This document analyzes the credit rating agency industry in India using Porter's Five Forces framework. It discusses the bargaining power of buyers being low as companies are required to obtain credit ratings. The bargaining power of suppliers is also low as credit rating agencies do not have suppliers. Rivalry among the top 3 agencies (Crisil, Icra, Care) is high as they make up 80% of the market. Threat of substitutes increased after recent rating failures. Threat of new entrants is low due to high regulatory barriers.

1. F I N L A T I C S
SECTOR PROJECT-2
FINANCIAL SERVICES
-SHUBHAM MAKHIJA-

2. P O R T E R ’ S F I V E
F O R C E S A N A L Y S I S
BARGAINING POWER OF BUYERS
BARGAINING POWER OF SUPPLIERS
RIVALRY AMONG EXISTING COMPETITORS
THREAT OF SUBSTITUTES PRODUCTS
THREAT OF NEW ENTRANTS
R E P O R T
P R E P A R E D O N
FINANCIAL SERVISES
-CREDIT RATING AGENCY-

3. I N T R O D U C T I O N
I CHOOSE FINANCIAL SECTOR FOR MY
RESEARCH PURPOSE IT IS OF MY PERSONAL
INTEREST AND I THINK DEMAND FOR SERVICE
SECTOR WILL CONTINUE TO RISE AS MORE AND
MORE PEOPLE ARE INVESTING AND ALSO USING
FINANCIAL SERVICES LIKE
INVESTING/BROKING/BANKING/TRADING
R E P O R T P R E P A R E D O N
IN THIS REPORT I WILL BE PERFORMING
PORTER 5 FORCES ANALYSIS ON CREDIT
RATING AGENCIES

4. B A R G A I N I N G P O W E R
O F B U Y E R S
IN CREDIT RATING AGENCY(CRA) BUSINESS CRA
GIVE CREDIT RATING TO DIFFERENT COMPANIES
BASED ON WHICH THEY ARE ABLE TO TAKE
MORE LOAN FROM BANKS.ALSO
INVESTORS/CLIENT OF THESE BUSINESS USE
CREDIT RATING AS AN INDICATOR TO CHECK
THE HEALTH OF THE COMPANY.
ANY COMPANY WHO IS LISTED AND HAS A DEBT
OBLIGATION OF MORE THAN 5CR IS REQUIRERD
TO GET A CREDIT RATING(SEBI REGULATORY
REQUIREMENT), SO A COMPANY HAS TO GET
CRA RATE THEM HENCE THEY EXERCISE LOW
BUYING POWER AS IN INDIA WE HAVE MAJORLY
ONLY 3 CREDIT RATING FIRMS AND COMPANIES
WANT TO GET RATED FROM MORE THAN 2
RATING AGENCY(SO AS TO GET A CLEAR
PICTURE OF THEIR CREDITNESS)
SO CRA ENJOYS MORE PRICING POWER AS
COMPARED TO THEIR CLIENTS
CREDIT RATING EXAMPLES
A A A / B B B / C C C / D
COMPANIES GIVE DIFFERENT RATING BASED ON THEIR RESEARCH
AND METHODOLOGY

5. IN CREDIT RATING BUSINESS MODEL THERE ARE
NO SUPPLIERS BECAUSE IT IS MORE OF SERVICE
WHERE CRA DEALS WITH COMPANIES AND
ACCESS FOLLOWING INFORMATION
->QUALITY OF ASSETS
->INTEREST PAYMENT
->SALES AND REVENUE FORCAST
->BUSINESS PERFORMANCE
->ANY DEFAULTS MADE EARLIER
->CORPORATE GOVERNANCE
B A R G A I N I N G P O W E R
O F S U P P L I E R S
BANK COMPANY
CREDIT RATING AGENCY
CRA PERFORMS ITS DUE DILIGENCY ON COMPANY FINANCIAL POSITION
BASED ON RESEARCH RATING IS ASSIGNED TO THE CLIENT
AAA/BBB/CCC/D
WHERE A IS BEST AND D MEANS DEFAULT

6. R I V A L R Y A M O N G
E X I S T I N G
C O M P E T I T O R S
IN INDIA WE HAVE TOTAL OF 7 CREDIT RATING
AGENCY ( AS PER SEBI LICENCE).OUT OF SEVEN
RATING AGENCY TOP 3 CREDIT RATING AGENCY
ACCOUNT FOR 80% OF THE RATING INDUSTRY
MARKET.
CRISIL
74.3%
ICRA
13.9%
CARE
7.5%
OTHERS
4.3%
RIVALRY AMONG COMPETITOR
DEPEND AMONG FOLLOWING
FACTOR
-CREDIBILITY OF CRA
-PAST RECORD
-IMPORTANCE GIVEN TO CRA
RATING
-NUMBER OF PAPERS RATED
-ANY CORPORATE GOVERNANCE
ISSUE
HISTORY HAS REVEALED THAT MANY TIMES CRA IS INVOLED WITH TOP
MANAGEMENT OF THE CLIENT AND THERE BY ISSUE INFLATED
RATING,WHICH IS ILLEAGAL . SO CREDIBILTY OF CRA RATING PLAY MAJOR
ROLE AND CRISIL BEING THE MARKET LEADER HAS VERY FEW SUCH
INCIDENTS WHILE ICRA AND CARE HAD FEW PAST EVENTS WHERE SEBI
FINED THEM (IL&FS CASE).SO BECAUSE OF THE BUSINESS MODEL
COMPANY OFTEN DOES MALPRACTICES

7. THE VOLUME OF
INSTRUMENTS RATED
HAVE DECREASE AS
COMPANIES HAVE
SHIFFTED TO TO OTHER
RATING AGENCT
T H R E A T O F
S U B S T I T U T E S
P R O D U C T S
IN 2018 CARE RATING AND ICRA GAVE AAA
RATINGTO IL&FS DEBTS AND AFTER A WEEK THE
COMPANY WENT BANKCORRUPT THAT IS WHEN
THE RATING AGENCY WERE QUESTIONED AS
FAILED TO PERFORM THEIR DUE DILLIGENC AND
SOMEHOW WERE INVOLVED WITH IL&FS TOP
MANAGEMENT.
SOON AFTER THAT MANY COMPANIES AND
BANK STARTED NOT TO GIVE CREDIBILITY TO
THESE FIRMS. IN PRESENT SCENARIO CRISIL
RATING IS CONSIDERED TO BE BENCH MARK
CREDIT RATING WHICH IS RESPECTED BY
BANKS/INSTITUTIONAL INVESTORS/FII'S
CARE RATING ANNUAL REPORT'20

8. T H R E A T O F N E W
E N T R A N T S
RATING AGENCY BUSINESS HAS HIGH ENTRY
BARRIES AS IN 2021 INDIA STILL HS ONLY 7
RATING AGENCY. THIS IS BECASUE OF THE
LICENCING AND REGULATORY REQUIREMENTS.
USUALLY A COMPANY HAS TO EARN
CREDITABILITY IN ITS RATING , BANKS AND
INVESTORS HAVE CONFIDENCE IN THE
ESTABLISHED PLAYERS BECASUE OF THEIR PAST
RATING AND STRONG BRAND POSITION
SO THERE ARE VERY HIGH BARRIERS OF ENTRY
OF NEW COMPANIES THEREBY VERY LOW
THREATS OF NEW ENTRANTS