Rating symbolizes grade of quality.

Credit rating is an assessment of the capacity of an issue of debt security by an independent agency, to pay interest and repay the principal as per the terms of issue of debt. A credit rating tells investors or lenders the probability of the issuer of debt to honour the debt.

 Ratings are expressed in code number, which can be

easily known by investor.

Credit rating is a ongoing appraisal. It is not one time evaluation of credit risk. The agencies keep on modifying the rating as per the financial condition of

the issuer.

 Credit rating provides guidance to investors/creditors in determining a credit risk associated with a debt

instrument/credit obligation.

A rated institution can easily get loan finance from different financial institutions.

Cont
The foreign collaborators become interested in investing in a company rated well. Rating acts as a check post over the performance of the companies to be rated. Provides stability in the stock market when the rated securities are traded.

Contd
establish a link between risk and return

Credit rating shows the exact worth of the organization

Types of Credit Rating:

Domestic rating: Domestic rating covers both the corporates and other institution within any country. The rating would assess the degree of safety of the investment and the capacity of the issuer, to serve without default obligation arising out of the funds raised.

Sovereign rating: it is the assessment of the economic health

and financial capability of a country, to serve its

obligations against the external borrowings and the investment received by it from other countries.

 The rating exercise commences at the request of a

company.
A rating applies to a particular debt obligation of the company and is not a general purpose evaluation of

the company.
In evaluation and monitoring ratings, both qualitative and quantitative criteria are employed.

Rating is based on several analysis like-

Business Analysis
Industry Risk like nature and basis of competition;

key success factors; demand-supply position;

Market position of the company within the industry. Operating efficiency of the company like location

advantages; labour relationships; cost structure; technological advantages.

Legal position in terms of prospectus, trustees and

their responsibilities;

Financial Analysis
Accounting quality method of accountong,qualification

of accountant.
Adequacy of cash flows Financial flexibility -alternative financing plans in times of stress; ability to raise funds. Earnings protection -sources of future earnings growth;

profitability ratios; earnings in relation to fixed income

charges; etc.

Fundamental Analysis
Capital Adequacy-assessment of true net worth of the

company,
Asset Quality-quality of the company's credit-risk management; systems for monitoring credit; Liquidity Management -capital structure; term matching of assets and liabilities; Profitability and Financial Position Interest and Tax Sensitivity -exposure to interest rate changes; tax law changes and hedge against interest rate etc.

Resources rated by agencies

Primary equity issues Debt instruments-both long term and short term Secured and unsecured bonds-both long term and short term Structured obligations-where securities are backed by credit enhancement or third party guarantee

Rating process:
Review of the public information on the client Questionnaire Meeting with client Preparation of draft report

Draft report sent to subject client for review as to factual accuracy

Amended report (following client comments) sent to rating committee members Rating committee meeting/discussion and assignment of rating Client advised of rating Rating made public

Credit Rating in India

CRISIL -Credit rating and information services of India ltd ICRA -Investment information and credit rating agency of India ltd. CARE -Credit analysis and research limited

ONICRA- Onida Individual credit rating agency

CRISIL
It is the first rating agency in India

It was promoted in 1987 by the Industrial Credit and

Investment Corporation of India Limited (ICICI) and Unit Trust of India (UTI). The head office of the company is located at Mumbai and it has established offices outside India also.

 CRISIL's principal objective is to rate debt obligations of Indian companies. CRISIL rates debentures, fixed deposit programmes, shortterm instruments like commercial paper, structured

obligations and preference shares.

CRISIL has rated in all 926 debt instruments issued by 668 companies.

CRISIL has introduced CRISIL Card, CRISIL View, CRISIL

Ban Card and CRISIL Rating Digest Service.

Rating process of CRISIL

Rating Symbols

ICRA
ICRA was established in the year 1991 by the collaboration

of financial institutions, investment companies, and banks

at Delhi. It is an associate of moodys Investors service. ICRA undertakes rating of debt instruments. ICRA provides 'general assessment' report on different

aspects of the company's operations and management.

Since its inception, ICRA has rated 300 and above debt instruments.

Rating Symbol:

CARE
It is promoted by the Industrial Development Bank of India

(IDBl) jointly with Canara Bank, UTI, private sector banks

and financial services companies. CARE, incorporated on April 21, 1993, commenced its operations in October 1993. CARE undertakes rating of all types of debt instruments like commercial paper, fixed deposits, bonds, debentures. Its services includes credit rating and information services.

Rating Symbol:

ONICRA

It is the first credit agency in India which is promoted by ONIDA groups for consumer durables.

It formulates methodology for assessing small and medium enterprises.

Credit Rating Mandatory in India

Credit Rating is mandatory in India for the issuance of certain debt instruments of the following nature: Public issue of debentures/bonds with conversion/redemption period exceeding 18 months.

Commercial paper can be issued in India, inter alia, if the

programme has a rating not below 'A2' from ICRA (or its equivalent from the other rating agencies) and

Fixed deposit programmes of all non-banking finance

companies with net owned funds above Rs. 200 lakh need to be compulsorily rated.

Major Agencies Renowned Globally

Moody investors services (MOODYS)
Standard and poors corporation (S&P)

Duff and phelps credit rating co. (DCR)

Japan credit rating agencies (JCR) Thomas bank watch.

ANY QUESTION