt instrument. It is not a advice to shop for, sell or maintain a debt tool. Rating most effective gives a further enter to the investor and the investor is required to make his personal unbiased and objective evaluation earlier than arriving at an investment choice.
Question 11. How Does A Rating Agency Operate When Issuers' Disclosure Levels Are Low ?
Answer :
An correct assessment of the credit score rating of an entity depends at the availability of adequate and reliable facts at the rated entity. Moreover, CRISIL scores are below non-stop surveillance over the life of the device which necessitates that CRISIL has continuous access to ok and dependable statistics at the rated entity to ensure that its score reflects the most current credit score opinion. Absence of statistics considerably influences the capacity to make correct evaluation of enterprise, financial and management threat of an entity which drives the credit score rating. 'Information Availability - a key threat factor in credit scores'.
In case the rated entity does not offer i information and/or does not facilitate conferences with key personnel required for score, that entity can be categorised as non-cooperative. For entities categorized as non-cooperative, CRISIL Ratings will continue to review the ratings on an ongoing foundation all through the device/facility’s lifetime, on the basis of best available records.
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Question 12. How Is Credit Rating Done ?
Answer :
Ratings are based totally on a comprehensive evaluation of the strengths and weaknesses of the employer fundamentals which includes financials along side an intensive study of the enterprise in addition to macro-financial , regulatory and political surroundings.
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Question 13. Does A Credit Rating Assure Repayment?
Answer :
A credit score rating isn't always an guarantee of repayment of the rated instrument. Rather, it's miles an opinion on the relative degree of danger associated with such compensation. This opinion represents a probabilistic estimate of the likelihood of default.
Question 14. What Do The Various Rating Symbols Mean ?
Answer :
Each score image is an alphanumeric representation of the opportunity of diploma of repayment chance associated with debt contraptions.
Question 15. Who Pays For A Credit Rating?
Answer :
Most credit score organizations the world over use a revenue version in which the provider will pay for the credit rating. Alternative revenue models (consisting of the one based on investor charges) pose severa challenges in terms of ease and practicality of implementation which have not yet been overcome.
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Question sixteen. Are Rating Symbols The Same Across All Types Of Debt Instruments ?
Answer :
No. Rating symbols might also range relying at the kind of debt instrument, as as an instance long term or brief term
Question 17. If The Issuer Pays For The Rating, How Does A Credit Rating Agency Maintain Its Independence?
Answer :
Although the issuer will pay for the score, the investor makes use of it. Like another service or product, the 'fee' of the rating depends absolutely on the perceptions of the investor. Investor perceptions are based on the credibility of the past scores assigned by using every rating organization. (Please additionally refer to phase - How CRISIL manages Conflict).
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Question 18. What Do The “+” And “-”signal Indicate In A Rating ?
Answer :
Plus and minus symbols are used to suggest finer differences inside a rating class. The minus image associated with ratings has no poor connotations. In truth, ratings in a better score category along with ‘AA-‘ are stronger than rankings in a decrease rating class which includes ‘A+‘.
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Question 19. Who Regulates A Rating Agency ?
Answer :
The capital marketplace regulator regulates rating groups in most regions. In India, the capital markets regulator, the Securities and Exchange Board of India (SEBI), regulates the rating groups in the u . S ..
Question 20. What Are Investment And Speculative Grade Ratings ?
Answer :
An make investments ment grade score signifies th e rating enterprise’s belief that the rated device is like ly to satisfy its price duties. In the Indian context, debt instruments rated 'BBB' and a bove are cl assified a s funding grade scores. Instruments which might be rat ed ‘BB‘ and beneath are classi fied as speculative grade class ratings in which cas e the abilit y to fulfill the paym ent obligatio ns is taken into consideration to be “speculative”. Instru ments rated within the speculative grade are considered to hold materially better chance and a better probability of default as compared to contraptions rated inside the funding grade.
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Question 21. Is Competition Desirable In The Credit Rating Industry ?
