CREDIT

CREDIT RATING
RATING AGENCY
AGENCY FACTORS
FACTORS FOR
FOR SUCCESS
SUCCESS OF
OF AA RATING
RATING SYSTEM
SYSTEM RATING
RATING SYMBOLS For Long
SYMBOLS -- For Long Term
Term Debt
Debt Instruments:
Instruments:
USE
USE OF
OF CREDIT
CREDIT RATING
RATING RATING
RATING OF
OF MANUFACTURING
MANUFACTURING
Credit
Credit rating
rating can
can be
be performed
performed byby agencies
agencies called
called credit
credit  Credible
Credible and
and independent
independent structure
structure and
and procedures;
procedures; AAA
AAA Instruments
Instruments with
with this
this rating
rating are
are considered
considered to to have
have the
the highest
highest
Credit
Credit rating
rating isis extremely
extremely important
important as
as COMPANIES
COMPANIES degree
degree ofof safety
safety regarding
regarding timely
timely servicing
servicing of
of financial
financial
rating
rating agency.
agency.  Objectivity
Objectivity and
and impartiality
impartiality ofof opinions;
opinions; itit not
not only
only plays
plays aa role
role in
in investor
investor  Industry
Industry Risk
Risk obligations.
obligations. Such
Such instruments
instruments carry
carry lowest
lowest credit
credit risk.
risk.
Any
Any person
person proposing
proposing toto commence
commence anyany activity
activity as
as aa credit
credit  Analytical
Analytical research,
research, integrity
integrity and
and consistency;
consistency; protection
protection but but also
also benefits
benefits industry
industry as
as  Company’s
Company’s industry
industry and
and AA
AA Instruments
Instruments with
with this
this rating
rating are
are considered
considered to to have
have high
high
rating
rating agency
agency should
should make
make an
an application
application to
to SEBI
SEBI for
for the
the  Professionalism
Professionalism and and industry
industry related
related expertise;
expertise; aa whole
whole in
in terms
terms of of direct
direct mobilization
mobilization market
market position
position degree
degree ofof safety
safety regarding
regarding timely
timely servicing
servicing of
of financial
financial
grant
grant of
of aa certificate.
certificate.  Confidentiality;
Confidentiality; of
of savings
savings from
from individuals.
individuals.  Operating
Operating efficiencies
efficiencies obligations.
obligations. Such
Such instruments
instruments carry
carry very
very low
low credit
credit risk.
risk.
 Timeliness
Timeliness of of rating
rating review
review and
and announcement
announcement of of Credit
Credit rating
rating isis useful
useful to-
to-  Accounting
Accounting Quality
Quality AA Instruments
Instruments with
with this
this rating
rating are
are considered
considered to to have
have adequate
adequate
Promoter
Promoter of
of Credit
Credit Rating
Rating Agency
Agency changes;
changes;  investors,
investors, degree
degree ofof safety
safety regarding
regarding timely
timely servicing
servicing of
of financial
financial
 Financial
Financial flexibility
flexibility
SEBI
SEBI should
should not
not consider
consider an an application
application unless
unless the
the applicant
applicant isis obligations.
obligations. Such
Such instruments
instruments carry
carry low
low credit
credit risk.
risk.
 Ability
Ability to
to reach
reach wide
wide range
range of
of investors
investors by
by means
means ofof  issuers,
issuers,  Earnings
