Executive Summary

EXECUTIVE SUMMARY

Credit rating agencies (CRAs) issue creditworthiness opinions that help overcome the information asymmetry between those issuing debt instruments and those investing in these instruments. CRAs have a major impact on the financial markets, with their rating actions closely followed by investors, issuers, borrowers and governments. It is essential, therefore, that they consistently provide top-quality, independent, and objective credit ratings. Since August 2007 financial markets worldwide have suffered a major crisis of confidence. This crisis is a complex phenomenon involving multiple actors. CRAs alone cannot be blamed for the current financial turmoil; other actors and special circumstances were implicated. The crisis originated in the US residential subprime mortgage market and subsequently spread into other sectors of the financial markets. CRAs were close to the origin of the problems with subprime markets: they were issuing excessively favorable opinions on structured instruments that were financially engineered to give high confidence to investors. This Impact Assessment considers what would be the most appropriate policy response to the problems identified Evidence shows that CRAs have performed markedly worse in assigning ratings to innovative, structured products than in issuing traditional ratings. The Commissions analysis therefore focuses on the issues that have arisen from rating structured finance products. However, it has to be borne in mind that as financial innovation progresses, similar problems may occur in the future in other areas where credit rating agencies have little or no experience. Moreover, certain deficiencies apparent in structured finance ratings relate to the structure, business model and internal processes of the entities, i.e. may also affect the more traditional areas of CRA activity.

Failures in the integrity of CRAs; conflicts of interest in the rating business All contributors, institutions and stakeholders consulted unanimously expressed the view that potential conflicts of interest when CRAs rate structured products have not been avoided or managed satisfactorily. Lack of quality in methodology and ratings The significant number of downgrades observed in the second half of 2007 and first quarter of this year as compared to the first half of 2007 clearly indicates that the ratings given before the start of the turmoil 2

were overoptimistic and failed to reflect market conditions in the underlying assets. One cause of this poor performance is most probably the lack of quality in the methodologies used by the CRAs to issue a rating. Lack of transparency in CRAs activity CRAs do not communicate the characteristics and limitations of ratings for structured finance products with sufficient precision, nor do they provide sufficient information on critical model assumptions. This lack of information hinders market participants understanding of the ratings significance. CRAs deliver information on rating performance, but this information does not facilitate comparison of CRAs performance.

CHAPTER-1

Introduction to Credit Rating Agencies

CREDIT RATING
Credit rating is an assessment of the credit worthiness of individuals and corporations. It is based upon the history of borrowing and repayment, as well as the availability of assets and extent of liabilities. Credit is important since individuals and corporations with poor credit will have difficulty finding financing, and will most likely have to pay more due to the risk of default. Thus, the assessment of risk associated with particular ecurity/financial instrument regarding timely repayments of interest and principal is termed as credit rating. The credit rating is an symbolic indicator of the current opinion of the relative capability of the issuer service its debt obligation in a timely fashion, with specific reference to the instrument being rated . It can also be defined as an the expression, thought use of symbols, of the opinion about credit quality of the issuer of security/instrument. DEFINITIONS Following are some definitions of credit rating given by a few well-known rating agencies:1. A rating is an opinion on the future ability and legal obligation of the issuer to make timely payments of principle and interest on a specific fixed income security. The rating measures the probability that the issues will default on the security over its life, which depending on the instrument may be a matter of days to 30 years or more. In addition, long term ratings incorporate an assessment of the expected monetary loss should a default occur. 2.

Credit rating helps investors by providing an easily recognizable, simple tool that couples

a possibly unknown issuer with an informative and meaningful symbol of credit quality. The above definitions emphasize the use of credit rating to access the probability of timely repayment of principle and interest by the issuer of debt security.

EVOLUTION OF CREDIT RATING AGENCIES

After the financial crisis of 1837, Louis Tappan established the first mercantile credit agency in New York in 1841. So the origin of credit rating can be traced to the era of 1840s. The agency rated the ability of merchants to pay their financial obligations. It was subsequently acquired by Robert Kun and its first rating guide was published in 1859. Another similar agency was set up by John Bradstreet in 1849, which published a rating book in 1857. These two agencies were merged together to from Dun and Bradstreet in 1933, which became the owner of Moodys Investors Service in 1962. The history of Moodys itself goes back about 100 years. In 1900 John Moody founded Mookys Investors Service, and in 1909 published his Manual of Railroad Securities. This was followed by the rating of utility and industrial bonds in 1914, and the rating of bonds issued by U.S. cities and other municipalities in the early 1920s. Further expansion of the credit rating industry took place in 1919, when the Poors Publishing Company published its first rating followed by the Standard Statistics Company in 1922, and Fitch Publishing Company in 1924. The Standard Statistics Company merged in 1941 to form standard and poors which was subsequently taken over by McGraw Hill in 1966. For almost 50 years, since the setting up of Fitch Publishing in 1924, there were no major new entrants in the field of credit rating and then in the 1970s, a number of credit rating agencies commenced operations all over the world. These included the Canadian Bond Rating Service (1972), Thomson Bank watch (1974), Japanese Bond Rating Institute (1975) Dominican Bond Rating Service (1997), IBCA Limited (1978), and Duff and Phelps Credit Rating Company (1980). There are credit rating agencies in operation in many other countries such as Malaysia, Philippians, Mexico, Indonesia, Pakistan, Cyprus, Korea, Thailand and Australia. In India, the Credit rating and information Services of India Ltd. (CRISIL) was set up as the first rating agency in 1987, followed by ICRA Ltd. (formerly known as Investment Information and Credit Rating Agency of India Limited) in 1991, and Credit Analysis and Research Ltd. (CARE) IN 1994. The ownership pattern of all the three agencies is institutional. Duff and Phelps has tied up with two Indian NBFCs to set up Duff and Phelps Credit Rating India Pvt. Ltd. In 1996.

