On June 1, 2020, Moody's Investors Service downgraded the Government of India's sovereign credit rating for the first time in the last two decades. The agency has also estimated a decline in the GDP by 4%. The Moody's has downgraded foreign currency and local-currency long term issuer rating for India from Baa2 to Baa3. The negative rating means that there could be another downgrade in the future. Despite several reforms by the government such as GST, FRBM Act, etc., there is a very little impact on India's growth and economy. Fiscal deficit target of India continues to slip and the debt burden has risen up.
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What is Moody's rating?
Moody's Investors Service, is an organization that rates the creditworthiness of borrowers. The ratings are based on a standardized rating scale and measure the expected investor loss in the event of default. Moody's rates debt securities in several bond market segments such as government bonds, fixed-income funds, banking sectors, etc.
Moody's rating scale:
Moody's Investors Service use a standardized rating scale from Aaa to C. Here, Aaa is the highest and C is the lowest. Moody's credit ratings provide investors with a simple system of gradation by which future relative creditworthiness of securities may be gauged.
| Moody's Credit Ratings (Investment Grade) | ||
| Rating | Long Term Rating | Short Term Rating |
| Aaa | Highest Quality and Lowest Credit Risk | Prime 1: Best ability to repay short term debt |
| Aa1 | High Quality and very Low Credit Risk | |
| Aa2 | ||
| Aa3 | ||
| A1 | Upper-medium Grade and Low Credit Risk | |
| A2 | Prime 1/ Prime 2: Best or high ability to repay short term debt | |
| A3 | ||
| Baa1 | Medium Grade and Moderate Credit Risk | Prime 2: High ability to repay short term debt |
| Baa2 | Prime 2/ Prime 3: High ability or acceptable ability to repay short term debt | |
| Baa3 | Prime 3: Acceptable ability to repay short term debt | |
| Moody's Credit Ratings (Speculative Grade) | ||
| Rating | Long Term Rating | Short Term Rating |
| Ba1 | Speculative Elements and a Significant Credit Risk | No Prime: DO NOT FALL with any of the prime categories |
| Ba2 | ||
| Ba3 | ||
| B1 | Speculative Elements and a High Credit Risk | |
| B2 | ||
| B3 | ||
| Caa1 | Poor Elements and Very Credit Risk | |
| Caa2 | ||
| Caa3 | ||
| Ca | Highly Speculative and may be near or in default, but some possibility of recovering principal and interest | |
| C | Lowest Quality, in default and low possibility of recovering principal and interest | |
In 1909, John Moody founded Moody's Investors Service to produce statistics related to stocks and bonds with ratings. In 1975, the U.S. Securities and Exchange Commission recognized the Moody's Investors Service as a Nationally Recognized Statistical Rating Organization (NRSRO).
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