ranjeet ranjan2

8/8/2019 ranjeet ranjan2

http://slidepdf.com/reader/full/ranjeet-ranjan2 1/23

CREDIT RATING



INTRODUCTION A credit rating assesses the credit worthiness

of an individual, corporation, or even acountry. Credit ratings are calculated fromf inancial history and current assets andliabilities.

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

def aulting on a loan, and thus leads to high

interest rates



Cont.

Credit rating agencies now undertake f inancial

analysis and assessment of f inancial product,

individuals, institutions, and governments.



IMPORTANCE

Enhance the reputation of the lesser known

company

Promoting stability and eff iciency in the security market

Rating make more eff icient and transparent

Rating has assumed a much larger role in the global f inancial market

Sovereign rating aff ect the quantum inf lows



Origin of CR

In us 1909,john moody rated rail bond

After depression it became more relevant

The biggest rating agencies are moodys and stander's & poors

First industrial country France has been rated

in 1959, 1977-venuzuela Moodys in 1988, and s & p in 1990

In India- CRISIL,ICRA,CARE,FITCH



RATING METHODOLOGY

Business analysis Industry risk,

market position,

operating eff iciency

leagal position

Financial analysis Accounting quality

Earnings protection

Adequate of cash f low

Financial f lexibility

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

Pref erence 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 f ees at rate of 0.03 percentto monitor the instrument monitoring its lif e.



RATING SYMBOL

Highest investment grade

AAA- highest saf ety in term of timely payment of interest and principal, f undamentally strong and

any adverse changes are not going to aff ect it.

AA-diff er with marginally from above A-changes circumstances can adversely

aff ect(adequate)

BBB- moderate



Cont..

Speculative grades

BB-inadequate saf ety , uncertain changes can

lead inadequate f inancial capacity to make timely payments in the f uture

B-denote high risk and adverse change could

lead to inability to make timely

C- vulnerable to def ault

D- def alult



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 f inancial instrument of

their promoters who have more than 10 per

stake

Only commercial bank ,public f inancial

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 lif e time of the rated

instrument.

It has been made mandatory to obtain dual

rating from diff erent 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 f irst 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 toinvestors for determining the credit risk

associated with a debt instrument. In December moodys investors service and icra

limited announce their joint agreement tomoodys taking up minority stake in the equity

capital of ICRA



CARE It was setup by IDBI in collaboration with

some banks & f inancial service companies in

NOV 1993.

CARE has tie up with f itch rating the word

third largest rating agency

It off ers services such as credit rating of

debentures/ pref erence 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 agencyof india and and is a private company set up byonida f inance. It has been set up to rate the

credit worthiness of non corporate consumers. C card

Hire and leasing

Housing f inance

Rental agreement

Bank f inance



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 f irst ever grading of an equity.

CRISIL launched in 2005 rating service for

SME (1 to 8)

ranjeet ranjan2

Documents