Ranjeet Ranjan2

CREDIT RATING
INTRODUCTION
• A credit rating assesses the credit worthiness
of an individual, corporation, or even a
country. Credit ratings are calculated from
financial history and current assets and
liabilities.
• A credit rating tells a lender or investor the
probability of the subject being able to pay
back a loan.
• A poor credit rating indicates a high risk of
defaulting on a loan, and thus leads to high
interest rates
Cont……….
• Credit rating agencies now undertake financial

analysis and assessment of financial product,
individuals, institutions, and governments.
IMPORTANCE
• Enhance the reputation of the lesser known
company
• Promoting stability and efficiency in the
security market
• Rating make more efficient and transparent
• Rating has assumed a much larger role in the
global financial market
• Sovereign rating affect the quantum inflows
Origin of CR
• In us 1909,john moody rated rail bond
• After depression it became more relevant
• The biggest rating agencies are moody’s and
stander's & poor’s
• First industrial country France has been rated
in 1959, 1977-venuzuela
• Moody’s in 1988, and s & p in 1990
• In India- CRISIL,ICRA,CARE,FITCH
RATING METHODOLOGY
Business analysis
 Industry risk,
 market position,
 operating efficiency
 leagal position
Financial analysis
 Accounting quality
 Earnings protection
 Adequate of cash flow
 Financial flexibility
Management evaluation
 Track record of mgt,
 how to cope up with adverse situation
 goal ,philosophy, and strategies
Cont……
• Fundamental analysis
What can be Credit Rated ?
• INDIVIDUAL
• CORPORATE
• SOVEREIGN (i.e. A Country)
• FINANCIAL INSTRUMENTS
 Bonds
 Bank Deposits
 Commercial Paper
 Term Loans
 Preference Shares
 Secured Debt
 Unsecured Debt
 Securities
PROCESS
• Rating request
• Rating team
• Information requirements
• Secondary information- policy
• Management meeting and plant visit
• Preview meeting
• Rating committee meeting
• Rating communication
• Rating reviews
• Surveillance
RATING FEES
• Rating agencies charge 0.1 percent of
instrument size
• Annual surveillance fees at rate of 0.03 percent
to monitor the instrument monitoring its life.
RATING SYMBOL
Highest investment grade
• AAA- highest safety in term of timely payment of

interest and principal, fundamentally strong and
any adverse changes are not going to affect it.
• AA-differ with marginally from above
• A-changes circumstances can adversely
affect(adequate)
• BBB- moderate
Cont……..
Speculative grades
• BB-inadequate safety , uncertain changes can
lead inadequate financial capacity to make
timely payments in the future
• B-denote high risk and adverse change could
lead to inability to make timely
• C- vulnerable to default
• D- defalult
SEBI REGULATIONS
The SEBI issued for cr agencies in 1999 called
SEBI regulation 1999
CRA required to have net worth Rs 5cr
CRA can not assess financial instrument of
their promoters who have more than 10 per
stake
Only commercial bank ,public financial
institution ,foreign bank ,foreign credit rating
agencies with minimum net worth Ra 100cr
are eligible to promote rating agencies in India
CONT………
• CRA have to carry out periodic review of the
ratings given during the life time of the rated
instrument.
• It has been made mandatory to obtain dual
rating from different recognized agencies for
all public and debt issue of debt instruments
greater than 100cr.
In india CRA
• CRISIL : Credit rating information services of India
• limited.
• ICRE : Investment Information & credit rating agency
of India limited.
• CARE : Credit analysis & research limited.
• Fitch ratings India private limited.(earlier-Duff
&Phelps credit rating )
• Fitch is the only international agency with a presence
on the ground in INDIA
CRISIL
• The first credit agency setup on January 1,
1988, jointly started by ICICI and UTI with an
equity capital of Rs. 4 crores, as public Ltd
company.
• CRISIL is India's leading rating agency, and is
the fourth largest in the world.
• With over a 60% share of the Indian Ratings
market, CRISIL Ratings is the agency of choice
for issuers and investors
• CRISIL enters into strategic alliance with s & p
Cont.
• Crisil has provided technical assistance and

training to new rating agencies such as
training agencies Malaysia BERHAD and
MALLOT
• Crisil has launched hospital grading
ICRA
• IT is public limited company with an authorized
share capital of Rs.10 crores, Rs. 5 crores is paid up.
• ICRA major shareholders IFCI (26%), and the balance
by UTI, LIC, GIC, PNB, Central Bank of India, Bank of
Baroda, UCO Bank and banks (SBI) .
OBJECTIVE - to provide information & guidance to
investors for determining the credit risk associated
with a debt instrument.
• In December moody’s investors service and icra
limited announce their joint agreement to moody’s
taking up minority stake in the equity capital of ICRA
CARE
• It was setup by IDBI in collaboration with
some banks & financial service companies in
NOV 1993.
• CARE has tie up with fitch rating the word
third largest rating agency
• It offers services such as credit rating of
debentures/ preference shares / F.D / CP /
• information services&
• equity research- extensive study of the shares
listed on major stock exchanges through EIL
(economy, industry,company) analysis
ONICRA
• ONICRA stands for onida individual credit agency of
india and and is a private company set up by onida
finance. It has been set up to rate the credit
worthiness of non corporate consumers.
• C card
• Hire and leasing
• Housing finance
• Rental agreement
• Bank finance
FITCH CREDIT RATING INDIA
• IT is another rating agency allowed by RBI to
undertake rating of commercial paper.
Previously it was known as duff & phelps
TYPES OF CR
• Bond rating- more than 18 months
• Equity rating
• Commercial paper rating
• Rating the borrowers
• Sovereign rating
Termilogy
• Green rating
• Standardized evaluation
• IPO grading- not necessary for rating ,ICRA did
the first ever grading of an equity.
• CRISIL launched in 2005 rating service for SME
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CREDIT RATING

• Credit rating agencies now undertake financial

Highest investment grade

• AAA- highest safety in term of timely payment of

• Crisil has provided technical assistance and

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