Credit Rating is the process of assessing the creditworthiness obligator with respect to an obligation.

Rating is an opinion regarding the timely repayment of principal and interest thereon; It is expressed by assigning symbols, which have definite meaning. It tell the lender probability of the subject to pay back the loan . In India major credit rating agencies are as follows and all of them have been promoted by financial institution. CRISIL (Credit Rating Information Service of India Ltd). ICRA (Investment Information and Credit Rating Agency of India Ltd.) CARE (Credit Analysis & Research Ltd.) ONICRA (Onida Individual credit rating agency)

The character of the security being issued .

The probability the issuer will default:- Track record of promoter , director The security issuer ability to pay its debt. The earning capacity of a firm.

The volume and composition of outstanding debt.

Current ratio. Market position of the companys product.

Provides superior information.

Provide unbiased information . Provide basis for investment. Healthy disciple on corporate borrowers.

Credit Rating System in India

SEBI Registration Obligation Inspection

Rating Agencies CRISIL ICRA

Rating Symbols Rating Process

CARE
ONICRA

CRISIL Symbols ICRA Symbols CARE Grades ONICRA Grades

Registration -- no refundable fee of Rs 50,000 Minimum net worth of 5 Crore, necessary infrastructure. Code of Conduct protect the interest of investor. Observe high standard of integrity , dignity and fairness in the conduct of business. Fulfill its obligation in prompt and ethical manner. Not indulge in unfair competition. Disclose its rating methodology to clients. Not make exaggerate statement. Maintain arm length between credit rating activity and other activity.

Inspection
The SEBI has empowered to appoint inspecting officers to undertake inspection of the books of account / record / documents. Give 10 days notice for inspection.

Request of the company. Assignment of analytical team. Obtaining and Processing of data. Plant visit and meeting with the management. Finding Presentation . Rating committee meeting. Communication of decision. Dissemination to the public. Rating Review for possible changes. New data of the company. Rating Change Credit rating Watch

Country credit rating Corporate credit rating :- Equity and preference share, debenture issued by the company. Rating of banks. Rating of Real states builders and developers. Individual Rating Rating of borrowers

The rating methodology involves an analysis of all the factors affecting the creditworthiness of an issuer company.

Industry risk Market position. Operating efficiency

Financial analysis Accounting quality. Earning potential / Profitability. Financial flexibility.

Management Evaluation. Geographical Analysis

Fundamental Analysis


1. 2. 3. 4. 5. 6.

Benefit to the investors Safety of Investment Recognisation of Risk and return. Easy understanding of Investment proposal. Relief from botheration to know the company. Wide choice of investment. Advantage of continuous monitoring.


1. 2. 3. 4.

Benefit to the company. Easy to raise resources. Rating build upon image. Rating facilities growth. Recognisation to unknown companies

Non disclosure of significant information. Human biasness. Rating under unfavorable condition . Downgrading Difference in rating of two agencies

Credit rating Information Service of India Ltd.

Promoted by -------ICICI and UTI. Headquarter at ----- Mumbai. Incorporated ------- 1987.

To assit in Investment decision. To guide the investor. To help the companies to raise fund. To create awareness of the concept of credit rating amongst corporation , merchant bankers , brokers etc

Credit rating Services :- credit rating includes the rating of long , medium and short term credit instrument such as debenture, preference shares , deposits , certificate of deposits, Commercial Paper, banks, financial services , real state developers. Advisory Services : Offers advisory services in the form of consultancy to govt. in the matters relating to private sector participation in infrastructure
Research and Information Services :- CRISIL undertakes in depth studies in area like Indian Economy .Indian Capital market, Indian industries et. International Information Vending :- provides Online services to its international clients about its research.

High Investment Grades. Investment Grades. Speculative grade.

CRISIL Debenture rating Symbol

High Investment Grades. AA (Triple A) -------- Highest Safety. AA(Double A) ----------High Safety.

Investment Grades. A -----------------------Adequate Safety. BBB (Triple B)-------------Moderate Safety.

Speculative grade.

BB (Double B)-------------Inadequate safety. B-------------------------High Risk. C-----------------------Substantial Risk. D------------------------Default.

P1 P2 P3 P4 P5

:- high safety. :- high safety but little low than P1/ :- adequate safety. :- minimal safety . :- default on maturity.

Promoted :- Industrial Finance Corporation of India (IFCI) , UTI, LIC, PNB, Bank of Baroda. Head Quarter :- New Delhi.

To provide information and guidance to institutional and individual investors and creditors.
To enhance the ability of the borrower / issuers to access the money market and the capital market for tapping a large volume of resources

ICRA Services :- rates rupee denominated debt instruments issued by manufacturing companies , financial institution, debenture.
Credit assessment service :- the companys ability to repay the interest and principal as per the contract. General Assessment :- ICRA prepares a general assessment report at the request of banks or any other potential users . Financial institution also approaches ICRA for general assessment of companies going for mergers , acquistion , joints- venture collaboration .

Information services :- The information service group focuses on providing authentic data..
Advisory services :- such as strategic counselling , Risk Management, restructuring etc.

Long term instrument. Medium term instrument. Short term instrument.

LAAA LAA LA+ LBBB + LBB+ : LB LC+ LD

:- highest Safety. :- High Safety. :- Adequate Safety . :- Moderate safety. - Risk Prone. :- Risk Prone. :- Substantial risk. :- Default

MAAA MAA+ MA+ MB+ MC MD

::::::-

highest Safety. High Safety. Adequate Safety . Inadequate safety. Risk Prone. Default

A1+ A2+ A3+ A4+ A5+

:::::-

highest Safety. High Safety. Adequate Safety . Risk Prone. Default

Credit Analysis & Research Ltd Promoted by IDBI Started operation on October 1993.

Credit Rating Information services Equity Research

Onida Individual Credit Rating agency Promoted by : onida group. The credit worthiness of individual is measured on following parameters Age Qualification Occupation Stability at work Saving Extent of payment History of repayment

India's country ceiling has been affirmed at 'BBB-', the lowest investment grade rating. By FITCH
Reason corruption, inflation

Tata Steel Ltd NCD Fitch AA(ind) Tata Steel Ltd CP/ST debt Fitch A1+(ind

This was set-up by ICICI and UTI in 1988, and rates debt instruments. Nearly half of its ratings on the instruments are being used. CRISIL's market share is around 75%. It has launched innovative products for credit risks assessment viz., counter party ratings and bank loan ratings. CRISIL r a t e s debentures, fixed deposits, commercial papers, preference shares and structured obligations. Of the total value of instruments rated, debentures' accounted for 31.196, fmed deposits for 42.3% and commercial paper 6.6%. CRISIL publishes CRISIL rating in SCAN that is a quarterly publication in Hindi and Gujarati, besides English.