Credit ratings are an evaluation of a debtor's ability to repay debt and likelihood of default. Credit rating agencies assign ratings to institutions that issue debt. The big three international agencies are Moody's, S&P, and Fitch. Credit ratings benefit investors by indicating risk and returns, companies by lowering borrowing costs, and financial intermediaries by aiding investment decisions. However, ratings may be inaccurate and not guarantee soundness. During the financial crisis, agencies were criticized for overrating complex securities based on risky subprime mortgages.

1. CREDIT RATING

2. Credit rating is an assessment of the
credit worthiness of individuals,
corporations, securities or a country.
It is an evaluation made by a credit
rating agency of the debtor's ability to
pay back the debt and the likelihood of
default.

3. CREDIT RATING AGENCY
 A credit ratings agency is a company
that assigns credit ratings to
institutions that issue debt obligations
i.e. assets backed by receivables on
loans, such as mortgage-backed
securities.

4. INTERNATIONAL AGENCIES
The Big Three are: Moody's, Standard and
Poor's and Fitch Ratings.
Some other agencies:
Duff and Phelps Credit Rating Co. (DCR)
Japan Credit Rating Agency (JCR)

5. GRADING SYSTEM
AGENCY GRADES
Standard and Poor’s AAA, AA, A, BBB, BB, B, CCC, CC, C
AAA, Aa1, Aa2, Aa3, A1, A2, A3,
Baa1, Baa2, Baa3, Ba1, Ba2, Ba3,
Moody’s
B1,B2,B3, Caa1, Caa2, Caa3, Ca, C

6. INDIAN AGENCIES
1. CRISIL [Credit Rating Market Share
and Information
Services of India Ltd.]
4%
2. ICRA [Investment CRISIL
Information and Credit 18%
Rating Agency of 42%
ICRA
India] CARE
3. CARE [Credit Analysis
36%
and Research Ltd.] DUFF &
PHELPS
4. Duff and Phelps

7. SOVEREIGN RATINGS
• The credit rating of a country or sovereign entity is
known as sovereign rating.
• It takes into account factors such as:
– country's economic status
– transparency in the capital market
– levels of public and private investment flows
– foreign direct investment
– foreign currency reserves
– political stability
– ability for a country's economy to remain stable
despite political change

8. PROCESS
Rating
Receipt of the Communication
committee
request. of decision.
meeting.
Assignment to
Presentation Dissemination
analytical
of findings. to the public.
team.
Plant visits and Monitoring for
Obtaining
meeting with possible
information.
management. change.

9. METHODOLGY
Operating
Efficiency
Market
Legal
position of
Position
the Company
I.
BUSINESS Size of
Industry Risk RISK business.
ANALYSIS

10. Cash Flow
Profitability
Analysis
Accounting Financial
quality flexibilty
II.
FINANCIAL
RISK

11. III. Management Evaluation
IV. Geographical analysis
V. Regulatory and Competitive
Environment
VI. Fundamental Analysis

12. B-SCHOOL RATINGS
Factual
Survey
Overall
Score/Rankings
Perceptual
Survey

13. The questionnaires of the two surveys are
based on the following parameters:
Future
Orientation, 10%
Brand Learning
Value, 20% Experience, 30%
Return on
Investment, 25%
Living
Experience, 15%

15. AWARENESS DEFLATOR
To bring fairness to the No. of Weights
rankings, an element was respondents
introduced called the [Base]
"awareness deflator" in
the perception survey. 40 or more 1
The 205 B-schools were
divided into ten "panels" 30-39 0.9
for the perception
survey, with an average
20 institutes in each. 20-29 0.8
Each panel was rated by
120 respondents, which
are called "Base". The 20 or less 0.7
weights were assigned
as follows:

16. INDIAN INSTITUTE OF MANAGEMENT
[IIM-A]
Overall Rank : 1
TOTAL: 1701.9
Perceptual Score: Perceptual Rank: 1 Factual Score: Factual Rank: 5
878 824
BASE: 83 AWARENESS WEIGHT: 1

17. Parameter Factual Perceptua Total Rank by
Score l Score Parameter
•Learning Experience 220 282 502 6
Pedagogy 78 58 136
Internship 47 54 101
Quality of faculty 29 56 85
Innovative teaching 50 29 79
method
Resource on learning 16 85 101
•Living Experience 139 76 215 4
Resource on living 50 25 75
Resource on recreation 46 25 71
Resource on personality 43 25 68
development
•Brand Value 200 195 395 1

18. Parameter Factual Perceptual Total Rank by
Score Score Parameter
•Return on 170 236 406 12
Investment
Overall value of 50 142 192
money
Quality of 60 38 98
Companies visiting
Quality of Placement 60 57 117
•Future Orientation 95 89 184 1
Creating Managers 50 45 95
for tomorrow
Global Exposure 45 44 89

19. BENEFITS OF CREDIT RATING
I. To the Investors
Safety of Investment
Recognition of risk and returns
Freedom of investment decisions
Wider choice of investments
Dependable credibility of issuer
Understanding investment proposals
Advantages of continuous monitoring

20. II. To the company
Easy to raise resources
Lower cost of borrowing
Reduction of cost in public issues
Rating builds up image
Motivation for growth
Recognition to unknown companies
20

21. III. To the Brokers and Financial
Intermediaries
Stock brokers have to make less
efforts in persuading their clients to
select an investment proposal
21

22. Disadvantages of Credit Rating
 Non-disclosure of significant information
 Static study
 Rating is no guarantee for soundness of company
 Human bias
 Rating under unfavorable conditions
 Difference in rating of two agencies
22

23. ROLE OF CREDIT RATING
AGENCIES IN THE CRISIS
understating the risk involved with new,
complex securities
Credit rating agencies were under scrutiny
for giving investment-grade, "money safe"
ratings to securitization transactions (CDOs
and MBSs) based on subprime mortgage loans.