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7/31/2019 What is Credit Rating Agency - CRISIL
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CREDIT RATING AGENCY
o A credit rating assesses the credit worthiness of an
individual, corporation, or even a country.
o A credit rating tells the probabilityof the subjectbeing able to pay back a loan.
o A poor credit rating indicates a high risk of defaultingon a loan, and thus leads to high interest rates.
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IMPORTANCE OF CREDIT RATING
o An investor uses rating to asses risk
o For common investor
o For corporate issuero More over every investor dont possess the requisite
skills of credit evaluation
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WHAT DO CRA RATE?
o Debenture
o State
o Bank
o Equities
o Sovereign funds, etc.
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DEFINITION OF CREDIT RATINGS
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LIST OF COUNTRIES BY CREDIT RATING BY S&P
Country Rating Outlook
Australia AAA Stable
Brazil BBB Stable
China AA Stable
Germany AAA Stable
Greece CC Negative
India BBB- Stable
Japan AA- Negative
Russia BBB Stable
South Africa BBB+ Stable
United Kingdom AAA Stable
United States AA+ Negative
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CRISILoCRISIL was set up by financial institution on January 19,1988.
oassessment of all the major state governments and more than 100 urban
local bodies in the country.
o ThFirst and the largest credit rating agency in India
o 4th Largest Rating Agency in the World
o Affiliation with Standard & Poors (USA)
o The first to rate a state governmentin India Gujarat
o The first municipal bond rating in Asia Ahmedabad
Credit is also includes:
o 5 municipal corporations
o
2 Water and Sewerage Service providers
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CRISILS RATING SCALE
Rating Symbol Definition
AAA Highest Safety
AA High Safety
A Adequate Safety
BBB Moderate Safety
BB Inadequate Safety
B High Risk
C Substantial Risk
D Default
Investment Grades
Speculative Grades
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METHODOLOGY FOR RATING CREDIT
o BUSINESS RISK
o FINANCIAL RISK
o MANAGEMENT EVALUATION
o BUSINESS ENVIROMENT ANALYSIS
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CRISIL OFFERINGS
Bonds/ LT instruments
CPs/ ST instruments
Structured Finance
Bank Loan Ratings
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CRISIL OFFERINGS
o SME Ratings
o Real Estate Ratings
National Developer rating Real Estate star rating
o Business School Gradings
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REAL ESTATE RATING LIST
Company Name Industry Name Rating
ABAD Builders Real Estate Development DA3+
Skyline Builders Real Estate Development DA2
Prestige Estates ProjectsLimited
Real Estate Development DA2+
Sobha Developers Ltd. Real Estate Development DA3
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SME RATING LIST
Sr. No Name CityRating
AssignedDate
Assigned* Constitution
1A A Autotech
Private LimitedGurgaon SME 1 17-Jun-11 Private Limited
2 A K Engineers Kolkata SME 4 12-May-11 Proprietorship
3 Balaji Construction Ajmer SME 3 26-Aug-11 Others
4 Dharav Enterprise Mumbai SME 5 26-Aug-11 Others
5 Bajaj Electronics Hyderabad SME 2 27-Dec-10 Proprietorship
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BOND / LONG TERM RATINGS
Company Name Instrument Category Rating Assigned
A B Chem (India) Letter of Credit Limit CRISIL A4+
I Blue Minerals Private Limited Term Loan Facilities CRISIL D
D D International Private Limited Cash Credit Limit CRISIL B+
IAC Electricals Pvt Ltd Cash Credit Limit CRISIL BBB-
Natraj Proteins Ltd Working Capital DemandLoan
CRISIL BB+
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PROGRESS
o Its inception till march 2,2005,crisil has so farcompleted rating of issues 824 companies consistingof various types of debt instruments of companiesboth in public & the private sectors.
o Credit rating analysis is relatively a new developmentin India. It is expected that establishment of crisil will
provide a strong impetus to the systematic riskevaluation of specified corporate instruments as wellas the companies issuing them.
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ICRA
Originally incorporated as
Investment Information and Credit Rating
Agency of India Limited
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THE ICRA FACTOR
o Facilitating Efficiency in Business
o
The Research Factor
o Committed to the development of Capital Market
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OUR PRODUCTS AND SERVICES ARE DESIGNED
TO
o Providing information and guidance
o Enhance the ability of borrowers/issuers to access
the money market and the capital market
o Assist the regulators in promoting transparency inthe financial markets; and
o Provide intermediaries with a tool to improveefficiency in the funds raising process.
