“A STUDY ON CREDIT RATING AGENCY OF INDIA”

A Project Submitted to

University of Mumbai for partial completion of the degree of Bachelor in Commerce

(Accounting and Finance)
Under the Faculty of Commerce

By

ROHIT AVINASH
RASANE Roll No: 2105056

Under the Guidance of

MS. SARITA
CHAURASIYA

Thakur Ramnarayan college of Arts and Commerce, Thakur Ramnarayan Educational

Campus, S.V. Road, Dahisar (East), Mumbai-400068.

March 2024
 “A STUDY ON CREDIT RATING AGENCY OF INDIA”

A Project Submitted to

University of Mumbai for partial completion of the degree of Bachelor in Commerce

(Accounting and Finance)
Under the Faculty of Commerce

By

ROHIT AVINASH
RASANE Roll No: 2105056

Under the Guidance of

MS. SARITA
CHAURASIYA

Thakur Ramnarayan college of Arts and Commerce, Thakur Ramnarayan Educational

Campus, S.V. Road, Dahisar (East), Mumbai-400068.

March 2024
 CERTIFICATE

This is to certify that Mr. Rohit Avinash Rasane has worked and duly completed his
Project Work for the degree of Bachelor in Commerce(Accounting & Finance) under the
faculty of Commerce in the subject of Commerce and his project is entitled, “A STUDY
ON CREDIT RATING AGENCY OF INDIA” under my supervision.

I further certify that the entire work has been done by the learner under my guidance and that
no part of it has been submitted previously for any Degree or Diploma of any University.

It is his own work and facts reported by his personal findings and investigations.

Internal Examiner External Examiner

Asst. Prof. Daksha Choudhary Dr. Ravish R.

Singh Programme Co-ordinator Principal Principal

Date of Submission: 30th March, 2024

 DECLARATION BY LEARNER

I the undersigned Mr. Rohit Avinash Rasane here by, declare that the work embodied in
this project work titled “A STUDY ON CREDIT RATING AGENCY OF INDIA” forms
my own contribution to the research work carried out under the guidance of Ms. Sarita
Chaurasiya is a result of my own research work and has not been previously submitted to
any other University for any other Degree/ Diploma to this or any other University.

Wherever reference has been made to previous works of others, it has been clearly indicated as
such and included in the bibliography.

I, here by further declare that all information of this document has been obtained and
presented in accordance with academic rules and ethical conduct.

Mr. Rohit Avinash Rasane

Name and signature of the learner

CERTIFIED BY

Ms. Sarita
Chaurasiya Research
Guide
 ACKNOWLEDGMENT
To list who all have helped me is difficult because they are so numerous and the depth is so enormous.
I would like to acknowledge the following as being idealistic channels and fresh dimensions in the completion
of this project.

I take this opportunity to thank the University of Mumbai for giving me chance to do this project.

I would like to thank my Principal, Dr. Ravish. R. Singh for providing the necessary facilities required for
completion of this project.

I take this opportunity to thank our Program Coordinator Asst. Prof. Daksha Choudhry, for her moral
support and guidance.

I would also like to express my sincere gratitude towards my project guide Ms. Sarita Chaurasiya, whose
guidance and care made the project successful.

I would like to thank my college library, for having provided various reference books and magazines related to
my project.

Lastly, I would like to thank each and every person who directly or indirectly helped me in the completion of the
project especially my parents and peers who supported me throughou
 INDEX
CHAPTER TOPIC PAGE
NO. NO.
1. INTRODUCTION 10

1.2. EVOLUTION OF CREDIT RATING AGENCIES 13

1.3. TYPES OF RATING 15

1.4. BENEFITS OF CREDIT RATING 16

1.5. BENEFITS TO INVESTORS 16

1.6 BENEFITS OF RATING TO THE COMPANY 18

1.7 BENEFITS TO BROKERS AND FINANCIAL 19

INTERMEDIARIES
2 RESEARCH METHODOLOGY 20

2.1 Objectives of the Study 20

2.2 Hypothesis of the Study 20

2.3 Type of Study 21

2.4 Sample Size 23

2.5 Sample Design 23

2.6 Data collection Method 23

2.7 Limitations of the study 24

3 LITERATURE REVIEW 25

4 DATA ANALYSIS,INTERPRETATION 59
AND PRESENTATION

5 FINDINGS,CONCLUSIONS AND SUGGESTIONS 65

BILBILOGRAPHY 66

7 ANNEXURE 66
 INTRODUCTION

CREDIT RATING

Credit rating serves as a pivotal gauge, pivotal in both established and emerging capital markets worldwide,
wielding significant influence on investment decisions and financial landscapes. Its essence lies in the
meticulous evaluation of a debtor's historical performance and future capacity to honor financial obligations,
encapsulating a prophetic insight into the probability of default over the lifespan of a specific fixed income
instrument.

These ratings, typically denoted by alphabetical or alphanumeric symbols, embody a beacon of clarity for
investors, offering a discernible measure of credit quality amidst the labyrinth of financial instruments. Standard
and Poor's succinctly encapsulate this notion by asserting that credit ratings furnish investors with a tangible
representation of creditworthiness, facilitating informed investment choices amid the sea of uncertainties.

