CREDIT RATING

AGENCIES

By : HIMANI GOELB.COM(HONS.) 3RD YR

ROLL NO : 783

What do you mean by credit rating?

INTRODUCTION TO CREDIT RATING

Rate the company on various analysis

The credit worthiness of an individual, corporation or even a country.

Analysis financial history, current assets and liabilities.

Tells a lender or investor the probability of the subject being able to pay back a loan.

Faster and easy availability of loan

Increased publicity.

Credit rating agencies in IndiaCredit rating

information services limited(CRI

SIL)

Investment informatio

n and credit rating

agency of India(ICRA

)

Credit analysis

and research(C

ARE)

Fitch Ratings

India Pvt. Ltd.

SOME PROMINENT CREDIT RATING AGENCIES

Standard and poor

Moody’s

Fitch ratings

The rating process????Business risk profile analys

is

Financial risk profile analys

is

Credit rating

methodology

Business risk

Country risk

Industry factors

Company position

profitability

EconomicPolitical Industry-specific factorsForeign exchange

Industry trendsIndustry structureMarket sizeGrowth potentialCompetitionChanging technology

Competitive factorsMarket positionKeys to successSizeDiversificationmanagement

Validation of “companies position”Trends Quality of earningsAnalytical adjustments

financial risk

accounting

Government risk

Cash flow adequacy

liquidity

Accounting regimeReporting and disclosureAnalytical adjustments

ownershipBoard of directorsManagement practicesFinancial strategyRisk toleranceInternal controlAccounting practices

Focus on debt service capabilityCash flow measuresratiosAnalytical distinctions with profitability.

Operating sources and uses of liquidity Debt characteristicsBank credit facilities

WHO GET CREDIT RATINGS?

governmentsPrivate

institutions

Benefits of credit rating

LOW COST INFORMATION

QUICK INVESTMENT DECISION

INDEPENDENT INVESTMENT DECISION

INVESTOR PROTECTION

Benefits to rated companies

o Low cost of borrowing

o Benefits the industry as a whole

o Foreign collaborations made easy

o Merchant bankers job made easy

o Increase the investor population

o Encourages financial discipline

ImportanceTo increase investor confidence and guide

themFacilitate decision makingMeasures probability of default to meet

obligationsStrengths and weaknesses of the companyRated instruments enjoys higher confidenceProvide information and guidance to

institutional and individual investorsAssist the regulators in promoting

transparency in the financial market

Issues

CRA are not auditors

Credit rating changes with time

Judgment in india is a mix quantitative and qualitative

factors

It is necessary to regulate CRA

Solicited and unsolicited ratings

Regulating the raters

Investment information and

credit rating agencies of India (ICRA)

Investment information and credit rating agencies of India (ICRA)

ICRA Limited (ICRA) is an independent and professional

investment information and credit rating agency.

ICRA Limited, was established in 1991, and was originally

named Investment Information and Credit Rating Agency of

India Limited (IICRA India).

It was a joint-venture between moody’s and various Indian

commercial banks and financial services companies.

Investment information and credit rating agencies of India (ICRA)

The company changed its name to ICRA Limited, and went public on 13

April 1997, with a listing on the Bombay stock exchange and the National

stock exchange.

In addition to being a leading credit rating agency with expertise in virtually

every sector of the Indian economy, ICRA has broad based its services for

the corporate and financial sectors, both in India and overseas, and

currently offer its services under the following banners:

Rating service information

Grading and research services

Advisory services

Economic research outsourcing

Investment information and credit rating agencies of India (ICRA)

IICRA was set up by industrial finance corporation of India on

16th January 1991.

It is a public limited company with an authorized share capital

of 10 crores.

The initial paid up capital of Rs. 3.50 crores was subscribed by

IFC, UTI, LIC, GIC, SBI and others.

1.)High investment

grades:-

•LAAA(triple A): highest safety•LAA(double A): high safety

2.)Investment grades):-

•LA: adequate safety•LBBB(triple B): moderate safety

3.)Speculative grades:-•LBB: inadequate safety•LB: risk prone •LC: substantial risk•LD: default

Long term Debenture bonds and preference shares -Rating symbols

Credit analysis and

research limited(CARE)

Credit analysis and research limited(CARE)The care was promoted in 1993 jointly with

investment companies, banks and finance companies.Services offered by care are:o Credit rating o Information serviceo Equity research etcThe Credit Analysis & Research Ltd (CARE) is

promoted by Unit Trust of India or UTI; Canara Bank; Industrial Development Bank of India or IDBI and many other reputed banks and companies dealing with financial services. 

Credit analysis and research limited(CARE)CARE was registered by SEBI as per Securities & Exchange Board

of India Regulations 1999. 

Ratings conducted by Credit Analysis & Research Ltd (CARE), are

authenticated by Government of India.

Rating Services:

With regard to rating services offered by CARE or Credit Analysis &

Research Ltd, the agency carries out rating of the following debt

instruments: Structured obligations

Commercial paper

Debentures

Fixed deposits

Bonds