SEBI GUIDELINES FOR CREDIT RATING AGENCIES

Code of Conduct 1) A credit rating agency shall fulfil its obligation in a prompt, ethical and professional. 2) A credit rating agency shall provide adequate freedom and power to its compliance officer for the effective discharge of his duties. 6

3) Agreement with the client. 4) Every credit rating agency shall enter into a written agreement with each client whose securities it proposes to rate, and every agreement shall include the following provisions, namely a. The rights and liabilities of each party in respect of rating of securities shall be defined. b. The fee be charged by the rating agency shall be specified.. c. The client shall agree to co-operate with the credit rating agency in order to enable the latter to arrive at, and maintain, a true and accurate rating of the clients securities and shall in particular provide to the latter, true, adequate and timely information for the purpose. d. The credit rating agency shall disclose to the rating assigned to the securities of the latter 5) Every credit rating agency shall carry out periodic reviews of all published ratings during lifetime of the securities. 6) If the client does not co-operate with the credit rating agency so to enable the credit rating agency to comply with its obligations under regulation, the credit rating agency shall carry out the review on the basis of the best available information, the credit rating agency shall disclose to the investors the fact that the rating is so based. 7) A credit rating agency shall not withdraw a rating so long as the obligations under the security rated by it are outstanding, except where the company whose security is rated is wound up or merged of dissemination, irrespective of whether the rating is or is not accepted by the client; 8) A credit rating agency shall ensure that the senior management, particularly decision makers have success to all relevant information about the business on a timely basis. 9) A credit rating agency shall ensure that good corporate policies and corporate governance are in place. 10) A credit rating agency shall maintain an arms length relationship between its credit rating activity and any other activity. the

Maintenance of Books of Accounts records, etc.: 1) Every credit rating agency shall keep and maintain, for a minimum period of five years, the following books of accounts, records and documents, namely: i. Copy of its balance sheet, as on the end of each accounting period; ii. A copy of its profit and loss account for each accounting period. iii. A copy of the auditors report on its accounts for each accounting period. 7

iv. A copy of the agreement entered into, with each client; v. Information supplied by each of the clients; vi. Correspondence with each of the clients; vii. Rating assigned to various securities including up gradation and down gradation (if any) of the ratings so assigned. viii. Rating notes considered by the rating committee; 2) Every credit rating agency shall professional rating committees, comprising members who are adequately qualified and knowledgeable to assign a rating. 3) All rating decisions, including the decisions regarding changes in rating, shall be taken by the rating committee. 4) Every credit rating agency shall be staffed by analysts qualified to carry out a rating assignment. 5) Every credit rating agency shall inform the Board about new rating instruments or symbols introduced by it. 6) Every credit rating agency, shall, while rating a security, exercise due diligence in order to ensure that the rating given by the credit agency is fair and appropriate, A credit rating agency shall not rate securities issued by it. 7) Rating definition, as well as the structure for a particular rating product, shall not be changed by a credit rating agency, without prior information to the Board. 8) A credit rating agency shall disclose to the concerned stock exchange through press releases and websites for general investors, the rating assigned to the securities of a client, after periodic review, including changes in rating, if any.

TYPES OF CREDIT RATING:There is various type of credit rating. The most common forms of credit ratings are: Long Term Instrument Rating Equity Rating Short Term Instrument Rating 8

Customers/Borrowers Rating Sovereign Rating Individual Rating Compulsory Rating

These common forms of credit ratings are shown in the following diagram:

Credit Ratings

Financial Instruments Rating

Customer Rating Sovereign Rating

Borrowers Rating
Compulsory Rating

Individuals Rating

Long Term Instrument Rating

Short Term Instrument Rating

Equity Rating

Long Terms Instruments Rating : Long-term instrument rating refers to the rating of bonds, debentures and another long-term debt securities issued by a government or quasi-governmental body. Equity Rating: Equity rating refers to the rating of equity issued in the capital market. The concept of equity rating is still not adopted by the rating agencies in India. Short term Instrument Rating : In this kind of rating we include the rating of commercial papers, short-term public deposits etc.

Customer or Borrower Ratings: Customer/Borrowers rating require the assessment credit worthiness of the customers to whom the credit sale is being made or grant of loan is under consideration.

Sovereign Rating: Sovereign rating refers to evaluation of credit worthiness of a country in which investment by a foreign body (foreign Govt. or corporate body) is envisaged or to which a loan is to be given. This kind of rating is generally done by the international rating agencies. The international rating agency standard and poor has improved its outlook on India foreign currency rating to positive from stable but retained the sovereign rating at junk grade due to high public debt and serious fiscal inflexibility. 1. S&P said the revision reflects Indias improving external liquidity and better prospects for the governments debt burden to stabilize. 2. S&P had last revised Indias foreign currency outlook from negative to stable in December 2003 on account of improved external finance.

Individuals Rating: Rating of individuals is called as individuals credit rating.

Compulsory Rating: The rating at which the government bound the obligation is called the compulsory rating like commercial papers etc Following on the rating change, criticism of ratings per se has been in some evidence. One, that sovereign ratings have not been a good predictor of currency crisis, basically a reference to Asian difficulties in 1997-98. The principal problem of the Asian miracle was regulatory weakness, with large gaps in what the central banks knew about the external liabilities of their domestic banks, and rating agencies were affected by the same information lapses. Second, till this crisis, mainstream economic theory, had oversimplified the process by which capital flows occur. The received wisdom in the mid-nineties had little space for the singularity of large currency crises and contagion.

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CREDIT RATING AGENCIES IN INDIA

In India, there are three major credit rating agencies and all of them have been promoted by financial institutions. These are as follows:1. 2. 3. CRISIL (Credit Rating Information Services of India Ltd.) ICRA (Investment Information & Credit Rating Agency of India Ltd.) CARE (Credit Analysis and Research in Equities)

The first credit rating agency (CRISIL) was established in1987 and it started its operations in 1888. In response to the ever-increasing role of credit rating, two more agencies were not up in 1990 (ICRA) and 1993 (CARE) respectively. Now, There are five credit rating agencies in India: 1. Credit Rating Information Service of India Ltd. (CRISIL) 2. Investment Information and Credit Rating Agency. (ICRA) 3. Credit Analysis and Research Ltd. (CARE) 4. Phelps Credit Rating India Ltd. (DCR) 5. Onida Individual Credit Rating agency. (ONICRA) A. CRISIL (Credit Rating Information Service of India Ltd)

The Credit Rating Information Service of India Ltd. was promoted in 1987 jointly by the ICICI Ltd and the UTI. Other shareholders include the Asian Development Bank Life Insurance Corporation of India, HDFC Ltd., General Insurance Corporation of India and several foreign and India banks. CRISIL was set up with a basic purpose to rate debt obligations, which would guide investors as to the risk of timely payment of interest and principle. At present, functions performed by CRICIL fall under three board categories:1. Credit Rating Services 2. Advisory Services 3. Research and Information Services

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1.Credit Rating Services: The principle function of CRICIL is to rate mandated debt obligations of Indian Companies, chit funds, real estate developers, non-banking finance companies, and Indian States and so on. It is the core business of CRISIL while new business has begun to make a moderate contribution, which is about 80% to the revenue. Following functions has been included in the rating services by CRICIL -Rating the debt obligations -Rating of structural obligations ` -Rating of real estate developers projects -bond fund rating -Rating of collective investment schemes.

