Introduction to Credit Rating
A credit rating assesses the credit worthiness of an individual, corporation, or even a country. Credit ratings are calculated from financial history and current assets and liabilities. A credit rating tells a lender or investor the probability of the subject being able to pay back a loan. A poor credit rating indicates a high risk of defaulting on a loan, and thus leads to high interest rates.
Credit is important since individuals and corporations with poor credit will have difficulty finding financing. It is based upon the history of borrowing and repayment.
. as well as the availability of assets and extent of liabilities.Introduction to Credit Rating
An assessment of the credit worthiness of individuals and corporations. and will most likely have to pay more due to the risk of default.
.Introduction to Credit Rating
Moodys‟: “Ratings are designed exclusively for the purpose of grading bonds according to their investments qualities”. Australian Ratings: „A corporate credit rating provides lenders with a simple system of gradation by which the relative capacities of companies to make timely repayment of interest and principal on a particular type of debt can be noted‟.
to pay interest and repay principal as per the terms of issue of debt. The ratings are expressed in code numbers which can be easily comprehended by the lay investors.Introduction to Credit Rating
Credit rating is an assessment of the capacity of the issuer of debt security by an independent agency. as exists in India. Credit rating. A debt rating is not one time evaluation of credit risk. A credit rating does not create fiduciary relationship between the agency and the users
. is done for a specific security and not for a company as a whole. which can be regarded as valid for the entire life of the security.
Functions of Credit Rating Agencies
Superior information Low cost information Basis for proper risk. return & Trade off Healthy discipline on corporate borrowers Formulation of public policy guidelines on Institutional investment
Benefits of Credit Rating
Low cost information Quick investment decision Independent investment decision Investor protection
Benefits to rated companies
Sources of additional certification Increase the investor population Forewarns risk Encourages financial Discipline Merchant bankers job made easy Foreign collaborations made easy Benefits the industry as a whole Low cost of borrowing Rating as a marketing tool
Ltd.Credit Rating Agencies in India
Credit Rating Information Services Limited (CRISIL) Investment Information and Credit Rating Agency of India (ICRA) Credit Analysis and research (CARE) Duff Phelps Credit Rating Pvt. (DCR India)
CRISIL Ratings is the agency of choice for issuers and investors. and is the fourth largest in the world. It was jointly started by ICICI and UTI with an equity capital of 4 crores. With over a 60% share of the Indian Ratings market.Credit Rating Information Services Ltd. CRISIL Ratings is a full service rating agency that offers a comprehensive range of rating services. CRISIL is India's leading rating agency.
The first credit agency floated on January 1. CRISIL Ratings provides the most reliable opinions on risk by combining its understanding of risk and the science of building risk frameworks. with a contextual understanding of business.
The rating committee comprises members who have the professional competence to meaningfully assess the credit analysis that underlies the rating.
The principal objective of CRISIL is to rate the debt obligations of Indian companies.Its rating guides the investors about the risk of timely payment of interest and principal on a particular debt instrument. A team of analysts carries out the credit analysis
.Credit Rating Information Services Ltd. CRISIL's rating process and rating committee are designed to ensure that all assigned ratings are based on the highest standards of independence and analytical rigor. and have no interest in the entity being rated.
A detailed flow chart of CRISIL's rating process is as under:
.Credit Rating Information Services Ltd.
Credit Rating Symbols
Debenture Rating Symbols High Investment Grades: AAA(triple A): Highest Safety AA (double A): High Safety Investment Grades: A: Adequate Safety BBB (triple B): Moderate Safety Speculative Grades: BB: Inadequate Safety B: High Risk C: Substantial Risk D: Default
ICRA’s major shareholders include Moody's Investors Service and leading Indian financial institutions and banks. executing assignments including credit ratings. With the growth and globalisation of the Indian capital markets leading to an exponential surge in demand for professional credit risk analysis.
. specialised performance gradings and mandated studies spanning diverse industrial sectors. ICRA is a leading provider of investment information and credit rating services in India. equity gradings.Investment Information and Credit Rating Agency of India (ICRA)
ICRA Limited (an Associate of Moody's Investors Service) was incorporated in 1991 as an independent and professional company. ICRA has been proactive in widening its service offerings.
Grading and Reasearch Services Advisory Services Economic Research Outsourcing
. ICRA has broadbased its services for the corporate and financial sectors. and currently offers its services under the following banners:
Rating Services Information.Investment Information and Credit Rating Agency of India (IICRA)
In addition to being a leading credit rating agency with expertise in virtually every sector of the Indian economy. both in India and overseas.
50 crores was subscribed by IFC. GIC SBI and others. 3. LIC. The initial paid up capital of Rs.
. UTI. It is a public limited company with an authorized share capital of 10 crores.Investment Information and Credit Rating Agency of India (IICRA)
IICRA was set up by Industrial Finance Corporation of India on 16th January 1991.
Investment Information and Credit Rating Agency of India (IICRA)
Long term Debentures Bonds and Preference shares-Rating Symbols LAAA: Highest Safety LAA: High Safety LA: Adequate Safety LBBB: Moderate Safety LBB: Inadequate Safety LB: Risk prone LC: Substantial Risk LD: Default. Extremely speculative
Credit Analysis and Research Limited (CARE)
The CARE was promoted in 1993 jointly with investment companies. banks and finance companies. Services offered by CARE are Credit rating Information Service Equity Research etc
Credit Analysis and Research Limited (CARE)
Long term debt instruments-Rating Symbols CARE AAA: Highest Safety CARE AA: High Safety CARE A: Adequate Safety CARE BB: Inadequate Safety CARE B: High Risk For medium term debt instruments CARE AAA: Highest Safety CARE AA: High Safety CARE A: Adequate Safety CARE BB: Inadequate Safety CARE C: High Risk