Earnings protection
protection
promoted
promoted by by aa person
person belonging
belonging to to any
any of
of the
the following
following BBB
BBB Instruments
Instruments with
with this
this rating
rating are
are considered
considered to to have
have moderate
moderate
press
press reports,
reports, print
print or
or electronic
electronic media
media and
and investor
investor  intermediaries
intermediaries and and  Financial
Financial leverage
leverage degree
degree ofof safety
safety regarding
regarding timely
timely servicing
servicing of
of financial
financial
categories,
categories, namely:
namely:
oriented
oriented research
research services.
services.  regulators
regulators  Cash
Cash flow
flow adequacy
adequacy obligations.
obligations. Such
Such instruments
instruments carry
carry moderate
moderate credit
credit risk.
risk.
 aa public
public financial
financial institution;
institution;
 Management
Management evaluation
evaluation BB
BB Instruments
Instruments with
with this
this rating
rating are
are considered
considered to to have
have moderate
moderate
 aa scheduled
scheduled commercial
commercial bank; bank; risk
risk of
of default
default regarding
regarding timely
timely servicing
servicing ofof financial
financial
 aa foreign
foreign bankbank operating
operating in in India
India with
with the
the approval
approval of of obligations.
obligations.
the
the Reserve
Reserve BankBank of of India;
India; BB Instruments
Instruments with
with this
this rating
rating are
are considered
considered to to have
have high
high risk
risk of
of
 aa foreign
foreign credit
credit rating
rating agency
agency recognized
recognized under
under Indian
Indian default
default regarding
regarding timely
timely servicing
servicing of
of financial
financial obligations.
obligations.
Law
Law and
and having
having atat least
least five
five years
years experience
experience inin rating
rating CC Instruments
Instruments with
with this
this rating
rating are
are considered
considered to to have
have very
very high
high
securities;
securities; risk
risk of
of default
default regarding
regarding timely
timely servicing
servicing ofof financial
financial
obligations.
obligations.
 any
any company
company or or aa body
body corporate,
corporate, having
having continuous
continuous
DD Instruments
Instruments with
with this
this rating
rating are
are in
in default
default or
or are
are expected
expected to to
net
net worth
worth of of minimum
minimum rupeesrupees oneone hundred
hundred crores
crores asas be
be in
in default
default soon.
soon.
per
per its
its audited
audited annual
annual accounts
accounts for for the
the previous
previous five
five
years
years in in relation
relation toto the
the date
date on on which
which application
application to to RATING
RATING SYMBOLS For Short
SYMBOLS -- For Short Term
Term Debt
Debt Instruments:
Instruments:
SEBI
SEBI isis made
made seeking
seeking registration.
registration. A1
A1 Instruments
Instruments with
with this
this rating
rating are
are considered
considered to to have
have very
very strong
strong
degree
degree of
of safety
safety regarding
regarding timely
timely payment
payment of of financial
financial
Agreement
Agreement with
with the
the Client
Client obligations.
obligations. Such
Such instruments
instruments carry
carry lowest
lowest credit
credit risk.
risk.