2.CRISIL Research and Information Service:CRISIL Advisory Services for consultancy services to various state Government, Disinvestments Commission on disinvestments plan for public sector enterprise, major port authorities, and state Electricity Boards and so on. Other clients availing of advisory services from CRISIL are the Public sector enterprises, banks and financial institutions and instigating risk. It also formulates and executes strategies for that.

3.CRISIL Research and Information Services:CRISIL Research and Information. Services include value-added research activities and customized studies in following areas. -Indian Capital Market -Indian Industries, and -Indian Corporate Sector. Following are the services, which are included in CRIS A. CRISIL Sector Wise B. CRISIL View C. International Information Vending D. CRISIL Index Services 12

CRISIL Rating symbols: CRISIL assigns ratings only to rupee denominated debt instruments. These symbols are symbolic expression of opinion/assessment of the credit rating agency. Here is a brief summary of CRISILs rating symbols used for the rating of: 1. Debenture. 2. Fixed Deposits. 3. Short Term Instruments.(commercial papers) 4. Structured Obligations. 5. Foreign Structured Obligations. 6. Instrument Carrying Non-credit Risk. 7. Financial Strength ratings of insurance companies. 8. Bond Funds 9. Real Estate Projects.

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CRISILs Rating Symbols:Instruments High Investment Grade

Highest Safety High Safety
AA

Investment Grade
Adequate Safety
A

Speculative Grade
Inadequate Safety
BB

Moderate Safety
BBB

High Risk
B

Substantial Risk
C

Default

Debentures Fixed Deposits

AAA

FAAA

FAA

FA

FB

FC

FD

ShortTerm Instrument Structured Obligations

P1 P2 P3 P4 P5

AAA(So)

AA(So)

A(So)

BBB(So)

BB(So)

B(So)

C(So)

D(So)

Foreign Structured Obligations

AAA(FSo) AA(FSo) A(FSo) BBB(FSo) BB(FSo) B(FSo) C(FSo) D(Fso)

Instrument Carrying Non Credit Risk Rating of Insurance Companies

AAA AA A BBB BB B C D AAAr AAr Ar BBBr BBr Br Cr Dr

Bond Funds

AAAf

AAf

Af

BBBf

BBf

Bf

Cf

Df

Real Estate Projects

PA1

PA2

PA3

B.ICRA (Investment Information and Credit Rating Agency)

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Investment Information and Credit Rating Agency has been promoted by IFCI to meet the requirements of companies based in north India. IECI holds 26% stake in ICRA and the other shareholders, which are UTI, Banks, LIC, GIC, HDFC and Exem Bank, hold rest. This credit rating agency started its operation in 1991. ICRA has entered into a memorandum of understanding (MoU) with Mondays Investors Services in order to bring international experience and practices to the Indian capital market. ICRA has diversified the range of its services. It currently provides three types of services namely: i. ii. iii. Rating Services Information Services Advisory Services

1. Rating Services: - In these services, ICRA rates debt instruments issued by Manufacturing companies, Commercial Banks, Non-Banking Finance Companies, Financial Institutions, Public Sector Undertaking etc. Apart from this Rating Services includes credit assessment of large, medium and small-scale enterprises, which are looking for financial assistance from commercial banks, financial institutions and financial services companies. 2. Information Services: - Information Services offered by ICRA focuses on providing authentic and unbiased information to various intermediaries, financial institutions, banks, assets managers, individuals and institutional investors etc. This includes corp. reports, equity assessment, mandate based studies and industry specific publications.

3. Advisory Services: - Under these services, ICRA provides consultancy to the various player in financial markets such as investors, issuers, regulators, intermediaries and the media on business and organizational issues. For this, it has also signed a MoU with international credit rating agency Moody Investor Services.

ICRA Rating Symbols: 15

The ICRA rating is a symbolic indicator of the current opinion of the relative capability of timely servicing of the debt obligations. ICRA rates long term, medium term and short-term debt instruments. Following is a brief summary of the rating symbols used by ICRA for the following: Long Term Instruments (Debentures Bonds, Preference Shares). Medium-term instruments comprising fixed/certificate of deposits. Short-term instruments , including commercial papers. Collative Investment Schemes. Rating of Insurance Companies. Bank Lines of Credit Rating Scale.

Instruments Highest Long Term Instruments Medium Term Debt Short Term Instruments Collective Instrument Schemes Insurance Companies Bank Lines of Credit Rating Scale CR1 CR2 CR3 iAAA iAA iA CS1 CS2 A1 A2 A3 MAAA MAA MA Safety LAAA High Safety LAA Adequate Safety LA

SYMBOLS Moderate Inadequate Safety LBBB Safety LBB

High Risk LB

Substantial Risk LC

Default LD

MB

MC

MD

A4

A5

CS3

CS4

CS5

iBBB

iBB

iB

iC

iD

CR4

CR5

CR6

CR7

CR8

C.CARE (Credit Analysis and Research Ltd)

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Credit analysis and research Ltd. was promoted by IDBI jointly with financial institution, banks and private finance companies. It started its operation in 1993 and now it offers a wide range of products and services in the field of credit information and equity research. These services are categorized into the following categories:i. ii. iii. Credit Rating Services Information Services Equity Research a. Credit Rating Services:-CARE rates all types of debt instruments including long term. It is the core business of this rating agency. b. Information Services:-Like CRISIL and ICRA. It also provides information services to various players in the financial market. It provides information on any company, industry or sector to individuals, mutual funds, and investment companies. So that they can take well informed investment decision. c. Equity Research: -Equity Research involves extensive study of the shares listed or which are going to be listed on stock exchange and forecasts Potential looser and winner on the basis of this study. For this purpose, it analyzes all the fundamentals affecting the industry, market share, management capabilities etc. Apart from basic services, CARE also provides some other services like: CARE Loan Rating . Credit Analysis Rating . Interest Rate Structure Model.

