ib&fs module 7
TRANSCRIPT
Credit rating is an analysis of the credit risks
associated with a financial instrument or a
financial entity.
Definition: Credit rating is an analysis of the
credit risks associated with a financial instrument
or a financial entity. It is a rating given to a
particular entity based on the credentials and the
extent to which the financial statements of the
entity are sound, in terms of borrowing and
lending that has been done in the past.
Definition:
An assessment of the credit worthiness of a
borrower in general terms or with respect to a
particular debt or financial obligation. A credit
rating can be assigned to any entity that seeks to
borrow money—an individual, corporation, state
or provincial authority, or sovereign government.
Credit assessment and evaluation for companies
and governments is generally done by a credit
rating agency such as Standard &
Poor’s, Moody’s or Fitch. These rating agencies
are paid by the entity that is seeking a credit
rating for itself or for one of its debt issues.
securitization of debt
Securitization of debt:
Meaning: securitization of debt refers to the
process of liquidating the illiquid and long term
assets like loans and receivables of financial
institutions like banks by issuing marketable
securities against them.
In other words it is a technique by which a long
term, non negotiable and high valued financial
asset like hire purchase is converted into
securities of small values which can be tradable
in the market just like shares.
Features of securitization
Incorporation & Registration of Special Purpose
Vehicles:
Securitization act intends to securitize and
reconstruct the financial assets through two
special purpose vehicles (SPV’s) Securitization
Company and Reconstruction Company. Both of
these companies have to be incorporated under
the Companies act, 1956 and also having them
as the main purpose. It is a requirement for the
Securitization Company and the reconstruction
company to be registered compulsorily with the
RBI before commencing their business
operations.
Enforcement of security interest:
The main aim of the Securitization act is to make available the enforcement of security interest which is to take possession of the assets that have been given as security for the loan. In the event of default by a borrower this act authorizes the lender to issue a demand notice to both the borrower and guarantor to pay off the dues within 60 days from the date of the notice. Even after which the borrower fails to make the payment the lender (Bank or financial institution) could resort to any of the following: (i) Take ownership of the security; (ii) Sale or lease or assign the right over the security; (iii) Employ Manager to manage the security; (iv) Ask any debtors of the borrower to pay any sum due to the borrower. In situations where there are more than one secured creditors the provisions of this act will be valid only when 75% of them agree on the decision.