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 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, and will more likely have to pay more due to risk of default.  The ratings are expressed in code numbers which can be easily comprehended by lay investors.  Credit rating, as exists in India, is done for a specific security and for the company as a whole.  A credit rating does not create fiduciary relationship between the agency & the users. Credit Rating Agency  Company that assigns credit ratings for issuers of certain types of debt obligations as well as the debt instruments themselves.  Also its an agency that performs the rating of debt instruments.  CRA ‘s scope at present is not only limited to the rating of debts but they are also undertaking financial analysis & assessment of financial products , individuals , Institutions & governments.  CRA play a key role in the infrastructure of the modern financial system.  For investors, credit rating agencies increase the range of investment alternatives and provide independent, easy-to-use measurements of relative credit risk; this generally increases the efficiency of the market, lowering costs for both borrowers & lenders.  This in turn increases the total supply of risk capital in the economy, leading to stronger growth. It also opens the capital markets to categories of borrower who might otherwise be shut out altogether: small governments, start up companies, hospitals, and universities. Functions  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 Indian Credit Rating Agencies  CRISIL : Credit rating information services of India limited.  ICRE : Investment Information & credit rating agency of India limited.  CARE : Credit analysis & research limited.  Fitch ratings India private limited.(earlier-Duff & Phelps credit rating ) CRISIL  The first credit agency setup on January 1, 1988, jointly started by ICICI and UTI with an equity capital of Rs. 4 crores, as public Ltd company.  CRISIL is India's leading rating agency, and is the fourth largest in the world.  With over a 60% share of the Indian Ratings market, CRISIL Ratings is the agency of choice for issuers and investors.

operating efficiency of the company & legal position.covers an analysis of industry risk. ICRA  ICRA was set up by IFCI on 16th January 1991. 5 crores is paid up. analysis. cash flow adequacy & financial flexibility. CARE  It was setup by IDBI in collaboration with some banks & financial service companies in NOV 1993. goals.10 crores. profitability & interest & tax sensitivity. RATING METHODOLOGY Consists of four areas :  Business analysis .  Management evaluation – study of track record of the management’s capacity to overcome adverse situations. . market position in the country. PNB.  Financial analysis – analysis of accounting quality. earnings protection. CRISIL Ratings provides the most reliable opinions on risk by combining its understanding of risk and the science of building risk frameworks. provide information & guidance to investors for determining the credit risk associated with a debt instrument.D / CP / information services & equity research –extensive study of the shares listed on major stock exchanges through EIL (economy.  It is a public limited company with an authorized share capital of Rs. philosophy & strategies.industry.  Fundamental analysis – analysis of liquidity management. and the balance by UTI.  It offers services such as credit rating of debentures/ preference shares / F.  ICRA’s major shareholders IFCI (26%). Central Bank of India. asset quality. UCO Bank and banks (SBI) . CRISIL Ratings is a full service rating agency that offers a comprehensive range of rating services.  OBJECTIVE . with a contextual understanding of business. Rs. Bank of Baroda.