Rating Symbols:CARE rating symbols are related with the rating of following: Long term and Medium term Instruments, which includes which includes fixed deposits, certificate of deposits structured obligations, debenture and bonds etc. Short Term Instruments Credit Analysis Rating Long Term Loan Short Term Loan Collective Investment Schemes

CAREs Rating Symbols :17

Instruments Highest Safety Long Term& Medium Term Instruments CAREAAA High Safety CAREAA Adequate Safety CAREA

SYMBOLS Moderate Inadequate Safety CAREBBB Safety CAREBB

High Risk CAREB

Substantial Risk CAREC

Default

CARED

Short Term Instruments

PR1

PR2

PR3

PR4

PR5

Credit Analysis Rating

CARE1

CARE2

CARE3

CARE4

CARE5

Long Term Loans

CAREAAA (L)

CAREAA (L)

CAREA (L)

CAREBBB (L)

CAREBB (L)

CAREB (L)

CAREC (L)

CAREC (L)

Short Term Loans

PL1

PL2

PL3

PL4

PL5

Collective Investment Schemes

CARE1 (CIS)

CARE2 (CIS)

CARE3 (CIS)

CARE4 (CIS)

CARE5 (CIS)

D. Duff and Phelps Credit Rating Private Ltd.

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It is the latest entrant in the credit rating business in the country as a joint venture between the international credit rating agency Duff and Phelps and James Martin Financial and Alliance Group. In addition to debt instruments it also rates companies and countries on request. Rating services: Credit Rating Services: - Duff and Phelps rates all types of debt instruments including long term. It is the core business of this rating agency. Company rating services: - Duff and Phelps rates all types of company. Country rating services: - In addition to debt instruments it also rates companies and countries on request. Duff and Phelpss Rating Symbols :The DCRs rating is given in respect of the following instruments : 1. Long term and short term debt/instruments. 2. Short term debt/instruments.

mentsINSTRUMENT Highest Safety LongTerm& Medium Term Instruments Short Term Instruments Ind D-1+ Ind D-1 Ind D-2+ Ind AAA High Safety Ind AA+ Adequate Safety Ind A

SYMBOLS Moderate Safety Ind BBB Inadequate Safety Ind BB High Risk Ind B Substantial Risk Ind C Ind D Default

Ind D-2

Ind D-3

Ind D-4

Ind D-5

E.ONICRA-Onida Credit Rating Agency

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ONICRA is the first individual credit agency in India promoted by famous ONIDA group known for consumer durables. ONIDA covers approximately,75 million households owning three popular items TVs, refrigerators and washing machine. Other product like music system, air conditioners, microwaves etc. are also very popular and are in great demand among customers . ONICRA makes an objective assessment of the risk attached to a financial transaction with respect to an individual.Individual credit rating is gaining importance because of the following: 1. India moving rapidly towards a cashless society based on credit and consumerism. 2. The changing customer profiles , the customers are no longer restricted to upper strata , middle class is going to for credit purchases. Through individual credit rating , an effort is made to measure the risk attached to fulfilling a financial obligation for a desired financial transaction for an individual. Onicra Rating Scale: ONICRA has been pioneer to introduce the concept of individual credit rating.It has developed a rating system for various types of credit extension by conducting in-depth study of all aspects of the behaviour of credit seekers. Rating system takes into account number of parameters which influence individuals credit behaviour. The creditworthiness of the individual is measured on various parameters divided into 100 point scale .The parameters include1. Age 2. Qualifications 3. Occupation 4. Stability at work 5. Saving 6. Extent of payment i.e. the amount of loan that an individual can avail of 7. History of repayment. Every individual being rated is issued a certificate which helps him in obtaining loan/credit. Onicra Rating Process: Every bank or financial institution wants to know creditworthiness of its potential customers so as to minimize the financial risk. In India there has been no agency to rate the individuals. But Onicra has filled in this gap. It provides credit ratings of individuals on international patterns, for use of banks and financial institutions:(i) An individual cannot get rated himself directly. Onicra takes up the credit rating for individuals at the request of lending institution. 20

(ii) (iii) (iv) (v)

A lending institution/firm writes to the Onicra whenever a potential customers visit the firm for customers credit. The customer is required to fill in a prescribed form. Onicra uses 100 point scale to rate the individual on various parameters. Depending upon rating assigned by Onicra the lending institutions proceed with granting of consumer credit.

INTERNATIONAL CREDIT RATING AGENCIES

At international level there are basically two important credit rating agencies which require special mention , namely: 1. 2. Standard and Poors Corporate and Munnicipal Bond Rating. Moodys Investor Service.

A.STANDARD AND POORS COPORATE AND MUNICIPAL BOND RATING AGENCY

The credit rating assigned to corporate and municipal bonds by standard and poors corporation are listed below along with the interpretation used by S and P for each category : Rating Symbol of The S&P Rating Agency : 1. AAA. Bonds rated AAA have the highest rating assigned by Standard Poors to a debt obligation. Capacity to pay interest and and repay principal is extremely strong. 2. AA. Bonds rated AA have a very strong capacity to pay interest and repay principal and differ from the highest-rated issue only in small degree. 3. A. Bond rated A have a strong capacity to pay interest and repay principal, although they are somewhat more susceptible to the adverse effect of changes in circumstances and economic conditions than bonds in higher-rated categories. 4. BBB. Bonds rated BBB are regarded as having an adequate capacity to pay interest and repay principal. Where they normally exhibit adequate protection parameters, adverse economic condition or changing circumstances are more likely to lead a weakened capacity to pay interest and repay principal for bonds in this category than for bonds in higher-rated categories 5. BB, B, CCC, CC. Bonds rated BB, B, CCC, and CC are regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the term of the obligation. BB indicates the lowest degree of speculation and CC the highest degree of speculation. While such bonds will likely 6. C. The rating reserved for income bonds on which no interest is being paid. 21

7. D. Bonds rated D are in default, and payment of interest and/or repayment of is in arrears. The ratings from AA to B maybe modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. A plus (+) sign indicates a bond of better-than-average quality in the particular rating chosen, while a minus (-) sign denotes a bond that is worse than average in that category.

B. MOODY S INVESTOR SERVICES

John Moody formulated a system of letter grades indicating the relative Investment quality of corporate bonds. The same was published in 1909. Moddys Rating Instruments and their rating symbols:1. 2. 3. 4. 5. Instruments Highest Safety Corporate Bonds Municipal Bonds Commercial Paper Short-Term Municipal Note Preferred Stock aaa Aa Baa aa ba caa MIG 1 MIG 2 MIG 3,4 Prime-1 Prime-2 Prime-3 Aaa Aaa High Safety Aa Aa Baa Ba B Caa Ca,C Adequate Safety A Corporate bonds. Municipal bonds. Commercial papers. Short-term municipal note. Preferred stock. SYMBOLS Moderate Safety Baa Inadequate Safety Ba High Risk B Substantia Default l Risk Caa Ca,C

RATING PROCESS
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In India all the credit rating agencies adopt almost a similar rating process for rating new debt issues and reviewing the rating of existing instruments. The steps generally taken by the rating agencies in rating process are shown as under: -

Issuer request for rating

CRISIL Assigns an analytical team

Analytical team collects and analyses information

Meets companys management and resolves Questions

Interaction with back up team for industrial formation

Findings presented to a rating committe e

Rating committee decides the rating

Notification of rating to issuer

r ue ss to si oe ants al D w pe ap

No

Rating is released

Yes Additional data provided is reviewed and rating revised if necessary

1. Rating Request: - the purpose of the rating starts with the rating request made by the issuer of the instrument issues a letter to the rating agency and signed an agreement with the agency.