Moreover, credit ratings wield multifaceted functionalities that resonate across diverse echelons of the
financial realm. They not only lubricate the wheels of local and global markets but also underpin regulatory
frameworks, guiding risk-weighted assessments and fortifying financial institutions against potential tumults.

Furthermore, these ratings serve as a linchpin for risk management strategies, empowering investors and
institutions alike to navigate the intricate terrain of asset allocation and portfolio diversification with acumen
and prudence. In the tapestry of capital markets, credit ratings act as arbiters of pricing dynamics, dictating
yield differentials between higher and lower-rated bonds, thereby optimizing the allocation of capital resources
and fostering economic efficiency.

In essence, credit rating stands as an indispensable pillar of financial architecture, harmonizing the symbiotic
relationship between investors, borrowers, and regulators, while concurrently serving as a compass guiding the
trajectory of global capital flows.

Credit Rating Function

1) The significance of credit rating reverberates across both mature and emerging capital markets
worldwide, serving as a linchpin for investor confidence and financial stability.

2) Utilizing credit ratings fosters an environment conducive to the expansion of local and global markets,
enhancing transparency and bolstering market efficiency.
3) Within the expansive realm of capital markets, encompassing bonds and akin fixed-income instruments, the
cumulative value of guaranteed income exceeds a staggering $80 trillion, underlining the magnitude of credit
assessment.

4) Ratings cater to a diverse spectrum of stakeholders within the capital market ecosystem, offering invaluable
insights to investors, issuers, and regulatory authorities alike.

5) At its core, the service of credit rating endeavors to furnish stakeholders with robust and unbiased
evaluations, catering to the discerning needs of investors, borrowers, and intermediaries spanning savers,
governmental entities, economic analysts, and the financial press.

6) In the realm of regulatory compliance, credit ratings assume a pivotal role, guiding the risk assessments of
financial instruments and institutions, thereby fortifying the resilience of the banking sector against potential
shocks.

7) For investors and financial institutions, credit ratings serve as indispensable tools for risk assessment and
management, empowering decision-makers to navigate the complexities of asset allocation and diversification
with prudence and foresight.

8) The influence of credit ratings reverberates through the pricing dynamics of securities in capital markets,
wherein higher-rated bonds command lower yields as a means of compensating investors for assumed risks,
thereby facilitating the efficient allocation of capital across diverse investment avenues.
1) Benchmarking: Credit ratings provide a benchmark for comparing the credit quality of different issuers
and securities. Investors and issuers can use these benchmarks to gauge relative creditworthiness and make
comparisons within their investment universe.

2) Debt Issuance: Companies and governments rely on credit ratings to access debt markets. Higher credit
ratings can lower borrowing costs by signaling lower default risk to investors. Conversely, lower credit
ratings may result in higher borrowing costs or limited access to capital markets.

3) Corporate Governance: Credit ratings can incentivize companies to maintain strong corporate
governance practices and financial discipline. Maintaining a good credit rating is often viewed positively by
investors and can enhance a company's reputation and access to capital.

4) Investor Confidence: Reliable credit ratings contribute to investor confidence in the stability and
transparency of capital markets. Investors are more likely to participate in markets where they have access to
credible information about credit risk, leading to increased liquidity and market efficiency.

5) Economic Stability: Credit ratings play a role in maintaining economic stability by providing early
warnings of potential financial distress. Rating downgrades can signal underlying weaknesses in an economy
or industry, prompting policymakers and market participants to take appropriate corrective actions.

6) Structured Finance: Credit ratings are essential in the structuring and issuance of complex financial
products such as asset-backed securities (ABS) and collateralized debt obligations (CDOs). Investors rely on
credit ratings to assess the credit risk embedded in these structured products and make investment decisions
accordingly.

7) International Trade and Investment: Credit ratings facilitate international trade and investment by
providing a common framework for assessing credit risk across borders. Foreign investors often rely on
credit ratings to evaluate the creditworthiness of sovereign governments and corporations when making
cross-border investments.

8) Securitization: Credit ratings are crucial in the securitization process, where pools of assets such as
mortgages or loans are packaged into securities and sold to investors. Ratings help investors assess the credit
risk associated with these asset-backed securities (ABS) and determine their investment preferences.

9) Counterparty Risk Assessment: Credit ratings are used by financial institutions to evaluate the
creditworthiness of counterparties in various financial transactions, such as derivatives contracts and loan
agreements. Understanding counterparty credit risk is essential for managing exposure and ensuring the
stability of financial markets.

10) Insurance Industry: Credit ratings are utilized by insurance companies to evaluate the credit risk of their
investment portfolios and counterparties. Insurers rely on ratings to maintain solvency and ensure they can
meet their policyholder obligations even in adverse economic conditions.
11) Structured Investment Products: Credit ratings play a critical role in the design and distribution of
structured investment products, including structured notes and investment funds. Investors often use ratings
to assess the risk-return profile of these complex products and make investment decisions accordingly.

12) Debt Restructuring and Workouts: In distressed debt scenarios, credit ratings provide valuable guidance
for debt restructuring negotiations and workout arrangements. Creditors and debtors use ratings as a
reference point for assessing the feasibility of restructuring proposals and negotiating terms that are
acceptable to all parties involved.