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RANGE OF SERVICESo Rating Service
Rates Rupee denominated debt instruments
Corporate Governance Rating
Stakeholder Value and Governance Rating
Credit Risk Rating of Debt Mutual Funds
Rating of Claims Paying Ability of Insurance Companies
Project Finance Rating, and Line of Credit Rating
ICRA Indonesia (ICRAIndo)
Rupiah-denominated debt instruments
ICRA Lanka Limited (ICRALanka)
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o Grading Service Initial Public Offers (IPOs)
Microfinance Institutions (MFIs)
Construction Entities
Real Estate Developers and Projects
Healthcare Entities &
Maritime Training Institutes
o Consulting ServiceICRA Management Consulting Services Limited (IMaCS)
Strategy & Risk Management
Regulation & Reform
Transaction Advisory
Development Consulting &
Process Re-engineering.
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LIMITATIONS OF ICRA RATING
o ICRA ratings convey only the relative credit risk.
o Are only an opinion on the relative ranking of credit risk.
o ICRA categories group debt obligations with similar but not
necessarily identical credit risks
o ICRA ratings are not always constant and are subject to change.
o For assigning ratings, ICRA relies on information made available
to it by the issuer company
o ICRA ratings are not to be construed as recommendation to buy,
sell, or deal in the rated instruments
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RATING SCALEo IrAAA --- Lowest Credit Risk
o IrAA --- Low Credit Risk
o IrA --- Average Credit Risk
o IrBBB --- Higher Than Average Credit Risk
o
IrBB --- High Credit Risk
o IrB --- Very High Credit Risk
o IrC --- Extremely High Credit Risk
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METHODOLOGY
FOR
CREDIT RATING
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CORPORATE CREDIT RATING
BUSINESS RISK
Industry Risk
Competitive Position
Management Quality
New project Risk
FINANCIAL RISK
Financial Position
Profitability Capital Structure
Financial Flexibility
Future Cash Flow
Adequacy
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BANK CREDIT RATING
BUSINESS RISK
Operating and
Regulatory Environment
Ownership Structure and
Govt. Support
Governance Structure
Franchise
Management, Risk
positioning, Systems and
Strategy
FINANCIAL RISK
Asset Quality
Diversity of funding
and Liquidity
Profitability
Capital Adequacy
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GLOBAL IMPACT
o US subprime crisis
o downgrading Us
o Euro crisis
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US SUBPRIME CRISIS
o Overview
o Rating Mistakes
AAA rating to MBS & CDO
Conflict of Interests
Over optimism about housing market
Little knowledge of the individual borrower
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ACTIONS DURING CRISIS
o S & P downgraded 902 MBS & CDO
o Moodys Downgraded 83% of MSB & CDOs originally
rated AAA
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US SUBPRIME CRISIS
o The Financial Crisis Inquiry Commission reported in
January 2011 that: "The three credit rating agencies
were key enablers of the financial meltdown. The
mortgage-related securities at the heart of the crisiscould not have been marketed and sold without their
seal of approval
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US DOWNGRADING
o US downgraded from AAA to AA+
o Debt
o Increased debt ceiling by $ 2.1 trillion
o Political fight
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EURO CRISIS
o Downgraded Greece, Spain, Ireland,
o Criticized for late reaction
o accelerated Euro problem
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CRA-CRITICISM
o LACK OF TRANSPERENCY IN RATING PROCESS
o FLAWS IN RATING PROCESS
Doubtful assessment of financial documents andothers as such
Ratingassigned within two weeks on urgency ofcompanys request
Incompetent rating staff
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o FAMILIAR RELATION WITH COMPANY
MANAGEMENT
o ENGAGES BLACKMAIL TACTICS
o CRAS DO NOT DOWNGRADE COMPANIES
PROMPTLY ENOUGH
o ISSUERS PAY BUSSINESS MODEL
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EU - REGULATION ON CRA
o European Securities And Markets Authority(ESMA) Amendments
Yearly publication of transparency report
Rating analyst should not have ownership interest in entity
Investigatory powers demand any document or data , conduct
onsite inspections , imposing fines and penalties
Lead analyst should not be involved in rating for more than 4
years
Ratings from two different CRA for structured finance products
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TRUST-WOZRTHINESS
o Impact on the markets
o Many blame agencies for triggering financial crisis
o Country or company may pay CRA to rank it
o Downgrades put further strain on government