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2. Assignment of Analytical Team: - On the basis of rating request credit rating agencies assign an analytical team comprising two or more analysts. These analysts would be the experts in the relevant business area. It is a very detailed process. Normally, two-three persons with the required technical skills team up for investigations (due diligence) for about three weeks. They go to the company, talk to the people, go through the company's books and records, its accounts, talk to its auditors, its bankers, its consumers, look at how the company has handled investor grievances, look at its track record in servicing debt obligations and so on. This pile of data is then screened and, based on that, the team arrives at a structured report. This report is then presented before the rating committee. A brainstorming session on due diligence ensures that no one gets away by making a sweeping statement. After a lot of interaction, the matter is finally put to vote for a decision on the rating.29 3. Analytical Team Obtains & Analysis Information:- After assignment of Analytical Team, the team obtains and analysis information relating to its financial statements, cash flow and other relevant information which have impact on the companys functioning. Generally, following kind of information is obtained and analyzed by this team: A. B. C. D. E. signatories. F. List of bank showing lines of credit along with the contact officers. Apart from this, analytical team may obtain some addition information, which it considers to be necessary for this purpose. Annual reports for past five years including cash flow Two copies of the prospectus offering statement and Consolidated financial statements for the past three fiscal years. Two copies of the projected financial statements along with A certified copy of resolution passed by the Board of Directors statements and interim reports. application for listing on any major stock exchange.

assumptions on the which projection have made. authorizing the insurance of debentures instruments, including the name of authorized

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4. Meeting with Management: - After obtaining and analyzing the information explained in previous step, analytical team meets with the management of the company and obtains more information on some important aspects which have impact on the credit quality of the instrument being rated. Though the topics discussed during the management meeting are wide ranging but discussion with management might reveal more information like: Managements Philosophy and Plan for the company in future. Business segment analysis. Competitive position, strategies, financial polices. Historical performance. 5. Interaction with Back Up Team:- While Analytical team collects the information from company; its back up team collects the information on industry which this company belongs. It also makes interaction with back up team in order to collect information on industry along with the industry prospects in near future. 6. Rating Committee:- After collecting and analyzing information from company and its management, the analytical team presents their report to a rating committee which then decides on the rating. The rating committee meeting is the only aspects of the process in which the issuer does not participate. 7. Deciding on Rating by Rating Committee:- Now the rating committee makes assessment or evaluate all the factors concerning the issuer giving greater attention to some key issues. After proper analysis rating committee arrives at the rating, which is suitable to the proposed issue. 8. Notification to the issuer:- after the committee has assigned the rating, this decision is communicated to the issuer along with the reasons or rational supporting the rating. If the issuer agrees with the ratings and does not wish to appeal fo9r reviewing the rating given to the instrument, then as a last movement rating is released through print media by the rating agency. But if issuer raises objection on the rating given by the rating agency and wants to furnish additional data for that, then this additional information is reviewed and rating agency may revise previous rating. Then this revised rating is released through media and formal notification of final rating assigned to the issuer.

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Role of Rating Agencies in Capital Market

The capital and financial markets in developing countries are remarkable for their lack of sophistication. Apart from a few stock exchanges and government-appointed regulators, there arent many reliable intermediaries like Credit rating agencies, investment analysts, merchant bankers, or venture capital firms. Credit rating agencies have played an important role in the capital markets for almost a century by providing analytic opinions to investors on the ability and willingness of issuers to make timely payments on debt instruments over the life of those instruments. Issuers pay for the ratings in order to lower the cost of and increase their access to capital. Investors trust the agencies impartiality and quality, and rely on the ratings.

Limitations of credit rating system in India

(1)

The first problem of Credit Rating System relates to the rating symbols. Sometimes,

rating symbols according to the tenure of the instrument and not by the instruments characteristics creates confusion. For example the instruments like Fixed Deposits, Non Convertible Debentures or Commercial papers are rated by ICRA on the basis of their maturity period, them will be given the same rating by ICRA.But on the other hand CRISIL provides rating symbols in accordance with the characteristics of instrument. For example, CRISIL prefix F to the rating for Fixed Deposits. This problem of assigning rating symbols cause confusion among treasury managers and investors who otherwise can determine the product or the instrument on the instrument on seeing the rating. (2) The rating agencies do not perform an audit and they rely only on the information

provided by the issuer of the instrument. If the information provided is inaccurate or incomplete, the ratings process is compromised. Therefore, ultimately, this kind of rating will not reflect the true picture behind the issuance of security or in other words, it will not assess the true creditworthiness of the issuer . (3) risk A Credit Rating provides only guidance to the investors and creditors in determining the associated with a instrument. It does not recommend buying selling a particular security

because it does not take into account factors like: market prices and personal risk preferences, 26

which might influence investors decision. So apart from Credit Rating, investors should analyze all those factors depending on his proposed investment decision. (4) Sometimes, certain instrument of a specific company is provided lower rating by a rating

agency. Now the company has an incentive to go around for the best possible rating by compromising the authenticity of the rating process itself.

(5)

Some companies use Credit Rating as a tool to cheat the investors. They get rating done

by morethen one rating agency and publish only that rating which reflects highest safely. But this published rating may not be true which can mislead investors decision. (6) Conflict between the two rating agencies can be happen. E.g. IDBI Bank has been upgraded to AA+ from A on account of the merger with Industrial Development Bank of India (IDBI), said Crisil. Meanwhile, Icra has placed IDBI Bank under rating watch with positive implications. The agency said that the rating action takes into account the announcement of the in-principle approval of the merger of the IDBI Bank with IDBI. The rating agency is in the process of evaluating the impact of the merger and would announce its final view on the outstanding rating after completion of the merger, an Icra official said. The rating agency is in the process of evaluating the impact of the merger and would announce its final view on the outstanding rating after completion of the merger said an official with the rating agency. Agency has also assigned outstanding ratings of LAA, MAA+ and A1+ to IDBIs long-term, medium-term and short-term debt plans. Now it can create controversy between the two rating agency if the ratings of the bank varies. (7) Ratings volatility The most important issue arising in the present turmoil is do rating agencies need the quasi government authority of inside access at all as rating agencies access to inside access at all as rating agencies access to inside information did not help them anticipate the financial information is essential to understanding company creditworthiness, it is not helpful to detect fraud. It is not economically viable for rating agencies to act as guarantors of fraud. Financial instruments are increasingly designed solely to carry a particular rating, not the other way round. The effect is to discourage agencies from changing ratings on objective grounds until it is too late. Further, though companies tend to give credit rating agencies access to confidential documents in general to justify the highest possible credit rating, there is no requirement that they divulge everything.

