Credit Rating

An opinion of CRA regarding a borrowing entity just like as Rank allotted to student. Boring Definition
A rating is an opinion on the future ability and legal obligation of the issuer to make timely payment of principal and interest on a specific fixed income security. The rating measures the probability that the issuer will default on the security over its life, which depending on the instrument , may be a matter of the days to 30 years or more. In addition, long term rating incorporate an assessment of the expected monetary loss, should a default occur.
- Moody

Types of Credit Rating

Corporate Rating Sovereign Rating

What are CRAs?

A credit ratings agency is a company that assigns credit ratings to institutions that issue debt obligations (i.e. assets backed by receivables on loans, such as mortgagebacked securities). These institutions can be companies, cities, non-profit organizations, or national governments, and the securities they issue can be traded on a secondary market.

Origin of concept of CR
This concept originated in US in 1909 John Moody, Rated the US Rail Road Bond Lack of symmetric information and high costs of collecting information increased the popularity of CRAs. Chronically many such type of agencies raised India was first among the developing world to set up a CRA CRISIL in 1988

CRAs in India
Credit rating information service ltd. (CRISIL) Investment Information and credit rating Agency of India (ICRA) Credit Analysis and Research (CARE) Fitch Rating India Pvt. Ltd.

Rating Methodology
Economy Analysis
Analysis of macro factors Degree of operating risk, company might face

Business Analysis
Industry risk Market position Operating efficiency Legal position
Accounting quality Earning protection Financial flexibility Validation of projection

Financial Analysis

Management Evaluation
Vision, Mission & Values Personnel policies Performance of group companies

Fundamental Analysis
Liquidity management Assets quality Profitability & Interest Tex sensitivity