Credit ratings are opinions provided by agencies on an issuer's ability to repay debt. The rating process involves collecting financial data, meeting with management, analyzing risk factors, and assigning a rating. Ratings indicate relative default risk and are meant to protect investors while promoting market growth. The main credit rating agencies in India are CRISIL, CARE, ICRA and FITCH which provide ratings on a variety of financial instruments using standardized scales. Ratings benefit both issuers through lower borrowing costs and investors by aiding investment decisions.

1. Credit Rating
Presented by :
Emmanual Jo

2. Credit rating:
Credit rating is a process by which rick associated with a financial instrument is evaluated. However, it d
Not Indicate market related risk or predict prices or yields of financial instruments. It is an expert opinion on
Relative ability and willingness of an issuer to make timely payments on specific debt instrument. In other w
It shows the chances of timely payment of interest and principal by a borrower. It provides a relative ranking
Credit quality of instruments.
According to ICRA (Investment Information and Credit Rating Agency of India LTD) a leading
credit rating agency in India “Ratings are opinions on the relative capability of timely
servicing of corporate debt and obligations. These are not recommendations to buy or
sell, neither the accuracy nor the completeness of the information is guaranteed”.

3. Objectives of credit rating:
1. To rate the debt instruments as objectively as possible in order to build market/investor confidence in th
2. To promote the growth of primary market in particular and capital market in general.
3. To protect the interests of investors especially the small and gullible investors by giving adequate clues in
form of ratings regarding safety and/or profitability of investments.
4. To ensure optimum allocation of capital, as market absorbs highly rated debt instruments.
5. To minimize the cost of floatation because highly rated securities advertise on their own. An issuing comp
need not spend much on such securities.

4. Classification of credit rating:
1. Equity rating
2. Bond rating
3. Commercial paper rating
4. Individual rating
5. Assets backed securities rating
6. Country rating
7. Rating of states
8. Other ratings (banks, real estate agencies, health care institutions, corporate governance, IPO’s, m
funds, chit funds etc,) are also rated now a days.

5. Process of credit rating:
1.Request for rating: The entire process of rating starts with a request letter for rating. This is initiated by the
issuer requesting to make rating of a specific issue of an instrument. The rating request will normally accom
rating fees prescribed by the credit rating agency.
2.Rating agreement: On receipt of the request, the rating agency makes out a detailed agreement inscribing
and conditions of such agreement. This includes rating of an issue and subsequent surveillance.
3. Assignment of rating team: After signing rating agreement with the issuer/client, the credit rating agency
Assigns an analytical team comprising of two members based on the expertise and skills required for evaluat
The business of the issuer.
4. Data collection: The primary task of analytical team is to obtain information from the issuer (primary) and
From rating agency's research division (secondary). The analytical team collects and analyses information re
To issuers financial statements, cash flow projections, annual reports, consolidated financial statements, stat
Of projected sources and application of funds, latest prospects etc.
5. Management meetings and plant visit: These are necessary for assessment of number of qualitative factors
A view to estimate future earnings of the issuer. A thorough discussion on various matters like management

6. Plants and units, future out look competitive position, risk and opportunities etc. Will be done.
6. Preview meeting: This is convened after completing the analysis. Rating committees of every credit rating
Committee. Findings of rating team are discussed at internal committees preview meeting. Internal committ
Consists of senior analysts of credit rating agency. In this stage all issues relating to rating and discussed and
Opinions ate formed
7. Rating committee meeting: After the preview meeting the analysts present their report to the rating comm
Based on discussions, views of internal committee, report of rating team and other key factors rating is assign
8. Rating communication: After the committee has assigned the rating the rating is communicated to the issu
Detail. If the rating is not acceptable by the issuer, he can appeal for review of the rating.
9. Rating surveillance: Surveillance is the monitoring of credit rating agency over the tenure of the rated
Instrument. Ratings are reviewed from time to time.

7. Benefits of credit rating to investors:
1. Safeguards against bankruptcy.
2. Easy understanding of risk.
3. Credibility of issuer.
4. Saving of resources.
5. Ability to take direct investment decisions.
6. Choice of investment.
7. Rating surveillance

8. Benefits of credit rating to the issuing company:
1. Lower cost of borrowing.
2. Extensive borrowing.
3. Rating as marketing tool.
4. Self discipline by companies
5. Reduction of cost in public issues.
6. Motivation for growth.

9. Credit rating agencies in India:
1. CRISIL - Credit rating and information services of India ltd.
2. CARE – Credit analysis and research ltd.
3. ICRA – Investment information and credit rating agency of India ltd.
4. FITCH ratings India private ltd.
5. BRICKWORK ratings India private ltd.
6. SMERA - SME rating of India ltd.
7. ONICRA - Onida individual credit rating agency.
8. CIBIL – Credit information bureau India ltd.

10. Rating scale for long term instruments:
Rating Symbols
CRISIL CARE ICRA FITCH India
AAA(Highest Safety) AAA(Highest Safety) AAA(Highest Safety) AAA(Highest Safety)
AA(High Safety) AA(High Safety) AA(High Safety) AA(High Safety)
A(Adequate Safety) A(Adequate Safety) A(Adequate Safety) A(Adequate Safety)
BBB(Moderate Safety) BBB(Moderate Safety) BBB(Moderate Safety) BBB(Moderate Safety)
BB(Moderate Risk) BB(Moderate Risk) BB(Moderate Risk) BB(Moderate Risk)
B(Risk Prone) B(Risk Prone) B(Risk Prone) B(Risk Prone)
C(Substantial Risk) C(Substantial Risk) C(Substantial Risk) C(Substantial Risk)
D(Default) D(Default) D(Default) D(Default)

11. Rating scale for short term instruments:
Rating symbols
CRISIL CARE ICRA FITCH India
A1(Highest Safety) A1(Highest Safety) A1(Highest Safety) A1(Highest Safety)
A2(High Safety) A2(High Safety) A2(High Safety) A2(High Safety)
A3(Moderate Safety) A3(Moderate Safety) A3(Moderate Safety) A3(Moderate Safety)
A4(Risk Prone) A4(Risk Prone) A4(Risk Prone) A4(Risk Prone)
D(Default) D(Default) D(Default) D(Default)

12. Thank you