Impact of credit rating on investment alternatives and stock performance of selected public sector banks in India

This study has been undertaken to analyze the impact of credit rating given by various private agencies in India for the purpose of understanding how effectively credit risk is being managed by selected public sector companies in the banking industry. From this study, the practical implication of different type of ratings given by these agencies on various investments provided by these banks has been derived and the ratings provided by CRISIL and ICRA for the selected companies have been considered for analysis and also for arriving at appropriate findings and for providing required suggestions.

Banking industry has been selected for this study due to the variability in the efficiency among the public sector banks in India to deliver their long- term financial commitments towards their customers and other stakeholders. Public sector banks in India in recent times have faced increasing problems with Non- Performing Assets (NPAs) due to the inability of their customers to repay debts within the stipulated time period. This has also created a significant influence on the performance of the stocks of these companies. Investors buying stocks of these banking companies are not able to receive high returns on the stocks due to the liquidity crunch faced by banking companies in India. Therefore, the risk levels of various investment alternatives of the selected banks have been assessed in this study through the credit ratings and its impact on the market prices of the stocks of these companies has also been measured.

The suggestions provided in this study would help the selected companies to identify their credit risk areas and take appropriate steps in the future which would help them to achieve financial soundness in the future.