Clients for Credit Rating

Clients comprise manufacturing companies, non-banking finance companies, nationalized,

private banks, financial institutions, public sector units, utilities, real estate developers, state governments,
municipal corporations, stock brokers and others.

1. Manufacturing Companies: These entities often seek credit ratings when issuing bonds or other debt
instruments to finance capital expenditures, expansion projects, or working capital needs. A higher credit
rating can lower borrowing costs and enhance the company's ability to attract investors.

2. Non-Banking Finance Companies (NBFCs): NBFCs play a crucial role in providing credit to various
sectors of the economy, including retail, SMEs (Small and Medium Enterprises), and infrastructure. Credit
ratings help NBFCs access funding from banks, capital markets, and other sources at favorable terms,
enabling them to expand their lending activities.

3. Banks (Nationalized and Private): Banks utilize credit ratings for multiple purposes, including assessing
the credit risk of their loan portfolios, determining capital requirements, and managing liquidity. Higher
credit ratings enhance a bank's reputation and credibility in the financial markets, facilitating access to
funding at competitive rates.

4. Financial Institutions: This category includes a wide range of institutions such as insurance companies,
asset management firms, and pension funds. Credit ratings help financial institutions evaluate the
creditworthiness of issuers and make informed investment decisions while complying with regulatory
requirements.

5. Public Sector Units (PSUs): Government-owned enterprises often require credit ratings when issuing
bonds or seeking financing for infrastructure projects. Ratings provide transparency and assurance to
investors regarding the credit quality of PSU securities, thereby facilitating fundraising activities.
6. Utilities: Companies operating in the utility sector, including electricity, water, and telecommunications
providers, rely on credit ratings to support their financing needs. Ratings help utilities access debt capital
markets for funding large-scale infrastructure projects and maintaining essential services.

7. Real Estate Developers: Developers seeking financing for residential, commercial, or industrial projects
may obtain credit ratings to enhance their credibility with lenders and investors. Ratings provide assurance
regarding the developer's financial strength and ability to execute projects successfully, thereby attracting
capital from banks, NBFCs, and other investors.

8.State Governments and Municipal Corporations: Regional governments and local authorities issue bonds
to finance public infrastructure, such as roads, bridges, schools, and hospitals. Credit ratings play a crucial
role in determining the interest rates and investor demand for these bonds, thereby influencing the cost of
borrowing for state and municipal entities.

9.Stock Brokers: While primarily involved in facilitating securities trading, stockbrokers may require credit
ratings for their own financing needs or to support their clients' investment decisions. Ratings can enhance a
broker's credibility and access to credit facilities from banks and financial institutions.

10. Infrastructure Developers: Companies involved in infrastructure development, such as toll roads,
airports, ports, and railways, rely on credit ratings to raise funds for construction and expansion projects.
Ratings provide assurance to investors and lenders regarding the stability and creditworthiness of
infrastructure assets, facilitating access to long-term financing for critical infrastructure projects.

11. Special Purpose Vehicles (SPVs): SPVs are commonly used in project finance transactions to ring-fence
project assets and liabilities from the sponsoring company's balance sheet. Credit ratings for SPVs help
investors assess the credit risk associated with project financing arrangements and determine the feasibility
of investing in infrastructure or energy projects.

12. Sovereign Entities: National governments and sovereign wealth funds may seek credit ratings to assess
their creditworthiness in the international capital markets. Sovereign ratings influence investor perceptions
of a country's economic and political stability, impacting its ability to borrow funds at favorable terms and
attract foreign investment.

13. Multinational Corporations (MNCs): Global companies operating across multiple jurisdictions often
obtain credit ratings to support their debt issuance activities and optimize their capital structure. Ratings
provide transparency and credibility to MNCs' financial health and creditworthiness, facilitating access to
funding in domestic and international markets.
14. Project Finance Arrangements: Project finance transactions, such as public-private partnerships (PPPs)
and build-operate-transfer (BOT) contracts, require credit ratings to assess the credit risk associated with
project sponsors, lenders, and off-takers. Ratings help stakeholders evaluate the feasibility and
creditworthiness of infrastructure or energy projects, influencing investment decisions and financing terms.

15. Export-Import (EXIM) Banks: Export credit agencies and EXIM banks provide financing and insurance
services to support international trade and export-oriented industries. Credit ratings assist EXIM banks in
evaluating the creditworthiness of exporters and importers, mitigating credit risk, and enhancing the
availability of trade finance facilities.

16. Infrastructure Investment Funds: Institutional investors, such as pension funds, sovereign wealth funds,
and infrastructure investment funds, rely on credit ratings to assess the credit risk of infrastructure assets and
infrastructure-related securities. Ratings help investors allocate capital efficiently and manage portfolio risk
in infrastructure investments.

17. Public-Private Partnerships (PPPs): PPP projects involve collaboration between public sector entities and
private sector investors to develop and operate infrastructure assets or provide public services. Credit ratings
for PPP projects help assess the credit risk associated with project sponsors, lenders, and government
counterparties, facilitating private sector participation and project financing.

