Amity School of Business

Credit Rating Agencies

Amity School of Business
NSIC Rating Scheme Amity School of Business

Role of Ratings  National Small Industries Corporation

(NSIC) introduced the Performance and
Credit Rating Scheme in 2005.
 Under this scheme, the government thru
NSIC subsidized rating fees to the tune of
75%.
 D&B and other agencies were
empanelled under this scheme to rate
SSIs.
 Under the scheme over 12,000 ratings
have been completed since inception of
which D&B India alone has carried out
about 50%.
 D&B India has consolidated its MSME
ratings with that of SMERA, a rating
agency jointly promoted by D&B India
solely for rating MSMEs.
 The new rating is called NSIC – D&B –
SMERA ratings
Benefits of Rating to SMEs Amity School of Business

Credit rating assists in Greater willingness by

simplifying lending norms banks and financial
In some cases, collateral institutions to lend to
requirements may also be better credit profile SME
Simplified Fund
relaxed borrowers
Norms Access

Information
asymmetry problems Perception Speed Lower approval time
reduced Faster disbursement
Credit of funds based on 3rd
terms part independent
ratings.
Interest rates linked to rating
of SME
Higher rated customers can
access funds at lower rates.
Lower transaction costs
Benefits of Rating to Banks Amity School of Business

Target credit-worthy
SMEs for future Decrease bad debt
promotions Reduce exposure to
Increase approval rates High risk accounts
Increased
Credit Risk
Sanctions Management

Quickly handle
Ensure equal, objective
obvious
treatment of each Consistency Speed approvals/declines
applicant
Less data is required
Apply consistent,
to make accurate
objective decisions
Efficiency decisions
across the organization

Analysts only focus on

difficult accounts
Increase volume of
accounts
 Rating Scale Amity School of Business

RATING INDICATORS
Financial Strength

High Moderate Low

Highest SE 1A SE 1B SE 1C
High SE 2A SE 2B SE 2C
Performance
Capability Moderate SE 3A SE 3B SE 3C
Weak SE 4A SE 4B SE 4C
Poor SE 5A SE 5B SE 5C
 Rating Fees Amity School of Business

Turnover Fees per Units Pay

Evaluation 25%
Upto Rs. 50 lacs Rs. 30,000/- Rs. 7,500/-
Rs 50 lacs – Rs Rs. 36,000/- Rs. 9,000/-
200 lacs
Above Rs 200 lacs Rs. 48,000/- Rs. 12,000/-

(Applicable service tax will be over and above the Rating fees and will be paid by
the SSI unit only on the 25% of the fees)
 

7
 Rating Process Flow Amity School of Business

Request for
Interview and
site visit
Rating Request D&B Correspondents SSI

Conducts site
visit and
Questionnaire interviews
Management

Industry
Assessment
and Cluster
Public Domain data
Information
Rating D&B Documentation,
Site Visit
Model Database audited results
Assessment
and certified
Report
Third Party Data projections
– e.g. Litigation
Documents Obtained
Information
External Data Rating Analyst

Peer Review Final Rating

SSI Rating
 Factors Considered while Amity School of Business

Rating
Parameters of Rating

Financial Non-Financial
Management Quality
Solvency Liquidity Profitability Activity Location Advantage
Ratios Ratios Ratios Ratio
Marketing Network
e.g. Debt-Equity Current Ratio RONW Asset- Legal Issues
turnover
Industry and Macro-
Economic Assessment

Minimise lending risk thru ratings 9

Non-Financial Parameters Amity School of Business

Minimise lending risk thru ratings 10

 CRISIL Amity School of Business

(Credit Rating Information Services

of India Limited)
• Established in 1987, formed a strategic alliance with
Standard & Poor's Ratings Group, New York.
• Operates on the basis of sectoral specialization
• CRISIL Research is India's largest independent
integrated research house providing accurate and reliable
research, analysis and forecasts on the Indian economy,
industries and companies to over 500 Indian and
international clients across financial, corporate,
consulting and public sectors.
 ONICRA Amity School of Business

(Onida Credit Rating Agency of

India Limited)
• Incorporated in 1993, an established player in the
individual credit assessment and scoring services space
in the Indian market.
• Provides a Dynamic Customer-Focused solution that
bridges the gap between principals and their prospective
/ existing customers
• They provide a spectrum of services, which include the
services like Credit Rating, Associate Rating, Employee
Screening, SSI/MSME Rating, Customer Verification,
Lifestyle Analysis and Royalty Retention.
 CARE Amity School of Business

(Credit Analysis and Research

Limited)
• CARE Ratings has completed over 3850 rating assignments
having aggregate value of about Rs 8071 billion (as at
December 2007), since its inception in April 1993. Securities
and Exchange Board of India (SEBI), Government of India
(GOI) and Reserve Bank of India (RBI) etc. recognize CARE.
• CARE was promoted by major Banks/FIs (financial
institutions) in India. The three largest shareholders of CARE
are IDBI Bank, Canara Bank and State Bank of India. CARE,
is set-up with two divisions
• . The division has an established network of primary and
secondary sources, which enable the analyst to form
unbiased opinion on the industry segments. It has also
developed different methodologies for forecasting the future
demand-supply situation in a particular industry.
 ICRA Amity School of Business

(Investment Information and Credit

Rating Agency of India Limited)
• ICRA Limited (An Associate of Moody's Investors
Service) was incorporated in 1991 as an independent
and professional company
• ICRA is a leading provider of investment information and
credit rating services in India.
• ICRA has been proactive in widening its service
offerings, executing assignments including credit
ratings, equity grading, specialized performance grading
and mandated studies spanning diverse industrial
sectors.
 SMERA Amity School of Business

( Small & Medium Enterprise Rating

Agencies)
• Only rating agency dedicated to the SME segment offering
qualitative services at competitive prices.
• Joint initiative of SIDBI, Dun & Bradstreet and 11 leading banks
operating in SME segment.
• Launched on the 5th September 2005 by the Hon. Finance
Minister, Shri P Chidambaram.
• Completed around 4800 ratings till date.

• Greater acceptability in banks (MOU with 22 leading banks). 14

Banks offer interest rate and security concessions for well rated
SMERA customers.
 Highlights of SMERA Ratings Amity School of Business

Provides ratings that are :

– Independent Neutral Risk Assessment

– Comprehensive Conducts an exhaustive due diligence process

– Transparent Rating Rationale discussed with rated entities

 Enables better understanding of SMEs by lenders

while taking credit decisions.
 Amity School of Business

Benefits of SMERA Rating

• Third party credit rating helps in extending additional
comfort for internal decision making.
• Validation of the internal ratings.
• Intrinsic Strengths of SME units captured as model
also considers qualitative parameters in addition to
financial results.
• Strengthening of Credit Portfolio thru rating/review
ratings – early warning signals.
• Impact of industry related cyclical trend considered in
rating.
• Cluster centric approach.
Minimise lending risk thru ratings 18