Efficacy of Credit Ratings in Assessing Asset Quality: An Analysis of Large Borrowers

RBI Bulletin Jan-2020 has an article by Sukhbir Singh and Pallavi Chavan:

Using data on credit ratings from the Central Repository of Information on Large Credits (CRILC) mapped with Prowess, this article examines the efficacy of ratings in facilitating a sound and timely assessment of the asset quality of large borrowers. About one-fourth of the sampled Non-Performing Asset (NPA) exposure from CRILC was found to be in investment grade a quarter before slipping into the NPA category. The percentage of NPA exposure with an investment grade rating just before turning nonperforming varied across Credit Rating Agencies (CRAs) with three out of the six CRAs covered in the study showing a relatively high concentration of such exposure.

CRAs have a tough clean up job at hand!

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