This document discusses credit rating services and provides information on their benefits. It notes that credit rating agencies evaluate a debtor's ability to pay back debt and likelihood of default. The document outlines how credit ratings help investors by indicating risk levels, help issuers manage perceptions of credit risk, and help regulators monitor financial stability. Local credit rating agencies have proliferated globally since the 1970s to promote bond markets and impart efficiency. Credit ratings are an important tool that guide decisions for investors, issuers, and regulators.

1. CREDIT RATING
SERVICES
BY: BHUMIKA GARG
PGDM STUDENT

2. CREDIT RATING SERVICES
• It has became the benchmark criteria for investors, borrowers, banks and FI’s
while taking decisions.
• The rating mechanism helps organization to compare performance of financial
service providers and work for the basis of strategy formulation.
• A credit rating agency (CRA, also called a ratings service) is a company that
assigns credit ratings, which rate a debtor's ability to pay back debt by making
timely interest payments and the likelihood of default

3. CREDIT RATING – AN OVERVIEW
• Trend for creating local credit rating agencies started in 1970s. Prior to this only two
international credit rating agencies dominated the world- standard& poor’s and Moody’s
investor service.
• Since the establishment of first known local rating agency, the Canadian bond rating services
in 1972, local rating agencies have proliferated across the globe both in developed markets &
in emerging markets.
• there are rating agencies almost all countries.
• The main motivation for establishment of local rating agencies is the recognition of their
critical role in promoting bonds or other fixed income securities market , impart efficiency to
financial and capital markets.
• it is an important tool for guiding decisions of investors, issuers as well as regulators.

4. Credit
rating helps
Information
to investors
Benefit to
regulators
Benefit
to issuer

5. INFORMATION TO INVESTORS
• ratings are generally used for investment decisions covering acquisition of fixed
income securities in primary market.
• As long as risk level of securities indicated by rating, conformed to investors
risk preference there was a tendency to acquire or hold to maturity.
• credit rating is recognized as a continuous process/evaluation rather than one
time exercise.so, currently all agencies upgrade or downgrade them as
warranted by significant development.
• provides added advantage to investors to adjust their portfolio by maintain
consistent risk profile.

6. CONTD.
• Used by banks and other financial intermediaries to support decisions on their
own corporate lending. E.g. bank deposit rating to guide their decisions on swap
agreements, trade finance, inter bank loans etc.
• Corporate treasurers are using rating increasingly to evaluate credit risk of
banks, securities firms & other counter parties.
• information available in credit rating reports are of grater value than other
available sources of corporate financial data.
• viewed as providers of professional credit research services that institutional
investors use to supplement internal credit evaluation.

7. BENEFITS TO ISSUERS
• Ratings & associated analysis of an independent agency can help debt issuers to manage
investor perception of credit risk overtime. & consequently to maximize access to capital
market even in times of stress.
• E.g. a news item could adversely affect the prices of company's outstanding bonds &
some investors might be disinclined to make further investments in new issues of
company
• cost savings with rated debt instrument show up comparison with other forms of
financing alternatives.
• as credit rating culture develops cost of issuing rated S.T. commercial papers is lower
than cost of bank credit facilities.

8. BENEFIT TO THE REGULATORS
• use independent credit ratings to help them monitor the financial
soundness of insurance companies and public utilities.
• no consistent pattern about extent of reliance by regulators on rating in
different countries, increasing recognition that use of rating facilitates the
regulatory role.
• regulator of financial capital markets can use different variants of
mandatory ratings
( they are not unique & are generally in global practices)

9. MERGERS & ACQUISITION - BANKING
SECTOR
• The banking system in India has undoubtedly earned numerous outstanding
achievements, in a comparatively short time, for the World’s largest and the most
diverse democracy. There have been several reforms in the Indian banking sector, as
well as quite a few successful mergers and acquisitions, which have helped it, grow
manifold.
• 1993, the government took stride towards economic prosperity and made a turn
towards merger of banks. The New Bank of India was merged with the Punjab
National Bank (PNB). This was the first merger between nationalized banks, ever
witnessed in Indian history and consequently, the number of nationalized banks in
India was reduced from twenty to nineteen and that remains the same till date.

10. • The Narasimhan Committee, to file a report regarding the reforms in the Indian
Banking Sector, was set up in the month of December, 1997. It submitted a report with
the following suggestions, on April 23, 1998.
• It stressed on the use of merger of banks, to enhance size as well as operational strength for
each of the banks.
• It made a recommendation for the merger of the large banks in India, with an attempt to
make them stronger, so they stand mighty fine in international trade.
• It recommended speeding up of computerization in the Public Sector Banks.
• It established that the legal framework must be strengthened, in order to aim for credit
recovery.
• It suggested that there be 2 to 3 banks in India that be oriented internationally, 8-10 national
banks and a vast network of local banks to help the system reach the remote corners of India.

11. RAGHURAM RAJAN COMMITTEE
• Raghuram Rajan contributed a guest column, in the month of April 2009, for The
Economist, and it was in this column that, he recommended a regulatory system, which
may reduce boom-bust financial cycles. His suggestions for the banking sector in India
were –
• India is a vast nation in itself, hence, given this fact, it is practically impossible to control the
flow of capital and therefore, the economy will always be uncertain and volatile.
• In order to develop into large banks, it is required that an entry point be offered in the system,
which can be used by the bodies.
• Technological advances may help in evolving small banks and reduce the costs of operation.
• Encouragement must be provided to the professional markets, in full swing.
• Underperforming PSU’s were suggested to be sold.
• Markets to be banned, in order to reduce or eliminate creation of slightest uncertainty among the
investors.

12. THANK YOU 