2. Overview of credit rating
• A credit rating agency is a potential source of information for market
participants (Landers and investors)who are trying to ascertain the
creditworthiness of borrowers.
• Credit rating agencies provide investors with objective analyses and
independent assessments of companies and countries (e.g., in 2011 S&P cut
down Spain’s long-term credit rating from AA to
AA- ) that issue such securities.
• Globalization in the investment market, coupled with diversification in the
types and quantities of securities issued, presents a challenge to
institutional and individual investors who must analyze risks associated with
both foreign and domestic investments.
3. Overview of credit rating
• Essentially, rating agencies offer judgments (they prefer the word
“opinions”) about the quality of bonds issued by corporations,
governments (including U.S. state and local governments, as well as
“sovereign” issuers abroad).
• These judgments come in the form of letter grades. The best-known
scale is that used by Standard & Poor’s (S&P) and some other rating
agencies: AAA, AA, A, BBB, BB, etc., with pluses (+) and minuses (-)
as well.
4. History of credit rating service
• The concept of credit rating service was started with the establishment
of railroad corporation in U.S.A. (1820) and further it was the world’s
first big business in the sense of multi-divisional enterprises.
• By 1832, the journal “The American Railroad” came into its own
publication when Henry Varnum Poor became its editor in 1849.
5. History of credit rating service
Contd.
• Poor gathered and published information on the property of railroad,
assets, liabilities and earning during 1849-1862. He died in 1905.
• In 1909, John Moody began with his rating of railroad bonds.
• Further, poor’s co. merged with standard statistics, another information
and rating co., in 1941 and became S&P.
6. What is credit rating?
► A credit rating is an assessment of an entity’s ability to pay its
financial obligations. the ability to pay financial obligations is referred
to as “creditworthiness.”
• Credit ratings apply to debt securities like bonds, preference share
and other debt instruments.
• Credit ratings also are assigned to governments (e.g., ICRA comments
on union budget 2015-16 of Government of India).
8. Who provides Credit Rating?
MOODY’S
CRISIL – started in 1987
ICRA – started in 1991
ONICRA
CARE – started in 1993
FITCH India
Brickworks Ratings
9. Instruments for Rating
Bond/debentures issued by corporate and
government.
Bond issued by local authority
Preference & Equity shares
(new development) issued by a co.
10. Rating other than debt instruments
Rating
other than
debt
instrument
Country
rating
Rating to the
states
Rating to real
estate
builders
Rating of
banks
CAMELS
ICRA &
CRISIL-2007S&P
11. Guidelines for Credit rating agencies in India
The SEBI (Credit Rating Agencies) Regulations, 1999 offers various guidelines
with regard to the registration and functioning of the credit rating agencies in
India.
The registration procedure includes application for the establishment of a
credit rating agency, matching the eligibility criteria and providing all the
details required. They have to undergo the strict examination procedure with
regard to the details furnished by them.
They are required to prepare internal procedures, abidance with circulars.
They are offered guidelines regarding the credit rating procedure, by the Act.
The credit rating agencies are provided with compliance officers.
They are required to show their accounting records.
12. Regulation of credit rating service
• This service is Regulated by SEBI.
• Following the guidelines of SEBI, published in 1999.
• Registration with SEBI with an application fees of Rs.25,000.
• Need to pay Rs.5,00,000 for granting of registration certificate from SEBI.
• Renewal of certificate with Rs.3,00,000.
13. CRISIL- Credit Rating & Information
Service of India Pvt. Ltd.
• CRISIL is India's first credit rating agency, incorporated in 1987 and
was promoted by the erstwhile ICICI Ltd, along with UTI and other
financial institutions.
• It commenced operations from 1988 onwards. In 1995, in partnership
with National Stock Exchange of India Ltd.(NSEIL), CRISIL developed
CRISIL 500 Equity Index.
• S&P acquired the majority stake in the company in 2005 and so today
CRISIL is a S&P company. ( 9.68 % stake of S&P in 1997)
14. Board committee of CRISIL
• Director- Mr. M. Damodaran
• Chairman- Mr. Douglas L. Peterson
• M.D. & C.E.O. :-
Mr. Ravimohan ( 1994-2006)
Ms. Roopa Kudva (2007-2014)
Ms. Ashu Suyash (1 June, 2015)
• Other directors and alternate director
Ms. Roopa Kudva
Ms. Ashu Suyash
15. CRISIL’S RATING PROCESS
CRISILISSUER
Request for rating
Signs rating agreement
Provides information
Rating fees
Management interaction with
Rating team
Rating team assigned.
Team obtain information,
Conduct preliminary analysis
Team conduct site visit and
perform analysis
Accept or appeal to the rating
Analysis presented to
rating committee
Rating assigned &
communicated to the issuer
Continuous surveillance on
ratings
(Change Or Stable)
16. INTRODUCTION:
• As a global entity, and India's leading Ratings, Research, Risk and Policy
Advisory Company, CRISIL delivers opinions and solutions that:
Make markets function better
Help clients mitigate and manage their business & financial risks
Help shape public policy
• CRISIL inspires trust and confidence the world over. It redefines industry
standards constantly, and sets new benchmarks year after year.
• At the core of CRISIL's credibility, built up assiduously over the years, are
its values: Integrity, Commitment, Innovation, Independence, and
Analytical Rigour.
CRISIL India – Short Note
17. • CRISIL offers domestic and international customers a unique
combination of local insights and global perspectives.
