State Government Entities

Public Finance Ratings

CARE’s public finance ratings cover State Governments and Local bodies like municipal corporations.

  • State Government ratings:
    CARE Ratings evaluates the credit quality of state governments as a part of the process of assigning ratings to the debt instruments of public sector enterprises that are backed by state government guarantees. CARE Ratings has, over the years, carried out the credit rating of around a dozen state governments. These ratings include those in the public domain such as ratings of state government guaranteed borrowings by State Electricity Boards, Irrigation Corporations, Road Development Corporations, State Finance Corporations, Infrastructure Development Corporations, to name a few. With more state government enterprises accessing the debt market for various requirements with state government backing, the credit rating of state governments will become an important consideration in lending and investment decisions.

    CARE Ratings bases its assessment of the credit quality of a state government finances on the Financial Risk and Economic Risk. A credit rating is then assigned using CARE Ratings’ standard long-term rating scale.

  • Urban Infrastructure Projects:
    Urban infrastructure financing has been traditionally done through internally generated resources of municipal bodies, grants and transfers from central and state governments and funds from international organisations and domestic financial institutions like HUDCO and LIC.

    In the present scenario, budgetary allocations to municipal bodies cannot be expected to increase substantially and may even decrease, with the control of fiscal deficit becoming a critical area of economic management. Concessional funding from financial institutions can be ruled out. Access to multilateral and bilateral funding is also going to be difficult, as there is increasing pressure from the donor countries to bring about greater accountability and market orientation in the projects financed by them. Municipal bodies, therefore, need to explore alternatives such as private sector participation and identify new sources of funds, such as municipal bonds, for financing core infrastructure projects.

    Financial instruments issued by municipal bodies to raise resources from capital markets are commonly known as municipal bonds. Municipal bonds may be of many types.

    While analyzing municipal bodies, CARE Ratings considers factors like the economic base, legal set-up, administrative, debt and financial aspects, apart from the viability of the project. .