CREDIT
Every
Every credit
credit rating
rating agency
agency isis required
required to to enter
enter into
into aa written
written A2
A2 Instruments
Instruments with
with this
this rating
rating are
are considered
considered to to have
have strong
strong
agreement
agreement with
with each
each client
client whose
whose securities
securities itit proposes
proposes to to degree
degree of
of safety
safety regarding
regarding timely
timely payment
payment of of financial
financial
rate,
rate, and
and every
every such
such agreement
agreement should
should include
include the the following
following obligations.
obligations. Such
Such instruments
instruments carry
carry low
low credit
credit risk.
risk.
provisions,
provisions, namely:
namely: A3
A3 Instruments
Instruments with
with this
this rating
rating are
are considered
considered to to have
have moderate
moderate
degree
degree of
of safety
safety regarding
regarding timely
timely payment
payment of of financial
financial
 the
the rights
rights and
and liabilities
liabilities of
of each
each party
party in in respect
respect of
of the
the
obligations.
obligations. Such
Such instruments
instruments carry
carry higher
higher credit
credit risk
risk as
as
rating
rating of
of securities
securities shall
shall be
be defined;
defined; compared
compared to to instruments
instruments rated
rated in
in the
the two
two higher
higher categories.
categories.

RATING
 the
the fee
fee to
to be
be charged
charged by by the
the credit
credit rating
rating agency
agency shall
shall A4
A4 Instruments
Instruments with
with this
this rating
rating are
are considered
considered to to have
have minimal
minimal
be
be specified;
specified; degree
degree of
of safety
safety regarding
regarding timely
timely payment
payment of of financial
financial
 the
the client
client shall
shall agree
agree toto aa periodic
periodic review,
review, obligations.
obligations. Such
Such instruments
instruments carry
carry very
very high
high credit
credit risk
risk and
and are
are
 the
the credit
credit rating
rating agency
agency shall
shall disclose
disclose to to the
the client
client the
the susceptible
susceptible to
to default.
default.
DD Instruments
Instruments with
with this
this rating
rating are
are in
in default
default or
or expected
expected to to be
be in
in
rating
rating assigned,
assigned,
default
default on
on maturity.
maturity.
 the
the client
client shall
shall agree
agree toto disclose
disclose the
the rating
rating assigned.
assigned.
Credit
Credit rating,
rating, in
in general
general sense,
sense, isis the
the evaluation
evaluation of
of the
the credit
credit worthiness
worthiness of of an
an individual
individual or
or of
of aa business
business

RATING
RATING OF
OF FINANCIAL
FINANCIAL SERVICES
SERVICES COMPANIES
COMPANIES
concern
concern or
or of
obligations
of an
obligations as
an instrument
as well
instrument of
well as
as net
of aa business
net worth.
worth.
business based
based on
on relevant
relevant factors
factors indicating
indicating ability
ability and
and willingness
willingness to
to pay
pay
INSPIRE ACADEMY (888888 1719)
 Capital
Capital Adequacy
Adequacy
 Asset
Asset Quality
Quality
 Management
Management
 Earnings
Earnings
 Liquidity
Liquidity
 Systems
Systems and
and Control
Control

IPO
IPO GRADING
GRADING
IPO
IPO grading
grading (Initial
(Initial Public
Public Offering
Offering Grading)
Grading) isis aa service
service
aimed
aimed at at facilitating
facilitating thethe assessment
assessment of of equity
equity issues
issues offered
offered
to
to public.
public. The
The grade
grade assigned
assigned toto any
any individual
individual issue
issue
represents
represents aa relative
relative assessment
assessment of of the
the ‘fundamentals’
‘fundamentals’ of of
that
that issue
issue in
in relation
relation toto the
the universe
universe of of other
other listed
listed equity
equity
securities
securities inin India.
India. Such
Such grading
grading isis assigned
assigned onon aa five-point
five-point
scale
scale with
with aa higher
higher score
score indicating
indicating stronger
stronger fundamentals.
fundamentals.

Procedure
Procedure for
for IPO
IPO Grading
Grading
The
The company
company needs
needs to
to first
first contact
contact one
one of
of the
the grading
grading
agencies
agencies and
and mandate
mandate itit for
for the
the grading
grading exercise.
exercise. The
The agency
agency
would
would then
then follow
follow the
the process
process outlined
outlined below.
below.

Seek
Seek information
information required
required for
for the
the grading
grading from
from the
the company.
company.
 On On receipt
receipt of
of required
required information,
information, havehave discussions
discussions
with
with the
the company’s
company’s management
management and and visit
visit the
the
company’s
company’s operating
operating locations,
locations, ifif required.
required.
 Prepare
Prepare anan analytical
analytical assessment
assessment report.
report.
 Present
Present the
the analysis
analysis to
to aa committee
committee comprising
comprising
senior
senior executives
executives of
of the
the concerned
concerned grading
grading agency.
agency.
This
This committee
committee would
would discuss
discuss all
all relevant
relevant issues
issues and
and
assign
assign aa grade.
grade.
 Communicate
Communicate the the grade
grade to to the
the company
company alongalong with
with
an
an assessment
assessment report
report outlining
outlining the
the rationale
rationale for
for the
the
grade
grade assigned.
assigned.
Shubhamm Sukhlecha (CA, CS, BSL LLB) (sukhlecha.shubham@gmail.com)