Answer :
Competition inside the credit score rating enterprise is applicable to meet the 'higher provider at a cheaper fee' goal on an ongoing foundation. However, it is crucial to shield against some unwanted consequences of opposition, inclusive of lax ratings or sub-most appropriate fine of studies and analysis.
Question 22. Who Pays For The Credit Rating ?
Answer :
In India, the issuer employer pays for the credit score score.
Question 23. How Do Investors Benefit From A Credit Rating?
Answer :
Credit ratings help traders facilitate comparative evaluation of investment options, complement the investors' personal credit score analysis, and allow asset monitoring.
Question 24. Who Regulates Rating Agencies ?
Answer :
Credit rating corporations are regulated by means of SEBI. The SEBI (Credit Rating Agencies) Regulations, 1999 govern the credit score rating corporations and offer for eligibility criteria for registration of credit score organizations, monitoring and overview of ratings,requirements for a right rating system, avoidance of conflict of interest and inspection of rating companies via SEBI, amongst other things.
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Question 25. What Do The Various Credit Rating Symbols Mean?
Answer :
CRISIL uses simple alphanumeric symbols to bring credit score scores. CRISIL assigns credit ratings to debt responsibilities on 3 basic scales: the long- time period scale, the fast-time period scale, and the constant deposit scale. Please consult with the section on Rating/Grading scale for more info.
Question 26. Does Sebi Have A Role In The Rating Exercise ?
Answer :
No. SEBI does no longer play any function inside the assessment made by using the score organization.The score is intended to be an independent, impartial and professional opinion of the rating enterprise.
Question 27. Does The Minus Sign In A Rating Symbol Have Negative Connotations Relating To The Issuer's Performance Or Its Debt-servicing Capability ?
Answer :
Plus and minus symbols are used to signify finer differences inside a rating category. The minus image associated with rankings has no bad connotations in anyway.
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Question 28. Is Rating A One Time Exercise ?
Answer :
No. To guard the hobby of investors, SEBI has mandated that every credit score company shall, all through the lifestyles time of the securities rated through it, continuously display the score of such securities and carry out periodic critiques of all published rankings.
Question 29. What Are Structured Obligation (so) Ratings? Are They Different From Other Credit Ratings ?
Answer :
Structured Obligation (so) rankings are rankings which are based on a 'credit score enhancement' mechanism and/or a dependent payment mechanism. A suffix within the form of '(so)' suggests that the responsibility being rated is a “established duty” this is one-of-a-kind and distinct from the “general duties” of the company.
Question 30. Why Do Ratings Change?
Answer :
Rating is an opinion based on facts available at a factor in time with the rating employer and expectations made on the basis of such data through the agency. However, inf ormation can exchange drastically through the years inflicting the rated units performance to deviate from the sooner expectancies thereby affecting the future reimbursement abilities and thus, requiring the score to be altered.
Question 31. What Is The Validity Period Of A Credit Rating?
Answer :
Credit scores are assigned either to particular contraptions or to the overall debt duties of issuers. CRISIL assigns credit rankings to debt duties. A score is valid till it's far withdrawn that is usually whilst the rated debt obligation is fully paid.
Question 32. What Does A Rating Downgrade Indicate?
Answer :
Rating is monitored all through the lifestyles of the device. A downgrade in therating indicates that the hazard of default of the tool is higher than what became earlier expected.
Question 33. How Are Credit Rating Changes Communicated?
Answer :
Once a credit score score is assigned and posted, CRISIL keeps the credit score rating underneath surveillance till the device is absolutely repaid. The surveillance system may additionally result in credit score changes on occasion. All adjustments in CRISIL credit score ratings are communicated publicly through CRISIL and media releases.
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Question 34. What Kind Of Responsibility Or Accountability Will Attach To A Rating Agency If An Investor, Who Makes His Investment Decision On The Basis Of Its Rating, Incurs A Loss On The Investment?