27

CHAPTER -2

Review of Literature

28

REVIEW OF LITERATURE

2.1 Azhagaiah .R (2004) In his study in union territory of pond cherry reveals that the analysis of the basis of investment shows that only 35% (53 out of 150 ) of the respondents depend on credit rating for their investment in debt instruments. Among various CRAs , majority of the respondents depend on a CRISIL than other rating Agencies viz: Care, ICRA etc.

2.2 Mohammed K(2003) This Study was a case on the evaluation of performance of Credit Rating Agencies in India and it found that CRISIL is ranked No.1 in accordance with the other CRAs in India and Indian topmost Companies are Rated by the Crisil. On the basis of financial profitability CRISIL is making the 20%50% more than the other CRAs and it is making the 1800 + ratings and this study has found that SEBI played an important role in the guidelines for the credit ratings agencies.

2.3 Chawla V (2004) This study was also a case study on the critical analysis of CRAs in India and it found that rating levels should be similar for all agencies and the rating agencies in India can hardly achieve international performance standard and creditability. This study also found that the all time influencing political factors are not at all considered in giving a rating to a company .and some times the rating agency is bound to give the issuer company a good rating irrespective of weather he issuer deserves the respective ratings or not .Credit ratings in recent times is being looked upon as an important investment advisory function .In countries with highly developed markets, such as the US ,and Japan, Though there is no statutory requirement to have the securities rated, as high as 90% of the securities floated are voluntarily rated due to the pressure exerted by the investors and bankers. In India , a beginning has been made with the establishment of CRISIL and the RBI insisting that all commercial papers prior to their issue must be rated. With the growth in the volume 29

and depth of the capital markets and the increasing knowledge and awareness of the investors, it can be expected that voluntary credit rating would be on the increase.

2.4Ravimohan. R (2005) This study found that as rating agencies gain experience, they involve their own ways of looking at companies. It found CRISIL has a special group devoted to the task of monitoring its rated portfolio ,compiling statistics and benchmarks for the rating process and it found that forgetting the right rating for any issue, read CRISILs CEO and managing Directors views which means that what actually they speak on the process and method of credit rating. This study took the overall framework that Credit Rating involves four areas , Business, Financial, Management and Project Risks

2.5 Fiscal Reforms Bear Fruit as CRISIL Ups Debt Rating This Study founds that bonds Credit rating is beneficial for the states like Maharastra, Karnataka, Tamilnadu, and Gujarat, So Credit Rating Agency CRISIL has upgraded ratings for bonds floated by Maharastra Krishna Valley developed Corporation and Krishna Bhagaya Jala Nigam Ltd. So every state should go for bond ratings from any of the Credit Rating Agency.

2.6 Gupta R (2000) This study took as the choice of variables an it found that turnover ratio plays a major role in the rating the debentures. It carries discriminating capacity of about 16% and short term liquidity and stability ratio does not play major role in rating and discriminating debentures issues.

30

CHAPTER -3

Objectives of the Study

31

RESEARCH OBJECTIVES

The objectives of this project report are following: To know the awareness of investors about Credit Rating Agencies To know the trustworthiness of Credit Rating Agencies among the investors.

To know the credit rating agency on which investor trust more. To study all those areas other than debt instrument, for which credit rating is required.

32

CHAPTER -4

Research Methodology

33

RESEARCH METHODOLOGY
Research methodology is a way to systematically solve the research problem. The research methodology included the various methods and techniques for conducting a research. Research is a systematic design, collection, analysis, and reporting of data and finding relevant solution to a specific marketing situation or problem. Sciences define research as the manipulation of things, concepts or symbols for the purpose of generalizing to extend, correct or verify knowledge, whether that knowledge aids in construction of theory or in practice of an art. Research is thus, an original contribution to the existing stock of knowledge making for its advancement, the purpose of research is to discover answers to the questions through the application of scientific procedure. My research project has a specified framework for collecting the data in an effective manner. Such framework is called Research Design. The research process which was followed consisted of following steps:-

Problem definition

Development of an approach to the problem

Research design formulation

Data collection

Data preparation and analysis

Report preparation and Presentation

34

A. Defining the problem & Research Objectives It is said, A problem well defined is half solved. The step is to define the project under study and deciding the research objective. The definition includes study of Credit rating agencies in India and impact of rating on decisions related to investment. RESEARCH OBJECTIVES The objectives of this project report are following: To know the awareness of investors about Credit Rating Agencies To know the trustworthiness of Credit Rating Agencies among the investors. To know the credit rating agency on which investor trust more. To study all those areas other than debt instrument, for which credit rating is required. B. Developing the Research Plan: The second stage of research calls for developing the efficient plan for gathering the needed information. Designing a research plan calls for decision on the data sources, research approach, research instruments, sampling plan and contacts method. The development of Research plan has the following Steps: 1. Research Approach Surveys are best suited for Descriptive Research. Surveys are undertaken to learn about peoples knowledge, beliefs, preferences, satisfactions and so on and to measure these magnitudes in the general public. A survey has been done for the descriptive process for this study. 2. Research Instrument A close ended questionnaire will be constructed for my survey. A Questionnaire consisting of a set of statements was presented to respondents for their answers. Personal unstructured interaction with some high rank officers was also carried out for this survey. 3. Sampling Plan The sampling design process includes: (a) Sampling Unit: Who is to be surveyed population must be defined that has to be sampled. It is necessary so as to develop a sampling frame so that everyone in the target population has an equal chance of being sampled. The sampling unit for this has be different investors and brokers.

35

(b) Sampling Technique: It helps to determine the selection of data on certain criteria which may include probability or non probability sampling techniques. For this survey convenience sampling technique has been used. (c) Sample Size: How many people have to be surveyed? Generally large sample gives more reliable results than small samples. The sample of 100 respondents has been taken. The sample was drawn from people having different educational qualifications, occupations and age group.

4.

