ABSTRACT
Purpose: Credit ratings, frequently assigned by Credit Rating Agencies (CRAs), serve as critical indicators of default risk and the debtor's ability to repay loans, including timely principal and interest payments. These agencies evaluate borrowers' income, financial health, and creditworthiness to assess potential credit risk. This study explores the key determinants used by Indian CRAs in assigning credit ratings and examines how these factors influence the credit risk profiles of Public and Private Sector Banks (PPSBs), with an extended focus on their implications for promoting equitable financial practices and long-term sustainability in the Indian banking system.
Design/methodology/approach: The study adopts a descriptive research design, utilizing both primary and secondary data. Information was gathered from the official websites of credit rating agencies and public/private sector banks. Primary data was collected from a sample of 452 CRA employees through a standardized questionnaire administered via Google Forms. The data was analyzed using SPSS and statistical techniques including Factor Analysis, Multiple Regression, ANOVA, and Chi-Square tests. The approach allows for a comparative understanding of credit rating determinants and their perceived role in supporting inclusive and risk-aware banking practices.
Findings: The results indicate that the credit history of borrowing institutions significantly influences credit risk, as perceived by CRAs. Among the agencies studied, CARE demonstrated a higher level of awareness regarding credit rating determinants and associated credit risk. A strong alignment was observed between CRA perceptions and actual credit risk, suggesting that rating practices can shape not only risk mitigation strategies but also the equitable allocation of credit across diverse banking institutions.
Originality: This study contributes to the growing discourse on integrating sustainability and equity into financial systems by identifying critical credit rating determinants used by Indian CRAs. It offers valuable insights into how these assessments influence the credit risk and financial resilience of PPSBs, ultimately affecting investment flows, inclusion efforts, and broader financial stability in India.506
