7/29/2019 Credit rating.pptx

1/12

7/29/2019 Credit rating.pptx

2/12

History of Rating

Standard and Poors

Henry Varnum Poor was a leader in establishing the financial information

industry on the principle ofthe investor right to know.

In 1941 Standard statistics and Poors publishing company merged together

to form S&P

They provide credit ratings, indices, risk evaluation, investment research

and data.

7/29/2019 Credit rating.pptx

3/12

History of Rating

Moodys It published Moodys manual of industrial and miscellaneous securities in

the first year.

It provided information and statistics on stocks and bonds of financial

institutions, government agencies, manufacturing, mining, utilities and food

companies.

In 1907, due to stock market crash, the co. was closed and again came backin 1909 in which he offered to investors an analysis of security values

7/29/2019 Credit rating.pptx

4/12

Other world wide agencies

A.M.Best (US) which specializes in Insurance company ratings

Dominion Bond Rating service (Canada / US) is based at Toronto,

canada.

Fitch Ratings Ltd. Is an international CRA. Headquartered at New

york city and London

Baycorp Advantage (Australia and New zealand)

Dun & Bradstreet (US) called as D-U-N-S (Universal Numbering

System)

7/29/2019 Credit rating.pptx

5/12

Credit Rating in India

CRISIL 1987 Promoted by ICICI, UTI,LIC,GIC,SBI

S&P is the largest SH.

It is Indias leading ratings, financial news, risk and policy advisory

company.

Ratings are for short, medium and long term debt instruments issued by

manufacturing co., NBFCs, municipal bodies, state governments, real

estate and health care institutions.

It rates debentures, preference shares and fixed deposits

7/29/2019 Credit rating.pptx

6/12

Credit Rating in India

ICRA - 1991 Promoted by IFCI, SBI, LIC, PNB, CBI, Allahabad Bank.

Moody is the largest SH.

It undertakes credit ratings, equity grading for industrial sectors both

in India and abroad and offers ratings, Information and advisory

services.

Ratings are for short, medium and long term debt instruments issued

by corporate, ULB. It rates Bonds and Non convertible debentures

7/29/2019 Credit rating.pptx

7/12

Credit Rating in India

CARE APRIL 1993 Promoted by IDBI, Canara Bank, UTI

It undertakes credit ratings, Information and Advisory services. It is

retained by GOI for assistance in equity valuation for suggesting

divestment strategies.

Ratings include public utilities, financial institutions, infrastructure

projects, SG and municipal bodies.

It rates all types of debt instruments like commercial paper, fixed

deposits, bonds, debentures and preference shares.

7/29/2019 Credit rating.pptx

8/12

Credit Rating in India

FITCH2000

Fitch India is a 100% subsidiary of the Fitch group

Fitch rates entities in 75 countries and has 1100 employees in more

than 40 local offices world wide

* It rates for financial institutions, Insurance, corporate, structured

finance and public finance markets

Ratings are for short, long term credit and term deposits

7/29/2019 Credit rating.pptx

9/12

Credit Rating in India

SMERA - 2005 Promoted by SIDBI, D&B, CIBIL

It is the only agency dedicated to small and medium enterprises

It considers financial condition and several qualitative factors to

assess the credit worthiness of the SMEs

Rating has 2 partssize indicator (net worth) and composite appraisal

/ condition indicator

7/29/2019 Credit rating.pptx

10/12

Credit Rating in India

BRICKWORK - 2008 Promoted by Bangalore based individual with the aim to provide

unbiased information to Indian Investor

Ratings are for short, medium and long term debt instruments , mutual

fund schemes and IPO

BRICKWORK ratings are acceptable to banks in India for their loan

assessment process as per RBI circular

7/29/2019 Credit rating.pptx

11/12

Benefits of Credit Rating

For INVESTORS:

Independent and professional judgment of the credit quality of the

instrument.

Low cost supplement to the in-house appraisal system of organized

institutional investors

It can be used by the investor to optimize risk return preference

For ISSUERS:

There is a faith placed by the market on opinions of rating agencies.

It is benchmark for issue pricing and result in savings in costs.

7/29/2019 Credit rating.pptx

12/12

Limitations of Credit Rating

They are not recommendations to invest.

Ratings tend to be sticky. They can be changed only periodically

It is based on some events, news or happenings and following

extrapolated projections

It is a human perception

It lead to financial crisis, financial instability and cross country

contagion