Credit ratings evaluate a debtor's ability to repay debt and the likelihood of default. They are assigned by credit rating agencies and provide an objective opinion on an issuer's financial obligations. India's first credit rating agency, CRISIL, was established in 1987 and the first private rating agency was Duffs & Phelps Credit Rating India in 1995. Credit ratings use methodologies including business, financial, management and fundamental analysis to assess issuers and establish a link between risk and return for investors.

1. MMEEAANNIINNGG
Credit rating evaluates the debtor’s ability to pay back
the debt and the likelihood of default.
Credit ratings are determined by credit rating agencies.

2. DDEEFFIINNIITTIIOONN
According to CRISIL :
“Credit rating is an unbiased, objective
and independent opinion as to an issuer’s
capacity to meet financial obligation.”

3. OORRIIGGIINN
 The first mercantile credit agency was set up in newyork in
1841 to rate the ability of merchants to pay their financial
obligations.
 Later on, it was taken over by Robert Dun. This agency
published its first rating guide in 1859.
 The second agency was established by John Bradstreet in
1849 which was later merged with first agency to form Dun &
Bradstreet in 1933, which became the owner of Mood’s
investor’s service in 1962.

4. OORRGGIINN OOFF CCRREEDDIITT RRAATTIINNGG IINN
IINNDDIIAA
India’s first credit rating agency CRISIL was set up in 29
January 1987.
It is incorporated, promoted by the erstwhile ICICI Ltd
along with UTI and other financial institutions.
Mr. N Vaghul and Mr. Pradip Shah are CRISIL’S first
Chairman and Managing Director respectively.
The first private sector credit rating institution in India
was DUFFS & PHELPS CREDIT RATING INDIA
PVT.LTD formed in 1995.

5. N.Vaghul
Pradip Shah

6. NNEEEEDD FFOORR CCRREEDDIITT RRAATTIINNGG
 It is necessary in view of the growing number of cases of defaults in
payment of interest and repayment of principle sum borrowed by way of
fixed deposits, issue of debentures or preference shares or commercial
papers.
 Maintenance of investor’s confidence, since default shatter the confidence
of investors in corporate instruments.
 Protect the interest of investors who can not investigate much into the
merits of the debt instruments of a company.
 Motivate savers to invest in industry and trade.
ratings

7. OOBBJJEECCTTIIVVEESS OOFF CCRREEDDIITT
RRAATTIINNGG
Improves a healthy discipline on borrowers.
Lends greater credence to financial and other
representations.
Facilitates formulation of public guidelines on institutional
investments.
Helps merchant bankers, brokers, regulatory authorities, etc.,
in discharging their functions related to debt issues.
Encourages greater information disclosure, better accounting
standards and improved financial information
Act as a marketing tool.

8. IIMMPPOORRTTAANNCCEE OOFF CCRREEDDIITT RRAATTIINNGG
Credit ratings establish a link between risk and return.
They provide a yardstick against which to measure the risk
inherent in any instrument.
An investors uses the ratings to assess the risk level and
compares the offered rate of return with his expected rate of
return.
It is very uncommon for different classes of investors to
arrive at some uniform conclusion as to the relative quality of
the instrument.

9. BBEENNEEFFIITTSS
Benefits to Company
Improved Corporate Image
Good For Non Popular Companies
Act as a Marketing Tool
Reduced Cost of Borrowings
Easy To Raise Resource
Helps In Growth and Expansion

10. CCoonntt……
Benefits to Investors
Helps in investment decision.
Choice of instruments.
Easy understandability of investment proposal.
Advantages of continuous monitoring.

11. CCrreeddiitt RRaattiinngg MMeetthhooddoollooggyy

12. CCrreeddiitt RRaattiinngg MMeetthhooddoollooggyy
 Business Analysis.
 Financial Analysis.
 Management Evaluation.
 Geographical Analysis.
 Regulatory & Competitive
Environment.
 Fundamental Analysis.

13. BBuussiinneessss AAnnaallyyssiiss..
Industry Risk.
Market Position.
Operating efficiency.
Legal position.
Size of business.

14. FFiinnaanncciiaall aannaallyyssiiss ..
Accounting quality.
Earning profitability.
Cash flow analysis.
Financial Flexibility.

15. MMaannaaggeemmeenntt EEvvaalluuaattiioonn..
The effects on company’s performance by:
Management goals
Plans and strategies.
Capacity to overcome unfavorable conditions.
Planning and controlling system.

16. GGeeooggrraapphhiiccaall AAnnaallyyssiiss..
Multinational Presence
Geographical advantages enjoyed by the
company.
Regional subsidies.

17. FFuunnddaammeennttaall AAnnaallyyssiiss..
Liquidity management
Asset quality
Profitability and financial position.
Interest and tax sensitivity.

