CAPITAL MARKET AND FINANCIAL SERVICE

DIGITAL ASSIGNMENT-II

SUBMITTED BY: S.VIGNESH

REGISTRATION NUMBER: 19MBA0108
QUESTION 1

Interpret the various stages involved in rating a stock/bond by a credit rating

agency in India.

RATING INDUSTRY IN INDIA:

One of the principal issues confronting the creating nations till as of late was
the in assembling assets to build speculations. The local capital markets were not
sufficiently outfitted to accumulate assets in the household monetary framework.
This made access to the global capital markets a significant asset for getting assets to
raise the level of and quicken the pace of speculation and development. A solid FICO
score in this way has a significant job in deciding the expense and accessibility of
credit streams to creating nations. The inability to keep up a solid rating will prompt
an inversion of capital streams, a interruption of the money related framework and a
general monetary downturn. During the 1990s, the security showcase outperformed
bank loaning as the prevailing wellspring of private cash-flow to creating nations.
This prompted the development of FICO score work and FICO assessment
organizations as an essential factor in deciding capital streams. Rating offices assume
a vital job in filling in as monetary middle people between the backers and financial
specialists, and in the improvement of the capital markets. Appraisals contain both
open and private data about the fundamental firms or securities. In this manner,
evaluations can be utilized as a apparatus to understand both present and future credit
value of the bonds or firms. The quick development and globalization of capital
markets during the 1980s saw a flood in interest for credit and this prompted the rise
of FICO score industry in India. Credit rating offices have advanced as an
unmistakable power in building up the monetary markets also, making mindfulness
among the speculators throughout the years and filling in as data delegates between
the guarantors of obligation instruments, and financial specialists.
CREDIT RATING AGENCIES IN INDIA :
As of now, there are six credit rating agencies registered under SEBI namely

• Credit Rating Information Services of India Limited (CRISIL),

• ICRA Limited
• Credit analysis and research limited (CARE)
• Brickwork ratings (BWR)
• Indian ratings and research pvt.ltd
• Small and medium enterprises rating agency of India (SMERA)

CRISIL RATING PROCESS:

CRISIL's appraising procedure is intended to guarantee that all evaluations
depend on the best expectations of autonomy and explanatory meticulousness.
CRISIL's investigation of each credit is completed by a multi-part evaluating group.
When the appraisals doled out are conveyed to backers, they are distributed on
CRISIL's site.
Stages in the process for a credit rating assignment:
EXPLANATION OF THE PROCESS:

1) Preliminary analysis:
The rating procedure begins with a rating demand from the backer. From that
point, the rating understanding is marked and the expenses are gathered from the
guarantor. All associations as to rating charges are completed by CRISIL's business
advancement group and there is no association of CRISIL's explanatory group all the
while. At the point when this procedure is finished, an expository group is allocated
the obligation of breaking down the backer's credit chance profile. This rating group
(including at any rate two experts) at that point examines primer data from the
guarantor to get its business, the executives, and money related hazard profiles.
2) Management interaction:
CRISIL emphatically accepts that financial specialist intrigue is best served if
there is an open discourse between the Issuer and CRISIL. This empowers CRISIL to
consolidate non-open data into its rating choice and furthermore encourages it show
up at forward-looking evaluations. The board connections can be completed
telephonically or at any of CRISIL's or backer's workplaces. Conversations during
the board collaborations are wide-extending, covering serious position, methodology,
monetary approach, authentic execution, and close and long haul monetary and
business possibilities. In these conversations, CRISIL's rating groups center around
the backer's business hazard profile and methodologies, notwithstanding inspecting
monetary information. CRISIL's appraisals are not founded exclusively on budgetary
projections made by the backer or the administration's standpoint. Rather, they fill in
as a significant contribution to CRISIL's evaluation of the guarantor's profile as they
shed light on the the board's suspicions, methodology, and emergency courses of
action.
3)Rating committee and assignment of ratings :
After the communication with the backer's administration, CRISIL's examiners
set up a report enumerating their evaluation of business chance, monetary hazard, and
the board dangers related with the backer. The report depends on rating procedures
and models that are obviously spelt out, distributed, and reliably applied. The report
is at that point introduced to the rating advisory group. This is the main part of the
procedure where the backer doesn't straightforwardly take an interest. The rating
advisory group contains experienced experts who carry with them broad experience
in credit appraisal. The rating board of trustees doles out a rating after intensive
conversation on the report arranged by the experts. The Rating Committee Meeting
(RCM) process guarantees objectivity of the rating, as the choice outcomes from the
aggregate thinking about a gathering of experienced experts. The RCM procedure
likewise guarantees high caliber and consistency of investigation on the grounds that
the reports and conversations are centered around key rating factors that are
applicable to the guarantor. On the off chance that CRISIL and the backer have any
basic executives, such chiefs don't partake in the RCM or rating process. An exposure
with this impact is likewise made with the declaration of the rating.
4) Communicating the rating to the issuer :
On finish of a rating at the RCM, the rating choice is conveyed to the
guarantor. From that point, a report (rating justification) featuring the key
explanations behind allotting the rating is imparted to the backer. This is to help the
guarantor in understanding the key systematic variables that have been surveyed for
showing up at the rating choice. In the event that the guarantor chooses to
acknowledge the rating, it can do as such by sending a letter of acknowledgment to
CRISIL. In the event that, on the other hand, the guarantor can't help contradicting
the rating choice, it can bid for a new gander at the rating allocated. In such a case,
the backer needs to present extra realities, information or new data to the evaluations
group, to be introduced to
the rating advisory group. Such data must be material to the intrigue, and ought to in
a perfect world location zones that have been featured as components obliging the
rating in the rating method of reasoning. The rating advisory group at that point talks
about the data submitted. It could possibly change the rating, contingent upon the
realities of the case. On the off chance that the rating isn't changed and guarantor
keeps on contradicting the rating, at that point the backer has an alternative of not
tolerating the rating. As of late, SEBI has ordered CRAs to distribute such
unaccepted FICO scores on their site. Subsequently in accordance with these rules,
the unaccepted appraisals will be unveiled on CRISIL's site.
5) Publication of accepted ratings :
The acknowledged appraisals are scattered to CRISIL's supporter base, and to
nearby and universal media. Rating data is likewise refreshed online on
www.crisil.com, the CRISIL site, as a rating method of reasoning, which gives data
about the organization, appraised instrument, appointed rating and standpoint,
method of reasoning for allotting the rating, material rules, and so forth. Likewise,
CRISIL, in consistence with International Organization of Securities Commission
(IOSCO) code of direct, distributes a progressively definite FICO score report (CRR)
on its committed site, www.crisilratings.com. The distribution of the CRR guarantees
straightforwardness in CRISIL's evaluations approachs and presumptions and
furthermore empowers speculators to see how CRISIL shows up at a rating.
Likewise, CRISIL distributes credit bits of knowledge got from its evaluated universe
through occasional distributions called Ratings Roundup (distributed semi-every
year) and Default Study (distributed every year).
6) TIME FRAME:
From the underlying administration meeting to the task of rating, the rating
procedure can take as long as about a month, however CRISIL some of the time
shows up at rating choices in shorter time spans to meet dire prerequisites.
7) Surveillance :
All CRISIL appraisals are under nonstop reconnaissance. After a rating has
been alloted, CRISIL proceeds to screen the exhibition of the backer and the
monetary condition wherein it works. The reconnaissance process guarantees that the
experts are refreshed on current turns of events, survey touchy regions, and find out
about
changes in guarantor's arrangements. CRISIL's experts keep in touch with the backer
and guarantee that monetary and other data are common with CRISIL routinely.
Additionally, CRISIL attempts to connect with guarantor's administration in any
event once a year. These collaborations basically center around advancements over
the period since the last association, and the viewpoint for the coming year.
8) Confidentiality:
A substantial portion of the information shared by the company is highly
sensitive, and is provided by the issueronly for the purpose of arriving at the rating.
Such information is kept strictly confidential by the ratings group andnot shared with
other divisions or group companies of CRISIL. CRISIL doesn’t disseminate
confidential informationabout entities it rates. However, in accordance with recent
SEBI guidelines, CRISIL has started to discloseunaccepted ratings on its website
from January 2017.All CRISIL employees are required to sign a confidentiality
agreement. CRISIL does not disclose issuer-specific Confidential information that it
has obtained for the purpose of credit rating to anyone (other than to marketregulators
or law enforcement authorities, if required).