18. Venture Capital and Private Equity Funds: Venture capital and private equity funds may require credit
ratings to evaluate the creditworthiness of portfolio companies and assess investment opportunities. Ratings
provide insights into the financial health and risk profile of investee companies, supporting investment
decisions and portfolio management strategies.

19. Microfinance Institutions (MFIs): MFIs provide financial services, such as microloans and savings
accounts, to underserved communities and micro-entrepreneurs. Credit ratings help MFIs access funding
from banks, investors, and development finance institutions, enabling them to expand their outreach and
support financial inclusion objectives.
 20. Green Bonds Issuers: Companies and financial institutions issuing green bonds to finance
environmentally sustainable projects seek credit ratings to enhance the credibility and transparency of their
sustainability initiatives. Green bond ratings assess the environmental impact, governance practices, and
financial viability of green projects, attracting socially responsible investors and promoting climate-friendly
investments.

21. Social Impact Investors: Social impact investors allocate capital to companies and projects that generate
positive social or environmental outcomes alongside financial returns. Credit ratings incorporating
environmental, social, and governance (ESG) factors help social impact investors assess the sustainability
and social impact of their investment portfolios, aligning with their mission-driven investment objectives.

22. Insurance Companies and Reinsurers: Insurance companies and reinsurers rely on credit ratings to
evaluate the creditworthiness of policyholders, counterparties, and investment securities. Ratings influence
insurance underwriting decisions, investment strategies, and risk management practices, helping insurers
maintain financial stability and meet regulatory capital requirements.

23. Educational and Research Institutions: Educational institutions and research organizations may seek
credit ratings to assess their creditworthiness and access funding for infrastructure development, research
projects, and capital investments. Ratings provide assurance to lenders and investors regarding the financial
strength and stability of academic institutions, supporting their long-term growth and sustainability
initiatives.

24. Healthcare Providers and Hospitals: Healthcare providers and hospital networks may obtain credit
ratings to secure financing for facility expansions, medical equipment acquisitions, and operational
improvements. Ratings help healthcare organizations demonstrate their financial stability and
creditworthiness to lenders, investors, and government agencies, facilitating access to capital for healthcare
infrastructure and patient care initiatives.funding sources and manage financial risks effectively.

Origin and Evolution of Credit Rating Agencies

As economic advancements burgeoned in the Western world, a profound transformation unfolded in the
dynamics of merchant-customer relations. Initially, merchants exercised cautious discretion, extending credit
privileges solely to familiar clientele, thereby mitigating the risk of financial loss. However, with the
burgeoning trade and expanding distances, the intimate familiarity between merchants and their patrons
dissipated, engendering a climate of apprehension regarding credit extension to unknown customers.

This reluctance among business owners to offer credit to unfamiliar entities precipitated the genesis of the credit
reporting industry. The pivotal milestone in this trajectory can be traced back to the aftermath of the Economic
Crisis of 1837, culminating in the establishment of the first Mercantile Credit Rating Agency by Mr. Lewis
Tappan in New York City in 1841. These agencies diligently assessed individuals' financial reliability,
consolidating their ratings into accessible guides for reference.

The evolution continued as Robert Dun acquired Tappan's agency, ushering in a new era of credit rating
reporting. In 1857, Dun published the inaugural report on credit rating, marking a significant stride in the
formalization of credit assessment practices. The subsequent merger of these pioneering agencies in 1933
birthed Dun and Bradstreet, a formidable entity that later acquired Moody's Investor Service in 1962, thereby
solidifying its position as a leader in the credit rating domain.

Moody's, with its rich heritage traced back to the visionary efforts of John Moody, emerged as a seminal figure
in the evolution of credit rating. Moody's pioneering efforts, manifested in the publication of the first market
assessment in 1900, heralded a new era of financial analysis and evaluation. Despite facing challenges, notably
during the 1907 financial crisis, Moody persevered and reinvented his enterprise to offer comprehensive
analyses of security values, heralding the dawn of modern credit rating practices.

The expansion of the credit rating industry gained momentum with the establishment of Poor's Publishing
Company in 1916, followed by the inception of the Standard Statistics Company in 1922 and Fitch Publishing
Company in 1924. These endeavors culminated in the formation of Standard and Poor's in 1941, marking a
significant consolidation within the industry.

The subsequent decades witnessed a proliferation of credit rating agencies worldwide, with notable entrants
such as the Canadian Bond Rating Service, Thomson Bankwatch, and the Japanese Bond Rating Institute in the
1970s. This global expansion underscored the growing importance of credit assessment in facilitating
transparent and efficient financial markets.

In India, the journey of credit rating is relatively nascent, spanning a mere decade and a half. However, major
rating agencies such as CRISIL, ICRA, and CARE have played pivotal roles in instilling investor confidence
and supporting regulatory frameworks. These Indian agencies have not only attracted global counterparts but
also contributed to regional alliances such as the Association of Credit Rating Agencies of Asia (ACRAA),
fostering collaborative efforts toward enhancing credit assessment practices.

In conclusion, the evolution of credit rating from its humble origins to its current global stature epitomizes its
indispensable role in facilitating robust financial markets and fostering investor confidence. The ongoing
endeavors of rating agencies worldwide underscore a collective commitment to transparency, accountability,
and informed decision-making in the realm of finance.

