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CS Professional · Strategic Management and Corporate Finance · Raising of Funds - Non Fund Based

How does a credit rating from a SEBI-registered credit rating agency help a company seeking non-fund based limits from banks?

A credit rating gives banks an independent opinion of the borrower's credit risk, which they use when assessing the limit and pricing commission or margin. It does not bind the bank to sanction, nor does it remove the need for security or alter the facility's non-fund nature.

  1. AIt guarantees that the bank must sanction the full limit requested
  2. BIt gives an independent opinion on credit risk that banks use in assessing and pricing the facilityCorrect
  3. CIt replaces the need for any security or margin
  4. DIt converts the guarantee into a fund based facility

Explanation

A rating is an independent opinion on the ability to meet obligations on time. Banks use it to assess risk and price commission or decide margins. It is not binding on the bank, does not remove the need for margin or security, and does not change the nature of the facility.

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