QUESTION 2:
Deliberate in detail the role of SEBI under SEBI Act 1992.
ANSWER:

What is SEBI?

Securities and Exchange Board of India (SEBI) is a legal administrative body

depended with the duty to manage the Indian capital markets. It screens and controls
the protections showcase and secures the premiums of the financial specialists by
implementing certain principles and guidelines.

SEBI was established on April 12, 1992, under the SEBI Act, 1992. Headquartered in
Mumbai, India, SEBI has territorial workplaces in New Delhi, Chennai, Kolkata and
Ahmedabad alongside other nearby provincial workplaces across unmistakable urban
areas in India.

The target of SEBI is to guarantee that the Indian capital market works in a precise
way and give financial specialists a straightforward domain for their speculation. To
lay it out plainly, the essential purpose behind setting up SEBI was to forestall acts of
neglect in the capital market of India and advance the improvement of the capital
markets.
Structure of SEBI :

SEBI, just like any corporate firm has a hierarchical structure and consists of
numerous departments headed by their respective heads. Following is a list of some
of the departments of SEBI:

• Foreign Portfolio Investors and Custodians

• Human Resources Department
• Information Technology
• Investment Management Department
• Office of International Affairs
• Commodity and Derivative Market Regulation Department
• National Institute of Securities Market

Apart from the department heads, the senior management of SEBI consists of a Board
of Directors who are appointed as follows:

• 1 chairman nominated by the Union Government of India

 • 2 members from the Union Finance Ministry of India
• 1 member from the Reserve Bank of India (RBI)
• 5 members nominated by the Union Government of India.

Functions of SEBI :

• To protect the interests of investors in securities market

• To promote the development of securities market
• To regulate the business in stock exchanges and any other securities markets
• To register and regulate the working of stock brokers, sub-
brokers, share transferagents, bankers to an issue, trustees of trust deeds,
registrars to an issue, merchantbankers, underwriters, portfolio managers,
investment advisers and such other intermediaries who may be associated
with securities markets in any manne
• To register and regulate the working of the depositories, participants,
custodians of securities, foreign institutional investors, credit rating agencies
• To promote and regulate self-regulatory organizations
• To prohibit fraudulent and unfair trade practices relating to securities markets
• To promote investors‘ education and training of intermediaries of securities
markets
• To prohibit insider trading in securities
• To regulate substantial acquisition of shares and take over of companies
• To conducting research for efficient working and development of securities
market
SEBI caters to the needs of three parties operating in the Indian Capital Market.
These three participants are mentioned below:

Issuer of the securities :

Companies that issue protections are recorded on the stock trade. They issue
offers to raise reserves. SEBI guarantees that the issuance of Initial Public Offerings
(IPOs) and Follow-up Public Offers (FPOs) can happen in a sound and
straightforward way.

Protects the Interests of Traders & Investors:

It is a reality that the capital markets are working in light of the fact that the
brokers exist. SEBI is liable for protecting their inclinations and guaranteeing that the
speculators don't become casualties of any financial exchange misrepresentation or
control.

Financial Intermediaries :

SEBI goes about as a middle person in the financial exchange to guarantee that
all the market exchanges occur in a protected and smooth way. It screens each action
of the money related mediators, for example, dealer, sub-merchant, NBFCs, and so
forth

What are the Powers of SEBI :

Securities and Exchange Board of India has the following three powers:

Quasi-Judicial: With this authority, SEBI can conduct hearings and pass ruling
judgements in cases of unethical and fraudulent trade practices. This ensures
transparency, fairness, accountability and reliability in the capital market. SEBI
PACL case is an example of this power.

Quasi-Legislative: Powers under this segment allow SEBI to draft rules and
regulations for the protection of the interests of the investor. One such regulation is
SEBI LODR (Listing Obligation and Disclosure Requirements). It aims at
consolidating and streamlining the provisions of existing listing agreements for
several segments of the financial market like equity shares. This type of regulation
formulated by SEBI aims to keep any malpractice and fraudulent trading activates at
bay.

Quasi-Executive: SEBI is authorised to file a case against anyone who violates its
rules and regulation. It is empowered to inspect account books and other documents
as well if it finds traces of any suspicious activity.

THANK YOU.