Factors Affecting Credit Score

Factors influencing credit scores wield considerable influence over individuals' financial lives, impacting their present and
future prospects in unforeseen ways. These scores, pivotal in determining interest rates and loan approvals, extend their
reach beyond traditional financial realms, with even insurance companies and utility providers scrutinizing them. For both
individuals and well-established corporations, several key factors play a pivotal role in shaping credit scores.

Firstly, credit history stands as a cornerstone in credit score assessment. The frequency of past loan approvals and
successful repayments without defaults profoundly impacts the score, reflecting an individual or company's
creditworthiness.

Secondly, the utilization of credit emerges as a critical determinant. Those consistently maxing out their credit limits
signal a heavier debt burden and heightened default risk, potentially leading to credit score declines.
Additionally, repayment history serves as a crucial gauge of creditworthiness. Failure to meet repayment obligations
invariably tarnishes one's credit score, serving as a red flag for potential lenders.

Moreover, the presence of guarantors on loans can influence credit scores, with the number and types of guarantees
reflecting on both the borrower and guarantor's creditworthiness.

Settlement cycles, denoting requests for loan account closures or debt waivers due to financial constraints, can
significantly impact credit scores. Instances of settlements may deter future loan approvals, signaling heightened risk to
lenders.

In the corporate sphere, credit scores hinge on diverse factors. These include the volume and composition of outstanding
debts, the organization's ability to service debts based on past and projected cash flows, and the track record of key
management personnel in driving operational efficiency and market growth.

Furthermore, market positioning factors prominently, encompassing aspects like product market share, demand dynamics,
and distribution channels. Hypothecated asset values and associated risks in the event of debt default also weigh on
corporate credit scores.

In the Indian context, credit rating pertains primarily to security issuances rather than corporate evaluation. For instance, a
company's debenture issuance receives a specific rating, distinct from the company's overall creditworthiness. Compliance
mandates for credit ratings accompany various financial instruments, including debentures, commercial papers, and fixed
deposit programs, ensuring transparency and risk mitigation in the financial landscape.

In summary, an array of factors, from credit history to market positioning, collectively shape credit scores for individuals
and corporations alike, influencing financial opportunities and risk perceptions in the dynamic realm of credit assessment
EVOLUTION OF CREDITRATINGAGENCIES

The origins of credit rating can indeed be traced back to the mid-19th century, a period marked by
significant economic upheaval, including the financial crisis of 1837. In the aftermath of this crisis, there
was a growing need for reliable information about the creditworthiness of merchants and businesses,
particularly as the economy became increasingly interconnected and reliant on credit transactions.

Louis Tappan's establishment of the first mercantile credit agency in New York in 1841 marked a significant
milestone in the development of credit rating systems. Tappan's agency assessed the ability of merchants to
fulfill their financial obligations, providing crucial information to creditors and investors. This pioneering
effort laid the foundation for the modern credit rating industry.

Robert Dun played a pivotal role in advancing the concept of credit rating when he acquired Tappan's
agency and subsequently published the first rating guide in 1859. Around the same time, John Bradstreet
established another similar agency in 1849, which published its own rating book in 1857. The merging of
Dun's and Bradstreet's agencies in 1933 to form Dun & Bradstreet marked a consolidation of efforts in the
credit rating industry, solidifying its presence in the financial landscape.
Meanwhile, John Moody emerged as a key figure in the evolution of credit rating with his groundbreaking
publication, Moody's Manual of Industrial and Miscellaneous Securities, in 1900. Moody recognized the
growing demand for comprehensive information on securities and saw an opportunity to fill this need. His
manual quickly gained popularity and became a trusted resource for investors seeking insights into the
investment quality of various securities.

Despite initial challenges, including the financial difficulties faced during the stock market crash of 1907,
Moody persevered and continued to innovate. He introduced the use of letter-rating symbols borrowed from
the mercantile and credit rating system, providing a standardized method for assessing the credit risk of
securities. This innovation revolutionized the way investors evaluated investment opportunities, providing
them with a common language to gauge risk and make informed decisions.

Over time, Moody's company expanded its scope beyond railroad securities to cover a broader range of
industries and securities. The adoption of Moody's credit rating system became widespread, further
cementing the company's reputation as a leading authority in credit assessment.

The merger of Dun & Bradstreet with Moody's Investors Service in 1962 marked a significant consolidation
within the credit rating industry, bringing together two prominent players with complementary strengths.
This merger further solidified Moody's position as a dominant force in the global credit rating landscape, a
position it continues to hold to this day.

The origins of credit rating can be traced back to the efforts of pioneering individuals such as Louis Tappan,
Robert Dun, John Bradstreet, and John Moody, who recognized the need for reliable information on
creditworthiness in an increasingly complex and interconnected economy. Their contributions laid the
groundwork for the modern credit rating industry, which plays a vital role in facilitating efficient capital
allocation and risk management in financial markets worldwide.

The entry of John Moody into the business of analyzing stocks and bonds of America's railroads marked a
significant milestone in the evolution of credit rating. Moody's pioneering efforts in rating public market
securities in the early 20th century laid the groundwork for the establishment of Moody's Investors Service
in 1914. Moody's innovative approach to assessing railroad operations, management, and finance, as
outlined in his 1909 manual, provided investors with valuable insights into the creditworthiness of various
securities.