Contact Methods Once the sampling plan was determined, the question was how the subjects will be contacted i.e. by telephone, mail or personal interview. Here in this survey, the respondents have been contacted through questionnaire and unstructured interview.

C. Collecting the information The collection of data is a tedious task. For conducting any sort of research data is needed. So for my research, there was plenty of primary data. The information has been collected from the respondents with the help of unstructured personal interview and the questionnaire filled by respondents. a) Collection of Primary Data: Primary Data is the data collected from the original source. questionnaire was the main instruments, which was used for collecting primary data. b) Collection of Secondary Data: Secondary Data is the one which has already been collected by someone else and some other person is using that information. The information from internet, management books, journals and bank brochures has been used as an secondary source of information D. Analyze the Information The next step is to extract the pertinent findings from the collected data that was collected with the help of questionnaire. E. Presentation of Findings This is the last and important step in the research process. The findings are presented in the form of graphs, conclusions, suggestions and recommendations after data analysis.

36

CHAPTER -5

Data Analysis and Interpretation

37

1. Demographic profile of investor :-

Response Brokers Individuals

% of Respondent 30 70

Respondent

Brokers 30%

Brokers Individuals

Individuals 70%

Interpretation:The above table and chart shows that 70% of respondents are individuals while 30% of respondents are brokers and rest are brokers.

38

2. From the following in which source do you like to invest your money?

Response Share Debenture Bonds

% of Respondent 29 37 34

Respondent

Bonds 34%

Shares 29% Shares Debenture Bonds Debenture 37%

Interpretation:The above table and chart shows that 29% of respondents invest in share frequently while 37% of respondents invest in debenture frequently and rest are invest in bonds.

39

3. How frequently you investment in share and debenture? Response Very Frequently Frequently Cant Say % of Respondent 07 57 36

Respondent

Cant Say 36%

Very Frequently 7% Very Frequently Frequently Cant Say Frequently 57%

Interpretation:The above table and chart shows that 57% of respondents invest in share and debenture frequently while 7% of respondents invest in share and debenture frequently and rest are partly and not invest in share and debentures.

40

How many credit rating agencies listed below is recognized by you?

Response CRISIL CARE ICRA ONICRA DUFF AND PHELPS NONE OF THESE

% of Respondent 32 9 9 2 2 46
Respondent

32% 46%

CRIS IL CA RE ICRA O NICRA DUF A PHE F ND LPS NO O T SE NE F HE

2% 2%

9%

9%

Interpretation:On the above table it has been shown that most of the respondents know the CRISIL whereas others are concerned, they have less knowledge.

5. Can you recognize credit rating agencies with its rating symbols? 41

Response Yes No Cant Say

% of Respondent 45 25 30

Respondent

Cant Say 30% Yes 45% Yes No Cant Say

No 25%

Interpretation:The majority of the investors can recognize credit rating agency from its symbols. As shown in the table and chart i.e 45%. 30 % of those investors who give no answer. While only 25% investors says no

6 . Do you know how many of services provided by CRAs

SERVICES Respondents 42

Credit Rating Services Advisory Services Research and Information Services Equity Research Information assistant to Govt. None of these
Rs o d n e p n e ts

37 2 2 2 2 55

3% 7

C d R tin S rv e re it a g e ic s A viso S rv e d ry e ic s R s a ha d e e rc n I fo a nS rvice n rm tio e s E u R se rc q ity e a h I fo a na sista t to n rm tio s n G vt. o N n o th s oe f ee

5% 5

2 %

2 %

2 %

2 %

Interpretation:It is shown from the above table and chart that only one service i.e. credit rating service is recognized by the respondents while the have full ignorance regarding others

7. Do you have trust on credit rating agencies?

Response Yes No

Respondent 50 25 43

Cant Say

25

Respondent Cant Say 25% Yes Yes 50% No 25% No Cant Say

Interpretation:The majority of the investors have trust on credit rating agency i.e. 50%.and 25% investors give no reply and rest of them says they dont have trust on credit rating.

8. Are you following the rating given by credit rating agency while taking

investment decision?
Response Yes No Cant Say Respondent 09 30 61 44

R espondent

Y es 9%

Y es N o 30% C ant S ay 61% N o C ant S ay

Interpretation:The majority of the investors do not made their investment decision on the rating given to the instrument by credit rating agencies. As shown in the table and chart i.e 61%. 30 % of those investors who give no answer. While only 9% investors make their investment based on rating.

9. On which credit rating agency you trust more?

Response CRISIL CARE ICRA ONICRA DUFF AND PHELPS

% of Respondent 50% 15% 15% 10% 10%

45

C IS R IL C E AR ICR A ONIC A R D FANDPH LPS UF E

Interpretation:It is find that 50% investors believes on the credit rating given by CRISIL. Rest of investors believes on rating given by other agencies.

10. Do you think Credit Rating Agencies will prove to be an effective tool for risk management?
Response Yes No Cant Say Respondent 36 25 39

46

Respondent

Cant Say 39%

Yes 36%

Yes No Cant Say

No 25%

Interpretation:Only 36% of the investors have the opinion that credit rating agencies will prove to be an effective tool for risk management. While 25% said no. Most of the investors i.e. 39% have none kind of opinion.

11. Do you consider it safe for small investor depending upon the rating given by the Credit Rating Agencies?

Response Yes No Cant Say

Respondent 29 37 34

47

R sp n e t e odn

Cn Sy a t a 3% 4

Ys e 2% 9 Ys e N o Cn Sy a t a N o 3% 7

Interpretation:The above table and chart shows that only 29% have the opinion that it is safer for the small investors depending upon the rating given to the instrument by the credit rating agencies. However, 37% said no that it is not safer for the small investors. While 34%, have no opinion.

12. Do you think a good rating given to an instrument can help it sale easily in the market?

Response Yes No Cant Say

Respondent 23 15 62

48

R sp n e t e odn

Ye s 2% 3 Ys e N o Cn S y a t a 6% 2 N o 1% 5 Cn S y a t a

Interpretation:Again, the majority of the respondent does not have any opinion that a good rating given to a instrument can help its easily sail in the capital market and there percentage is 62%. 23% respondent said yes that it helps in its easily sail in the market. While 15% respondent said no that this is not provide any help in its easily sail.

13.Do you think credit rating agencies are booming to the capital market?

Response Yes No Cant Say

Respondent 12 61 27

49

Y es No C an't S ay

Interpretation:we find that 27% of the respondent do not know whether this is boom to the capital market or not. 61% directly said no. while 12% said yes, it helps in booming the capital market.

