Credit Rating Agencies in India

Credit Rating
Ishita Dubey
SYPGDM
Management of Financial Services
1

All the material and data has been taken from SEBI’s website.
Link of the same is put here for your ready reference:
https://www.sebi.gov.in/sebi_data/faqfiles/jan-
2017/1485858642910.pdf
This presentation will brief us about the Credit Rating Concept
and it’s Agencies.
Prepared by: Ishita Dubey | Data gathered from: SEBI Official Website
2

• It is a process of assigning a
symbol with specific reference
to the debt instrument being
rated
• It assesses the credit worthiness
of an individual, corporation, or
even a country.
What is
Credit
Rating?
3

• It acts as an indicator that tells the lender or
investor the probability of the subject being able
to pay back a loan.
• For Money Lenders:
It is used for making a better investment decision
and also for assuring safety.
• For Borrowers:
It is used for easy approval of loans and also for
providing a considerate rate of interest.
What is the
use of a
Credit
Rating?
4

A CRA is an entity which asses the
ability and willingness of the issuer
Company for timely payment of
interest and principal on a debt
instrument.
What is Credit Rating Agency?
5

Investment Grade Ratings
• Instruments rated ‘BBB’ and above
• Likely to have the ability to meet
payment obligation is considered
to be ‘Investment’ grade.
• Carry materially lower risk
• Lower probability of default
compared to instruments rated in
the Speculative Grade.
Speculative Grade Ratings
• Instruments rated ‘BB’ and below
• Ability to meet the payment
obligation is considered to be
‘Speculative’.
• Carry materially higher risk
• Higher probability of default
compared to instruments rated in
the Investment Grade.
6

The SEBI (Credit Rating Agencies) Regulations, 1999 governs
the credit rating agencies. It has the following functions:
Provide for eligibility criteria for registration of credit rating
agencies,
Requires setting up a proper rating process,
Monitors and reviews the ratings,
Avoidance of conflict of interest
Inspection of rating agencies by SEBI, etc.
Credit
rating
agencies
are
regulated
by SEBI
7

• Credit Analysis & Research Ltd. (CARE)
• India Ratings and Research Pvt. Ltd. (Formerly
Fitch Ratings India Pvt. Ltd.)
• Brickwork Ratings India Pvt. Ltd.
• ICRA Ltd.
• CRISIL Ltd.
• Acuite Ratings & Research Limited
• InfomericsValuation and Rating Pvt. Ltd.
Credit
Rating
Agencies
registered
with SEBI
8

Let’s do
some
General
FAQs
9

Do all credit rating agencies have common
symbols?
• No, they have different symbols.
Why are the symbols not common for all
agencies?
• It is because they use different rating methodologies
and have different factors bearing different weightage.
10

11
Which one of the following is the
highest rated instrument?
1. AAA
2. AAA+
3. AAA-
4. AA+

12
Which one of the following is the
highest rated instrument?
1. AAA
2. AAA+
3. AAA-
4. AA+

13
• What do the ‘+’ and ‘-’ sign indicate in rating?
• Plus and minus symbols are used to indicate finer distinctions within a
rating category.The minus symbol associated with ratings has no
negative connotations.
• Ratings in a higher rating category such as ‘AA-‘ are stronger than
ratings in a lower rating category such as ‘A+‘.

14
What kind of responsibility or accountability will attach to a rating
agency if an investor, who makes his investment decision on the
basis of its rating, incurs a loss on the investment?
A credit rating is a professional opinion given after studying all
available information at a particular point of time. However, such
opinions may prove wrong in the context of subsequent events.
There is no contract between an investor and a rating agency and
the investor is free to accept or reject the opinion of the agency

What are the common factors that are taken
into account while awarding the credit rating?
Each credit rating agency may have its own set of criteria and
different weightage for each component for assigning the
ratings.
Some of the common factors that may be taken into
consideration for credit rating are:
• Issuer Company’s operational efficiency,
• Level of technological development,
• Financials,
• Competence and effectiveness of management,
• Past record of debt servicing, etc.
15

Do agencies rating small and medium
enterprises, mutual funds, banks, non-
banking financial institutions, insurance
providers, infrastructure entities, etc. also
fall under the regulatory purview of SEBI?
No, SEBI regulates only the agencies
which are engaged in the business of
rating securities offered by way of public
or rights issue.
16

Is rating a one-time
exercise?
To protect the interest of investors, SEBI has
mandated that every credit rating agency shall, during
the lifetime of the securities rated by it, continuously
monitor the rating of such securities and carry out
periodic reviews of all published ratings.
17

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Thank you!
Happy Learning!

Credit Rating Agencies in India

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