Expanding beyond railroad investments, Moody ventured into analyzing industrial companies and utilities in
1913, broadening the scope of Moody's ratings and solidifying its reputation in the bond market. The
incorporation of Moody's Investors Service further formalized the company's role as a leading credit rating
agency, setting the stage for continued expansion into municipal bonds and other sectors.

The credit rating industry witnessed further growth and competition with the emergence of new players in
subsequent years. In 1916, Poor's Publishing Company entered the market with its own rating services,
followed by the establishment of the Standard Statistics Company in 1922 and the Fitch Publishing
Company
in 1924. These new entrants added depth and diversity to the credit rating landscape, providing investors
with a broader range of options for credit analysis.

The merger of Standard Statistics Company with Poor's Publishing Company in 1941 resulted in the
formation of Standard and Poor's (S&P), a major player in the credit rating industry that would eventually
become part of McGraw Hill in 1966. S&P's entry into the market further intensified competition among
credit rating agencies and contributed to the standardization and development of rating methodologies.

The subsequent decades saw a period of relative stability in the credit rating industry, with few new entrants
until the 1970s. During this period, several new credit rating agencies emerged, including Thomson
Bankwatch (1974), Japanese Bond Rating Institute (1975), McCarthyCrisani and Mafia (acquired by Duff
and Phelps in 1991), Dominican Bond Rating Service (1997), IBCA Limited (1978), and Duff and Phelps
Credit Rating Company (1980).

The global expansion of credit rating agencies continued with agencies establishing operations in countries
such as Malaysia, Thailand, and Australia. These international expansions reflected the growing demand for
credit rating services in emerging markets and the increasing globalization of financial markets.

Institutional ownership became the norm for credit rating agencies, with major players like Moody's, S&P,
and Fitch being owned by institutional investors or publicly traded companies. Additionally, strategic
partnerships and collaborations were formed to expand the reach of credit rating agencies, such as Duff and
Phelps' tie-up with Indian NBFCs to establish Duff and Phelps Credit Rating India (P) Limited in 1996.

Overall, the evolution of the credit rating industry has been characterized by innovation, competition, and
globalization, with credit rating agencies playing a crucial role in providing investors with essential
information for making informed investment decisions.

TYPES OFRATING

1. Bond/Debenture Rating: This type of rating assesses the creditworthiness of bonds or debentures issued
by corporations, governments, or other entities. It helps investors gauge the risk associated with investing
in these fixed-income securities, influencing their investment decisions and pricing in the bond market.

2. Equity Rating: Equity rating evaluates the investment attractiveness of a company's shares or stocks. It
considers factors such as the company's financial performance, management quality, industry outlook,
and overall market conditions to provide investors with insights into the potential returns and risks
associated with owning the company's equity.
3. Preference Share Rating: Similar to bond and equity ratings, preference share rating evaluates the credit
risk of preference shares issued by companies. Preference shares typically offer fixed dividends and
priority over common equity in terms of dividends and liquidation proceeds, making their creditworthiness
an important consideration for investors.

4. Commercial Paper Rating: Commercial paper rating assesses the credit risk of short-term debt
instruments issued by corporations, banks, financial institutions, and other entities. These instruments
typically have maturities ranging from a few days to a year and are used for short-term financing needs.
Credit ratings help investors evaluate the safety and liquidity of commercial paper investments.

5. Fixed Deposits Rating: Fixed deposits rating evaluates the credit risk associated with fixed deposit
programs offered by banks, financial institutions, and non-banking finance companies (NBFCs). It
provides depositors with an indication of the likelihood of timely repayment of principal and interest on
their fixed deposits.

6. Borrowers Rating: Borrowers rating assesses the creditworthiness of individual borrowers or entities
seeking loans or credit facilities from banks, financial institutions, or other lenders. It helps lenders
evaluate the risk of default and determine the terms and conditions of lending, including interest rates and
loan amounts.

7. Individuals Rating: Individual credit rating evaluates the creditworthiness of individual consumers based
on their credit history, financial behavior, and repayment capacity. It is commonly used by banks, credit
card companies, and other lenders to assess the risk of lending to individuals and determine credit limits
and interest rates.

8. Structured Obligation Rating: Structured obligation rating assesses the credit risk of complex financial
instruments or securities backed by pools of assets, such as mortgage-backed securities (MBS),
collateralized debt obligations (CDOs), and asset-backed securities (ABS). These ratings consider the
underlying assets, structure, and cash flow mechanics of the transaction to determine the likelihood of
timely repayment to investors.

9. Sovereign Rating: Sovereign rating evaluates the creditworthiness of sovereign governments, assessing
their ability to meet debt obligations and manage fiscal policies. It is crucial for international investors,
multinational corporations, and financial institutions when making investment decisions or extending
loans to foreign governments.

10. Project Finance Rating: Project finance rating assesses the credit risk of specific projects, such as
infrastructure developments, energy projects, or large-scale construction projects. It considers factors such
as project feasibility, cash flow projections, regulatory environment, and sponsor support to evaluate the
likelihood of project success and repayment of project finance debt.