• Its independence in information, opinion, and solutions helps clients
make well-informed business and investment decisions, enhances
efficiency in markets and market participants, and helps shape
infrastructure policy and projects.
• CRISIL's majority shareholder, Standard and Poor's, is the world's
foremost provider of independent credit ratings, indices, risk evaluation,
investment research and data.
18. CRISIL Overview
• CRISIL is one of the top credit rating agencies of India. CRISIL has been
affiliated by Standard & Poor’s. It was established in the year 1987.
CRISIL offers a wide variety of services to its clients in a variety of fields.
CRISIL Services
CRISIL offers its clients the following services:
Ratings
Fund Services
Research
Advisory
19. CRISIL Ratings
CRISIL is the sole Indian credit rating agency that focuses on Sectoral specialization.
The Rating Criteria & Product Development Centre executes the following activities:
Policy Research
Ratings’ Quality Assurance
New Product Development
Following are the various credit rating agencies that CRISIL has set up in offshore
locations:
RAM (Malaysia)
Caribbean
MAALOT (Israel)
20. CRISIL Fund Services
CRISIL Fund Services provides the following services to its clients:
1. Market Benchmarks
2. Fund Evaluation Services
3. Valuation Tools
4. Risk Solutions to the Mutual Fund Industry
21. CRISIL Research
CRISIL research wing provides its services to more than five hundred consumers in India and
all over the world. CRISIL Research offers the following services:
Research
Analysis
Forecasts
CRISIL Research offers its services on the following areas: (E.I.C.)
Indian Economy
Indian Companies
Indian Industries
The services of CRISIL Research cater to the clients of the following sectors:
Public
Financial
Consulting
Corporate
22. CRISIL - The Centre for Economic Research
The Centre for Economic Research is an important part of CRISIL. The Centre for
Economic Research provides its services to the clients who take decisions on the
business policies.
It provides the following services:
Creating Conceptual and Contextual Linkages
Providing Benchmarks
Applying Economic Principles to Live Business Applications
Providing Analyses
23. CRISIL Global Equity Research
CRISIL offers its Global Equity Research services through Irevna, which
is a prominent organization in this field. Irevna offers the following
services:
Knowledge Process Outsourcing
High-End Customized Equity Research and Analytics
The services of Irevna are provided to the following clients:
Consulting Companies
Financial Institutions
Private Equity Firms
Investment Banks
24. CRISIL Advisory
CRISIL offers its Advisory services through the following bodies:
CRISIL Infrastructure Advisory
CRISIL Risk Solutions
Gas Strategies Group Limited of Gas Information & Solutions
25. Typical credit rating scale
• AAA
• AA
• A
• BBB
• BB
• B
• CCC
• CC
• C
• D (Default)
– For further refinement ,some of the rating above may be modified with
a “+” and “-” , or a number.
CRISIL long
term Rating
Rating scale
AAA Highest safety
AA High safety
A Adequate safety
BBB Moderate
safety
BB Moderate risk
B High risk
C Very high risk
D Default
Investment Grade
Non-investment
Grade
26. ICRA was established in the year 1991 by the collaboration of financial
institutions, investment companies, and banks.
The company has formed the ICRA group together with its subsidiaries.
The company is headed by Mr. Piyush G. Mankad and offers products like short-
term debt schemes, Issue-specific long-term rating and offers fund based as
well as non-fund based facilities to its clients.
ICRA - Investment Information and Credit Rating Agency of India
27. ICRA’s Long-Term Rating Scale
Long-Term rating Scale: All Bonds, NCDs, and other debt instruments
(excluding Public Deposits) with original maturity exceeding one year.
LAAA The highest-credit-quality rating
LAA The high-credit-quality rating
LA The adequate-credit-quality rating
LBBB The moderate-credit-quality rating
LBB The inadequate-credit-quality rating
LB The risk-prone-credit-quality rating
LC The poor-credit-quality rating
LD The lowest-credit-quality rating
28. ICRA’s Medium & Short -Term Rating Scale (only for Public Deposits)
Medium-Term Rating Scale
CC= Credit Quality
Short-Term Rating Scale
CC= Credit Quality
MAAA-Highest CC A1- Highest CC
MAA- High CC A2- Above average CC
MA- Adequate CC A3- Moderate CC
MB- Inadequate CC A4- Risk-prone CC
MC- The risk-prone CC A5- Lowest CC
MD- Lowest CC
29. Abbreviations used
• CRISIL- Credit Rating & Information Service of India Pvt. Ltd.
• ICRA- Investment Information & Credit rating agency of India Ltd.
• ONICRA- Onicra credit rating agency of India Ltd.
• CARE- Credit Analysis & Research Ltd.
• DCR- Duff and Phelps Credit Rating India Pvt. Ltd.
• S&P- Standard & Poor’s rating group
• ICICI- Industrial credit and investment corporation of India
• UTI- Unit trust of India
30. Bibliography
• A Brief History of Credit Rating Agencies: How Financial Regulation
Entrenched this Industry’s Role in the Subprime Mortgage Debacle of
2007–2008, Lawrence J. White, George Mason University
• Working of credit rating agencies in India, IUP Journal of behavioural
Finance, vol. 7, nos. 1&2
• Financial services and system by Sasidharan and Mathews, McGraw Hill
Education, chapter-5,pg. no. 193
• http://www.moneycrashers.com/credit-rating-agencies-history/
• http://www.crisil.com
• http://investor.gov (US,SEC)