14. Should the rating agencies monitor the issue already rated?

Response Yes No Cant Say

Respondent 18 21 61

50

R sp n e t e odn Ys e 1% 8

Ys e N o Cn S y a t a

Cn S y a t a 6% 1

N o 2% 1

Interpretation:Majority of the investors i.e. 61% said that they cant say whether rating agencies monitor the issue already rated or not. While 18% said, yes and again 21% said no.

51

CHAPTER -6

Observations and Findings

IN THE CASE OF THE INVESTORS

1. From the project it is clearly shown that the investor has the lack of knowledge and awareness regarding credit rating agencies. They are not aware that what kinds of services are given by the credit rating agencies and their role in debt and equity ratings. As the study shows that only 32% of the respondents know about the CRISIL and out of 70 respondents 68% did not know anything about the credit rating agencies working in India. 2. The majority of the investors do not made their investment decision on the rating given to the instrument by credit rating agencies. As shown in the table and chart i.e 61%. 30 % of those investors who give no answer. While only 9% investors make their investment based on rating.

52

3.

So if we see the above table we find that 27% of the respondent do not know whether this is

boom to the capital market or not. 61% directly said no. while 12% said yes, it helps in booming the capital market. 4. Only 36% of the investors have the opinion that credit rating agencies will prove to be an effective tool for risk management. While 25% said no. Most of the investors i.e. 39% have none kind of opinion. However, 37% said no that it is not safer for the small investors. While 34%, have no opinion. Only one service i.e. credit rating service is recognized by the respondents while the have full ignorance regarding others. 5. Majority of the investors i.e. 61% said that they cant say whether rating agencies monitor the . issue already rated or not. While 18% said, yes and again 21% said no

IN THE CASE OF BROKERS AND FINANCIAL INSTITUTIONS

After analyzing, the information given by the process in the questionnaire it can be included that although they all invest in Shares and Debentures but not all have the knowledge of the Credit Rating Agencies. At the time of rating any investment decision in any debt instrument, only few Brokers take put consideration the rating given to the instrument by the different rating agencies. The Brokers who have the knowledge about Credit Rating Agencies they also have the knowledge Multiply Credit Rating & Sovereign Rating. Most of the Brokers only knows what this Multiple Credit Rating & Sovereign Rating but they do not know whether those are helpful in booming the capital market or not. Most of the Brokers have or opinion that if the rating any country goes up or down it has a long impact on the countrys economy and the stock market. When it is asked from the brokers that there should be separate Credit Rating Agencies at Asia level who rates all the countries of Asia and this debt investments, most of the brokers said Yes that they should be, but they are enable to told the advantages or disadvantages of this.

53

Recommendations and Suggestions

Recommendations and Suggestions

1. Lack of information hinders market participants understanding of ratings significance so it is suggested that proper information about the credit rating and its significance should be provided to the investors.

54

2. Secondly, ratings should be published in daily newspapers so that investors could be able to know about this.

3. Credit Rating Agencies should communicate the characteristics and limitations of rating for structured finance. 4. Ratings should only be optimistic and should reflect the market conditions in underlying assets.

55

Conclusion

Conclusion

It is concluded that mainly investors and brokers recognize and have trust on CRISIL because it is an old Credit rating agency. Only few investors can recognize credit rating agencies with their rating symbols.

56

It is also concluded that although the investors know about the credit rating agencies and they have trust on rating yet they do not follow the credit rating while making the investment decisions. It was asked from them that why they do not consider the rating they did not tell the exact reasons of this but few of them said that:1. lack of knowledge and lack of proper information about credit rating given by credit rating agencies. 2. Lack of quality in methodology 3. They think that ratings are overoptimistic and failed to reflect the market conditions in underlying assets. 4. CRAs do not communicate the characteristics and limitations of ratings for structured finance. Investors know that credit rating agencies only provide credit rating services. They do not know about other services provided by them. So some seminars should be conducted to inform the investors.

57

Limitations of the Study

LIMITATIONS OF THE STUDY

1. Sample size is very small.

58

2. Research work was carried out in Chandigarh only. So the findings may not be applicable to the others parts of the country.

3. Shortage of time was reason for the incomprehensiveness. 4. The respondents did not give the true and fair information. Therefore, the result of the research is not cent percent accurate.

59

Bibliography

BIBLIOGRAPHY

1. Data collected from websites: www.google.com www.indiainfoline.com www.fivepaise.com www.moneycontrol.com 60

 2.

www.yahoo.com Data collected from Book

Financial Services. Merchant Banking and Financial Services. 3. Data collected from Newspapers Hindustan times Economic times Financial express

61

Annexure

Questionnaire

Dear Respondent I am student of M.B.A. I am doing my project on Credit Rating Agencies. Please give me true and fair information. 62

1. Demographic profile of investors:Occupation. Qualification.. Age:Less than 25 years years 25-50 Above50 years

2. In which source do you like to invest your money from the following?
Shares ., debentures., bonds

3.How frequently you invest in share and debenture?

(a) Very Frequently (b) Frequently (c) Cant say

4.

How many credit rating agencies listed below is recognized by you?

(a) CRISIL (d) ONICRA (f) None of these (b) CARE (c) ICRA

(e) DUFF AND PHELPS

5. Can you recognize credit rating agencies with its rating symbols?
(a) Yes (b) No (c) Cant say

5.

Do you know how many of services provided by CRAs

Credit Rating Services Advisory Services Research and Information Services Equity Research Information assistant to Govt.

63

6. Do you have trust on credit rating agencies?

(a) Yes (b) No (c) Cant say

7. decision?
(a) Yes

Do you follow the rating given by credit rating agency while taking investment

(b) No

(c) Cant say

If Yes or No, what are the pros and cons?

8.

On which credit rating agency you trust more? (b) CARE (c) ICRA

(a) CRISIL (d) ONICRA

(e) DUFF AND PHELPS

9.

Do you think Credit Rating Agencies will prove to be an effective tool for risk

management?
(a) Yes (b) No (c) Cant say

10.

Do you consider it safe for small investor depending upon the rating given by the

Credit Rating Agencies?

(a) Yes (b) No (c) Cant say

11.

Do you think a good rating given to an instrument can help it sale easily in the

market?
(a) Yes (b) No (c) Cant say

12. Do you think credit rating agencies are booming to the capital market?

64

(a) Yes

(b) No

(c) Cant say

13.
(a) Yes

Should the rating agencies monitor the issue already rated?

(b) No (c) Cant say

14.

The areas in which Credit Rating should be? (b) Real Estate (c) Insurance Policies (d) Others

(a) Equity share

65