11. Insurance Company Rating: Insurance company rating evaluates the financial strength and stability of
insurance companies, assessing their ability to meet policyholder obligations and withstand various
financial and economic conditions. It helps policyholders, regulators, and investors gauge the solvency and
reliability of insurance companies.

12. Mutual Fund Rating: Mutual fund rating assesses the performance, risk, and management quality of
mutual funds, helping investors evaluate investment options and make informed decisions about fund
selection. It considers factors such as fund returns, expense ratios, portfolio composition, and risk-
adjusted performance metrics.

13. Municipal Bond Rating: Municipal bond rating evaluates the creditworthiness of bonds issued by
local governments, municipalities, or other public entities. It assesses factors such as the issuer's financial
health,
tax base, economic conditions, and debt management practices to determine the risk of default and the
appropriate credit rating for municipal bonds.

14. Credit Default Swap (CDS) Rating: CDS rating assesses the credit risk of credit default swap
contracts, which provide insurance against the default of a specific debt instrument or borrower. It helps
investors evaluate the counterparty risk associated with CDS transactions and make hedging or
investment decisions accordingly.

These various types of ratings cater to the diverse needs of investors, lenders, and other stakeholders in the
financial markets, providing essential information for risk assessment, investment decision-making, and
portfolio management.

BENEFITSOFCREDITRATING
Various classes of individuals reap distinct advantages from the utilization of rated instruments.

(A) BENEFITS TO INVESTORS

1) Portfolio Diversification: Credit ratings allow investors to diversify their portfolios effectively. By
investing in a mix of highly-rated and lower-rated securities, investors can spread their risk and
potentially enhance their overall returns.

2) Access to Capital Markets: Highly-rated securities are often more liquid and easily tradable in the
capital markets. Investors holding rated instruments can benefit from greater marketability, enabling them
to buy and sell securities with ease.

3) Risk Management: Credit ratings serve as valuable tools for risk management. Investors can use ratings to
assess the credit risk of their investment portfolios and make adjustments accordingly to align with their risk
tolerance and investment objectives.
4) Regulatory Compliance: Institutional investors, such as pension funds and insurance companies, are often
subject to regulatory requirements regarding the credit quality of their investments. Credit ratings help these
investors comply with regulatory standards by providing a standardized measure of credit risk.

5) Benchmarking and Performance Measurement: Credit ratings provide a benchmark for evaluating the
performance of investment portfolios. Investors can compare the performance of their holdings against
the credit quality indicated by ratings, helping them assess the effectiveness of their investment
strategies.

6) Risk-adjusted Returns: By incorporating credit ratings into their investment decisions, investors can
potentially achieve higher risk-adjusted returns. Highly-rated securities typically offer lower yields but
also lower default risk, allowing investors to optimize their investment returns relative to the level of risk
assumed.

7) Enhanced Transparency: Credit rating agencies conduct thorough analyses of issuers' financial health
and creditworthiness, providing investors with transparent and reliable information. This transparency
fosters trust in the financial markets and encourages greater participation from investors.

8) Long-term Planning: Investors can use credit ratings to make informed decisions for long-term
financial planning. By assessing the credit quality of their investments, investors can better position
themselves to achieve their financial goals and objectives over time.

9) Mitigation of Information Asymmetry: Credit ratings help mitigate information asymmetry between
investors and issuers. By providing independent assessments of credit risk, ratings reduce the
informational advantage that issuers may have over investors, leading to more efficient capital allocation.

10) Facilitation of Due Diligence: Credit ratings serve as an initial screening tool for investors
conducting due diligence on potential investments. Investors can use ratings as a starting point for
deeper analysis, focusing their efforts on securities that meet their risk criteria and investment
preferences.

11) Global Investment Opportunities: With the globalization of financial markets, credit ratings facilitate
cross-border investment opportunities. Investors can access a diverse range of rated securities from
different regions and countries, enabling them to diversify their portfolios and capitalize on global market
trends.

12) Market Transparency: Credit rating agencies provide transparency in the market by offering unbiased
assessments of creditworthiness. This transparency allows investors to make informed decisions based on
standardized information, reducing information asymmetry and enhancing market efficiency.

13) Facilitation of Diversification: Credit ratings enable investors to diversify their portfolios effectively
by assessing the credit risk associated with different investment options. By spreading investments across
various rated instruments with different risk profiles, investors can mitigate overall portfolio risk and
enhance potential returns.

14) Regulatory Compliance: Institutional investors, such as pension funds, insurance companies, and
mutual funds, often have regulatory requirements mandating the use of rated instruments within their
portfolios. Credit ratings help investors comply with these regulations while managing risk and
maximizing returns within their investment mandates.

15) Enhanced Liquidity: Rated instruments often enjoy greater liquidity in the secondary market compared
to unrated securities. Investors can buy and sell rated instruments more easily, reducing transaction costs
and enhancing portfolio flexibility. Additionally, the availability of credit ratings improves market liquidity
by attracting more participants and increasing trading activity.
16) Improved Credit Analysis: Credit ratings provide investors with valuable insights into the
creditworthiness of issuers, allowing for more thorough credit analysis. Investors can assess factors such
as
cash flow, leverage, and financial stability based on the rating assigned to a security, enabling them to make
informed investment decisions.

