This presentation provides basic idea of CRA. It states various Indian as well as international Credit rating agencies. We can also get basic knowledge of research methodologies used by CRA for rating the companies.

1. By:
PALLAV DODRAJKA

2. • Meaning and Explanation
• Functions
• International Agencies
• Indian Agencies
• Research Methodology
• Process of Rating
• Rating Symbols
• Limitations

4. • A CRA assesses the credit worthiness of an individual,
corporation, or even a country.
• Credit ratings are calculated from financial history and
current assets and liabilities.
• 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 defaulting on a loan,
and thus leads to high interest rates.

5. • The ratings are expressed in code numbers which can be easily
comprehended by lay investors.
• Credit rating, as exists in India, is done for a specific security and
for the company as a whole.
• CRA’s scope at present is not only limited to the rating of debts
but they are also undertaking financial analysis &assessment of
financial products , individuals ,Institutions & governments.
• CRA play a key role in the infrastructure of the modern financial
system.

6. • For investors, credit rating agencies increase the range
of investment alternatives and provide independent, easy-to-use
measurements of relative credit risk; this generally increases the
efficiency of the market, lowering costs for both borrowers&
lenders.
• This in turn increases the total supply of risk capital in the
economy, leading to stronger growth. It also opens the capital
markets to categories of borrower who might otherwise be shut
out altogether: small governments, start up companies, hospitals,
and universities.

7. • Superior information
• Low cost information
• Basis for proper risk, return & Trade off
• Healthy discipline on corporate borrowers
• Formulation of public policy guidelines on Institutional
investment

8. • MOODY’S INVESTORS SERVICES
• STANDARD AND POOR’S CORPORATION(S &P)

9. • 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
• ONICRA
• BRICKWORK RATING INDIA PVT. LTD.

10. Consist of four areas:
• Business Analysis : Covers an analysis of
• Industry Risk
• Market position in the country
• Operating Efficiency
• Legal Position
• Financial Analysis : Analysis of
• Accounting quality
• Earnings
• Cash Flow adequacy
• Financial Flexibility

11. • Management Evaluation : Study of track record of management’s
capacity to overcome adverse situation, goals and strategies.
• Fundamental analysis : Analysis of
• Liquidity Management
• Asset Quality
• Profitability
• Interest and tax sensitivity

13. • Information is collected & then analyzed by a team of
professionals in an agency.
• This team of professionals submits their recommendations to the
rating committee.
• Committee discusses this report & then assigns rating.
• Rating assigned is then notified to the issuer & only on his
acceptance, rating is published.
• Assures confidentiality of information.
• Once the issuer decides to use & publish the rating, agency has
to continuously monitor it over the entire life of instrument called
Surveillance.

14. • HIGH INVESTMENT GRADES
• AAA & AA : Highest Safety
• A : Adequate Safety
• BBB : Moderate Safety
• SPECULATIVE GRADE
• BB & B : Inadequate Safety
• C : Substantial Risk
• D : Default

15. • Confusion due to contentious revision of grades.
• Grades are based on information of issuer hence less reliable.
• Biasing Investor lose their investment.
• CRAs often fails to predict financial health of an organization in
short term.
• Institution with highest ratings not always performs well.