Sreedhar’s CCE

CREDIT RATING AGENCIES

☞ Credit Rating Agencies
❖ Credit rating is a numerical representation of the creditworthiness of an
individual or a business.
❖ The credit rating is a key aspect that makes or breaks a loan application.
❖ The credit rating/score acts as an indicator stating if the borrower has defaulted
on loan payments before and if he is worth trusting with the new loan.
☞ What does credit rating mean?
❖ A credit score is a 3-digit number that represents the creditworthiness of the borrower.
❖ Credit rating is the analysis of the possible credit risks associated with granting
a financial instrument to an individual or a company.
❖ Based on the credit score, a lender determines whether the borrower can
repay the loan amount or not.
❖ The rating is provided based on the creditworthiness and the credentials of an

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individual or a company.
❖ The creditworthiness of an individual or a company is decided based on the
lending and borrowing transactions done in the past.
❖ Credit rating is determined after weighing the statements of liabilities and
assets, and their ability to meet the debt obligations.
❖ It is recommended that you maintain a good credit rating if you would like to
apply for a huge loan in the future.
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The credit score is determined based on the following factors.
❖ Payment History: 35%
❖ Credit Utilization: 30%
❖ Credit History Duration: 15%
❖ Credit Mix: 10%
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❖ New Credit: 10%

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Securities and Exchange Board of India (SEBI) reserves the right to authorize and
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regulate credit rating agencies according to SEBI Regulations, 1999 of the SEBI
Act, 1992.
☞ How do credit rating agencies work?
❖ Credit rating agencies analyze an organization, individual, or entity and assign
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ratings to it.
❖ These agencies have the authority to rate companies, state governments, non-
profit organizations, countries, securities, local government bodies, and special
purpose entities.
❖ The credit rating agency does not provide any decision to financial institutions
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on whether an entity should get a credit facility or not;
❖ Rather it provides the report and additional inputs making it easier for the
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lender to analyze and an informed decision.

☞ List of registered credit rating agencies:
❖ According to SEBI, the following credit rating agencies are registered and
authorized to compute and share credit score/report with the financial institutions
and applicants.
☞ CRISIL Limited:(HQ: Mumbai)
❖ Credit Rating Information Services of India Limited (CRISIL), one of the oldest
credit rating agencies, was set up in 1987.
❖ CRISIL is an Indian analytical company providing ratings, research, and risk
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and policy advisory services and is a subsidiary of American company S&P Global.
❖ Credit Rating Information Services of India Limited is the largest credit rating
agency of India.
❖ CRISIL has been operational in countries such as the USA, UK, Poland, Hong
Kong, China, and Argentina in addition to India.
☞ CIBIL:
❖ TransUnion CIBIL Limited (formerly Credit Information Bureau (India) Limited)
was incorporated based on recommendations made by the RBI Siddiqui Committee,
in 2000
❖ In 2007, CIBIL Score, India’s first generic risk scoring model for banks and
financial institutions, was introduced.
❖ Headquarter- Mumbai
❖ In 2017, TransUnion acquired a 92.1% stake in CIBIL.
☞ India Ratings and Research Pvt Ltd:
❖ Ind-Ra currently maintains coverage of corporate issuers, financial institutions
(including banks and insurance companies), finance and leasing companies,
managed funds, urban local bodies, and structured finance and project finance
companies.
❖ Ind-Ra is a 100% owned subsidiary of the Fitch Group.
❖ Headquartered in Mumbai
☞ ICRA Limited: (HQ: Gurugram)
❖ The Investment Information and Credit Rating Agency (ICRA), a joint venture of
Moody’s and Indian Financial and Banking Service Organisation was established in 1991.
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❖ The organization is known for assigning corporate governance rating, performance
rating, mutual funds ranking, and more.
☞ CARE: (HQ: Mumbai)
❖ Credit Analysis and Research Limited (CARE) is a credit rating agency that is
operational since April 1993.
❖ The agency provides a credit rating that helps corporate to raise funds for their
investment requirements.
☞ Brickwork Ratings India Pvt Ltd:
❖ Canara Bank was the leading promoter and strategic planner for Brickwork.
❖ In addition to registering with SEBI, Brickwork Ratings (BWR) is accredited by
RBI and empanelled by NSIC, NCD, MSME ratings and grading services
☞ HQ: Bengaluru.
☞ SMERA Ratings Limited:
❖ SMERA analyses and establishes the credibility of existing micro, small, and
medium enterprises (MSMEs).
☞ HQ: Mumbai
☞

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Info metrics Valuation and Rating Pvt Ltd:
❖ It evaluates entities such as banks, non-banking financial companies, large
corporates, and small and medium scale units (SMUs).
☞ HQ: New Delhi
☞ Can I use the terms ‘credit score’ and ‘credit rating’ interchangeably?
❖ Generally, the term ‘credit rating’ is used when you are referring to the score
associated with businesses.
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❖ The term ‘credit score’ is used when referring to individuals. However, in daily
practice, the two terms are used interchangeably.
☞ International Credit Rating Agencies:
❖ Standard & Poor's (S&P), Moody's and Fitch group are recognized as The Big
Three credit rating agencies.

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market share of 95%.

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❖ In terms of acceptability and influence, these three collectively have a global
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Fitch rating:
❖ Establishment: 1975.
❖ Fitch Ratings' long-term credit ratings are assigned on an alphabetic scale
from 'AAA' to 'D'.
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❖ For e.g., AAA: the best quality companies, reliable and stable, AA: quality
companies, a bit higher risk than AAA, A: economic situation can affect finance.
❖ Headquarters- New York City, United States
☞ Moody's Investors Service:
❖ Moody's Investors Service provides international financial research on bonds
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issued by commercial and government entities.
❖ Moody's was founded by John Moody in 1909 to produce manuals of statistics
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related to stocks and bonds and bond ratings.

☞ Headquarters- New York City, United States Standard & Poor's Financial Services:
❖ S&P is an American financial services company, founded in 1860.
❖ It is a division of S&P Global that publishes financial research and analysis on
stocks, bonds, and commodities.
❖ Headquarters- New York, United States
☞ CAMELS – for domestic banks:
❖ CAMELS is an international rating system used by regulatory banking authorities
to rate financial institutions, according to the six factors represented by its acronym.
❖ A rating of one is considered the best, and a rating of five is considered the
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worst for each factor.
❖ C- Capital adequacy ratio
❖ A- Asset quality
❖ M- Management effectiveness
❖ E- Earnings
❖ L- Liquidity
❖ S-System & control
☞ CALCS- for foreign banks
❖ C- Capital adequacy ratio
❖ A- Asset quality
❖ L- Liquidity
❖ C- Compliance
❖ S- System & control
❖ The Reserve Bank of India (RBI) has decided to change the way it monitors and
supervises banks in order to make the process more forward-looking.
❖ The move comes against the backdrop of the risks that have emerged after the
global financial crisis of 2008, with lenders shifting from offering traditional
products to more complex ones.
❖ The country’s financial sector would now be evaluated under a dynamic risk-
based mechanism, an aspect the present CAMELS rating system lacked.
❖ RBI proposes to replace CAMELS with INROADS (Indian Risk-Oriented and
Dynamic Rating System) from the round of annual financial inspection, in 2013.
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