18. RReegguullaattoorryy && CCoommppeettiittiivvee
EEnnvviirroonnmmeenntt
Structure of the Financial System.
Regulatory framework of the financial
system.

19. CCrreeddiitt RRaattiinngg aaggeenncciieess iinn IInnddiiaa
CRISIL Limited.
ICRA Limited.
Credit Analysis & Research Ltd. (CARE).
SME Rating Agency of India Ltd. (SMERA).
Fitch Rating India Ltd.

20. CCRRIISSIILL
Global analytical company providing ratings,
research , risk and policy advisory services.
India’s leading ratings agency.
Provides high-end research to the world’s largest
banks and leading corporations.
Majority shareholder - Standard and Poor’s (S&P).
Caters to over 1,200 domestic and global clients,
through a range of research reports, analytical tools,
subscription products and customized solutions.

21. IICCRRAA
 ICRA Limited (formerly Investment Information and Credit Rating Agency
of India Limited) was set up in 1991 by leading financial/investment
institutions, commercial banks and financial services companies as an
independent and professional Investment Information and Credit Rating
Agency.
 Today, ICRA and its subsidiaries together form the ICRA Group of
Companies (Group ICRA). ICRA is a Public Limited Company, with its
shares listed on the Bombay Stock Exchange and the National Stock
Exchange.
 ICRA’s major shareholders IFCI (26%), and the balance by UTI, LIC, GIC,
PNB, Central Bank of India, Bank of Baroda, UCO Bank and banks (SBI)
.
 Alliance with Moody’s Investors Service.

23. CCAARREE
CARE is promoted by IDBI jointly with Financial Institutions,
Public/Private Sector Banks and Private Finance Companies
 It commenced its credit rating operations in October, 1993
and offers a wide range of products and Services in the field
of Credit Information and Equity Research.
It offers services like :
 Credit rating of debt instruments
 Advisory services like securitization of transactions,.
 Information services like providing information to
companies, industry and businesses.
 Equity research

24. FFiittcchh RRaattiinngg IInnddiiaa LLttdd..
 It is the latest entrant in the credit rating
business in the country as a joint venture
between the international credit Rating
agency Duff and Phelps and JM Financial
and Alliance Group.
In addition to debt instruments, it also
rates companies and countries on
request.

25. SSMMEERRAA RRaattiinnggss LLttdd..
Launched on the 25th September 2005 by the Hon.
Finance Minister, Shri P Chidambaram.
Only rating agency dedicated to the SME segment offerin
g qualitative services at competitive prices.
Joint initiative of SIDBI, Dun & Bradstreet and 11 leading
banks operating in SME segment.
Greater acceptability in banks (MOU with 22 leading
banks). 14 Banks offer interest rate and security
concessions for well rated SMERA customers.

26. WHAT EXACTLY DDOO TTHHEE CCRREEDDIITT RRAATTIINNGGSS MMEEAANN??
The table below summaries the meanings of the comparative ratings of the three
major credit rating companies.
Moody’s S&P Fitch Meaning
Aaa AAA AAA
(Highest quality; EXTREMELY
STRONG capacity to meet
financial obligations.)
Aa1 AA+ AA+ (High quality; VERY STRONG
capacity
Aa2 AA AA to meet financial obligations. It
differs from
Aa3 AA- AA- the top-line rating only in small
degree.)
A1 A+ A+ (High quality; STRONG capacity
to meet financial obligations
A2 A A but is somewhat more
susceptible to the adverse effects

27. A3 A- A- of changes in circumstances and
economic conditions.)
Baa1 BBB+ BBB+
(Medium grade; ADEQUATE
capacity to meet financial
obligations
Baa2 BBB BBB but adverse conditions or
changing circumstances are more
Baa3 BBB- BBB-likely
to lead to a weakened
capacity to meet financial
commitments.)
Ba1 BB+ BB+ (Lower medium grade; LESS
VULNERABLE but faces major
Ba2 BB BB
ongoing uncertainties and
exposure to adverse conditions
which
Ba3 BB- BB- could lead to inadequate capacity
to meet financial commitments.)
B1 B+ B+
(Low grade; MORE
VULNERABLE and adverse
business,

28. B2 B B
financial, or economic
conditions will likely impair
its capacity
B3 B- B- or willingness to meet
financial commitments.)
Caa CCC CCC
(Poor quality;
CURRENTLY
VULNERABLE and
dependent upon favourable
conditions to meet
commitments.)
Ca CC CC (Poor quality; CURRENTLY
HIGHLY-VULNERABLE.)
C C
(CURRENTLY HIGHLY-VULNERABLE
to non-payment.)
C D D
(FAILED to pay one or
more of its financial
obligations.)
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29. DDeemmeerriittss ooff ccrreeddiitt rraattiinngg..