CREDIT RATING

AGENCIES

PRESENTED BY:
RAHUL RAWAT
CREDIT RATING

 It is an assessment of the capacity of the issuer of debt security, by an

independent agency, to pay interest and repay the principal as per the terms
of the issue of debt.

 The rating is expressed in code number which can be easily comprehended

even by the lay investors.

 Rating symbols indicate the capacity of the company to honor the terms of
contract of a debt instrument.

 A debt rating is not a one time evaluation of credit risk, which can be
regarded as valid for the entire life of the security.
IMPORTANCE

 The increasing role of capital and money markets consequent to

disintermediation;

 Increasing securitization of borrowing and lending consequent to

disintermediation;

 Globalisation of the credit market; The continuing growth of information

technology;

 The growth of confidence in the efficiency of the market mechanism: and

 The withdrawal of Government safety nets and the trend towards

privatization.
 USE OF CREDIT RATING

 By Investors
 Information Service
 Risk Evaluation
 By Issuers
 Wider Investors
 Benchmark for issue pricing
 By Intermediaries
 Planning, Pricing
 Underwriting and Placement of issue
 By Regulators
CODE OF CONDUCT FOR CREDIT RATING
AGENCIES

 High standards of Integrity and Fairness

 Ethical Manner
 Providing Unbiased Services
 Avoid any Conflict of Interest
 Not Indulge in Unfair Competition
 Not make any Untrue Statements
 CREDIT RATING AGENCIES IN INDIA

1. CREDIT RATING INFORMATION SERVICES OF

INDIA LTD.(CRISIL)

 It was promoted by ICICI, nationalized and foreign banks

and insurance companies in 1987.
 The services offered are broadly classified as Rating
Information Services, Infrastructure services and Consulting.
 It rates debentures, fixed deposit programmes, short term
instruments like commercial papers etc.
 CRISIL is market leader in India and has the most
comprehensive range of rating services
 2.CREDIT ANALYSIS AND RESEARCH LIMITED
(CARE)
 It was incorporated in April 21,1992 and commenced its
operations in October1993.

 It is sponsored by IDBI jointly with Canara Bank, UTI, private

sector banks and financial service companies to offer credit
rating information and equity research services to Indian
industry and institutions.

 It undertake rating of all type of debt instruments like

commercial paper, fixed deposits, bonds , debentures etc.
3. INVESTMENT INFORMATION AND CREDIT RATING
AGENCY (ICRA)

 It is sponsored by IFCI jointly with the other leading financial

institutions and banks and has become operational in
September1991.

 IICRA rated debentures, bonds, preference shares, fixed

deposits, and short term instruments like commercial papers of
different companies.

 ICRA presently offers its services under three banners, namely:

1. Rating Services
2. Information Services
3. Advisory Services
 Rating Symbols of IICRA

Remarks Long -Term Medium- term Short-term

Instruments Instruments Instruments
Highest Safety LAAA MAAA A-1
High Safety LAA+ MAA+ A-2
Adequate Safety LA+ MA+ ------
Moderate Safety LBBB+ ------- ------
Inadequate LBB+ MB+ ------
Safety
Risk Prone LB+ MC+ A-4
Substantial Risk LC+ ---- -----
Default LD MD A-5
 ICRA’s RATING PROCESS
Mandate
Initial Stage

Assign Rating Team

Receive initial
information
Conduct basic research

Fact findings and

Meetings and Visits analysis

Analysis and Preparation

of Report
 Purview Meeting Rating
Finalization

Fresh inputs /
Rating Meeting
Clarifications

Assign Rating

Communicate the rating

Request for Review
and rationale

Acceptance
Non Acceptance

Surveillance
 PROBLEMS OF CREDIT RATING

 Absence of widespread branch network.

 Unskilled, inexperienced or overloaded staff.
 Credit rating is not permanent.
 Tendency to inflate rating.
 Scope of biasness.
 Limited number of rating categories.
 Low level of disclosure from the companies to be rated.
THANK
YOU!