This presentation is on Credit rating agencies in India. here I presents it's origin, importants, benefits, objectives, need and about different rating agencies.

1. असर (ASR)

2. Credit Rating
 Credit rating evaluates the debtor’s ability to pay back
the debt and the likelihood of default.
 Credit ratings are determined by credit ratings agencies
like CRISIL, CARE and S&P.
 It is the rating agency’s opinion on the likelihood of rated
debt obligation being repaid in full and on time.
 A simple alphanumeric symbol is normally used to
convey a credit rating.

3. • According to CRISIL :
“Credit rating is an unbiased, objective and independent opinion as to an
issuer’s capacity to meet financial obligation.”
• Credit rating are not based on mathematical formulas. Instead, credit
rating agencies use their judgment and experience in determining what
public and private information should be considered in giving a rating to
a particular company or government.
• Poor credit rating indicates – high risk of defaulting
Definition

4.  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.
Origin

5. Origin in India
 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 DUFF &
PHELPS CREDIT RATING INDIA PVT.LTD formed in 1995.

6. Importance
• It establish a link between risk and return.
• They provide a yardstick against which to measure the risk inherent in any
instrument.
• An investor uses the rating to asses the risk level and compares the offered
rate of return with his expected rate of return.

7. Benefits
Benefits to company:
a) Improved corporate image
b) Good for non popular companies
c) Act as a marketing tool
d) Reduced costs of borrowings
e) Easy to raise resource
f) Helps in growth and expansion
Benefits to investors:
a) Helps in investment decision
b) Choice of instruments
c) Easy understandability of investment proposal
d) Dependable credibility of issuer
e) Advantages of continuous monitoring

8.  Provide superior and low cost information to investors
for taking decision regarding risk return trade off.
 Encourages greater information disclosure, better
accounting standards and improved financial
information.
 May reduce interest costs for highly rated companies.
 Act as a marketing tool.
 Helps merchant bankers, brokers,etc. in discharging their
functions related to debt issues.
Objective

9. Need
 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.

10. a) Business Analysis.
b) Financial Analysis.
c) Management Evaluation.
d) Geographical Analysis.
e) Regulatory & Competitive Environment.
f) Fundamental Analysis.
Credit Rating Methodology

11. Business Analysis:
a) Industry Risk
b) Market Position
c) Operating efficiency
d) Legal position
e) Size of business
Financial Analysis:
a) Accounting quality
b) Earning profitability
c) Cash flow analysis
d) Financial Flexibility

12. Management Evaluation:
•The effects on company’s
performance by-
a) Management goals
b) Plans and strategies.
c) Capacity to overcome unfavorable
conditions.
d) Planning and controlling system.
Geographical Analysis:
a) Multinational Presence
b) Geographical advantages enjoyed
by the company.
c) Regional subsidies.

13. Fundamental Analysis:
a) Liquidity management
b) Asset quality
c) Profitability and financial position
d) Interest and tax sensitivity
Regulatory and Competitive Environment:
a) Structure of the Financial System
b) Regulatory framework of the financial system

14. Credit Rating Agencies
 Credit Rating and Information Services of India Ltd. (CRISIL)
 Investment information and Credit Rating Agency Ltd. (ICRA)
 Credit Analysis and Research Ltd. (CARE)
 Credit Information Bureau India Ltd. (CIBIL)
 SME Rating Agency of India Ltd. (SMERA)
 Onida Individual Credit Rating Agency of India (ONICRA)
 Fitch Rating India Limited
 Brickwork Ratings
 Moody’s
 Standard & Poor
 Fitch Ratings
In India:
Globally:

15.  Global analytical company providing ratings, research, and 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.
CRISIL

16.  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.
ICRA

17.  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
CARE

18.  India’s first Credit Information Bureau (India) Limited , incorporated
in year 2000.
 It is a repository of factual information on the credit history and
repayment records of commercial and consumer borrowers.
 Established by the Government of India and the RBI.
 The legislation has enabled banks to submit data to CIBIL without
obtaining borrower’s consent.
 In 2016 Transunion acquired 82% stake in CIBIL to become
Transunion CIBIL.
CIBIL

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

20.  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.
Fitch Rating India Limited

21.  BONDS
 DEBENTURES
 FIXED DEPOSITS
 COMMERCIAL PAPERS
 INTERCORPORATE DEPOSITS
 AND MANY MORE ITEMS
Items Rated

22. Symbols
CRISIL’S LONG TERM RATING SCALE:-
AAA Highest Safety
AA High Safety
A Adequate Safety
BBB Moderate Safety
BB Moderate Risk
B High Risk
C Very High Risk
D Default

23. Demerits of Credit Rating
 Possibility of Bias Exit
 Improper disclosure may happen
 Impact of changing environment
 Problems for new companies
 Downgrading by Rating Agencies
 Difference in Ratings