Answer :
A credit score is a expert opinion given after analyzing all to be had records at a specific factor of time. Nevertheless, such critiques may additionally prove incorrect in the context of next event s. There isn't any agreement between an investor and a score business enterprise and the investor is free to accept or reject the opinion of the company.
Question 35. Why Do Credit Ratings Change?
Answer :
Credit rankings are assigned primarily based on positive expectancies and assumptions approximately variables that effect the provider's overall performance. However, these variables can trade, inflicting the rated entities' performance to deviate materially from expectancies. This is meditated of their modified credit score rankings.
Question 36. Do Agencies Rating Small And Medium Enterprises, Mutual Funds, Banks, Non-banking Financial Institutions, Insurance Providers, Infrastructure Entities, Etc. Also Fall Under The Regulatory Purview Of Sebi?
Answer :
No, SEBI regulates most effective the businesses which can be engaged in the enterprise of rating securities presented by means of way of public or rights trouble.
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Question 37. If A Credit Rating Is Downgraded, Does It Mean That A Default Is Imminent ?
Answer :
Not always. In maximum cases, a downgrade does now not mean that a default is predicted. All it shows is that the chance related to the debt duty is fairly better than what it turned into earlier than the downgrade.
Question 38. Does The Size Of The Rated Debt Obligation Affect Its Credit Rating? What Are 'provisional' Ratings?
Answer :
No. What topics is the dimensions of the whole debt inside the organization, and not the quantity that is sought to be rated.
Question 39. What Are 'provisional' Ratings?
Answer :
In case of entirety of positive vital steps/documentation is pending on the time of score undertaking, CRISIL will assign provisional rankings to such gadgets which will be characterized via a prefix 'Provisional' to the rating symbol. To difficult, a prefix of 'Provisional' to a CRISIL-assigned rating indicates that the score centrally elements in the of entirety of certain crucial steps/documentation through the provider for the tool; without this, the rating could either were one-of-a-kind or not assigned. The provisional nature of such scores might be disclosed through CRISIL in its communications, including rating letter and rating reason. Once the applicable steps/files (as according to expectancies when the provisional rankings have been assigned) are in region, the provisional ratings could be transformed into very last rankings. Please refer to CRISIL's release - "Policy on provisional scores" for in addition deta
Question forty. From Where Can The Credit Ratings Of Instruments Be Obtained ?
Answer :
Credit ratings assigned by way of the credit score rating corporations to diverse gadgets are made available by way of the businesses thru press releases and on their respective websites. The identical are also available within the prospectus or the provide record of the company enterprise and in media classified ads.
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Question forty one. What Are The Common Factors That Are Taken Into Account While Awarding The Credit Rating ?
Answer :
Each credit score rating organisation may additionally have its personal se t of standards and exclusive weight age for each issue for assigning the scores. Some of the commonplace elements that may be taken into consideration for credit rating are Issuer Company’s operational performance, stage of technological improvement, financials, competence and effectiveness of management, beyond record of debt servicing, and so on.
Question forty two. How Can An Investor Know If A Credit Rating Agency Has Changed Its Rating ?
Answer :
The credit score score agencies are required to continuously screen the scores assigned with the aid of them to a selected tool. In case of any modifications in the ratings so assigned, the businesses are required to disclose t he identical through press releases and on their respective web sites.
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Question forty three. What Are The Measures Taken By Sebi In Strengthening Credit Rating ?
Answer :
SEBI has, sometimes, taken several steps to energy the system of credit rating. SEBI directives require the credit rating businesses to be obvious and disclose to the general public the information which may additionally have a cloth bearing at the scores, any resources of conflicts of interest at the same time as project the rating workout, score methodology, reason of the scores, and so forth.
Question 44. Why There Are Not Common Symbols For Credit Ratings Of All Agencies ?
Answer :
The credit rating corporations do not have not unusual symbols because they use distinctive rating methodologies and have different factors bearing one of a kind weightage.