17) Risk Differentiation: Credit ratings enable investors to differentiate between securities based on
their credit risk profiles. By considering the ratings assigned by credit rating agencies, investors can
identify securities with varying levels of default risk and adjust their investment strategies accordingly.

18) Facilitation of Investment Strategy: Credit ratings play a crucial role in shaping investors'
investment strategies. Investors can use ratings to allocate their capital across different asset classes,
sectors, and geographic regions, aligning their investment decisions with their risk-return preferences
and financial objectives.

19) Capital Preservation: Highly-rated securities provide investors with a measure of capital preservation,
as they typically exhibit lower default risk compared to lower-rated securities. By investing in highly-rated
instruments, investors can safeguard their principal investment and minimize the risk of loss due to issuer
default.

20) Access to Institutional Investment Funds: Institutional investment funds, such as mutual funds and
exchange-traded funds (ETFs), often have investment mandates requiring them to invest in rated
securities. Credit ratings allow retail investors to access these institutional funds, benefiting from
professional management and diversified portfolios.

21) Credit Spread Analysis: Credit ratings facilitate credit spread analysis, which involves comparing the
yield of a security to that of a benchmark with a similar credit rating. Investors can use credit spread
analysis to assess the relative value of a security and make investment decisions based on its risk-adjusted
return potential.

22) Counterparty Risk Assessment: Credit ratings help investors assess the creditworthiness of
counterparties in financial transactions, such as bond issuers, derivative counterparties, and lending
institutions. By considering the ratings of counterparties, investors can mitigate counterparty risk and
protect their investment interests.

23) Rating Stability Analysis: Investors can analyze the stability of credit ratings over time to assess the
resilience of rated securities to changing market conditions and economic environments. Stable ratings
indicate consistent creditworthiness, while rating upgrades or downgrades may signal changes in issuer
risk profiles.

24) Capital Allocation Optimization: Credit ratings aid investors in optimizing their capital allocation
strategies by balancing risk and return considerations. Investors can allocate capital to securities with
appropriate credit ratings based on their risk tolerance, investment horizon, and portfolio
diversification objectives.

25) Credit Rating Agency Research: Credit rating agencies provide research reports and insights on rated
securities, issuers, and market trends, which investors can leverage to enhance their understanding of credit
risk and investment opportunities. Investors can access comprehensive analysis and commentary from
credit rating agencies to inform their investment decisions and portfolio strategies.

26) Credit Default Swap (CDS) Pricing: Credit ratings influence the pricing of credit default swaps (CDS),
which are financial derivatives used to hedge against credit risk or speculate on changes in
creditworthiness. Investors can use credit ratings to assess the fair value of CDS contracts and manage
credit risk exposure in their portfolios.
27) Investor Confidence: Credit ratings contribute to investor confidence by providing a
standardized measure of credit risk and issuer creditworthiness. Investors rely on ratings to assess
the quality and reliability of investment opportunities, fostering trust and transparency in the
financial markets.

28) Securitization Investments: Credit ratings play a crucial role in securitization transactions, where
pools of assets are packaged into tradable securities. Investors in securitized products rely on credit
ratings to evaluate the credit quality of underlying assets and assess the risk-return profile of
securitization investments.

29) Credit Rating Performance Analysis: Investors can analyze the historical performance of credit ratings
to evaluate the accuracy and reliability of credit rating agencies' assessments. By examining rating
migration patterns and default rates, investors can gauge the predictive power of credit ratings and make
informed decisions about their use in investment analysis.

30) Credit Risk Mitigation: Credit ratings enable investors to mitigate credit risk through
diversification, hedging, and risk management strategies. By incorporating credit ratings into their
investment process, investors can identify and mitigate potential credit-related losses, enhancing the
overall stability and resilience of their investment portfolios.

(B) BENEFITS OF RATING TO THE COMPANY

Company which had its creditinstrument or s ecu r i t y r at ed by a credit rating agency is

benefited in many ways as summarized below:
Certainly, here are additional points detailing the benefits of credit rating to the company:

1) Access to Capital Markets: A company with a favorable credit rating can access capital markets more
easily and at lower costs. This includes both debt and equity markets, where investors are more willing to
invest in securities issued by highly rated companies, leading to improved liquidity and capital
availability.

2) Enhanced Investor Confidence: A credit rating acts as a signal of the company's financial health and
creditworthiness to potential investors and lenders. This enhanced investor confidence can attract a broader
investor base, including institutional investors, leading to increased demand for the company's securities
and potentially higher valuations.

3) Improved Negotiating Power: Companies with higher credit ratings have greater bargaining power
when negotiating terms with lenders, suppliers, and other stakeholders. This may result in more favorable
loan terms, lower interest rates, extended payment terms, and better pricing from suppliers, ultimately
improving the company's profitability and financial flexibility.

4) Competitive Advantage: A favorable credit rating can confer a competitive advantage to a company
over its peers. It signals to customers, suppliers, and partners that the company is financially stable and
trustworthy, potentially leading to increased market share, better supplier terms, and stronger customer
relationships.

5) Regulatory Compliance: In many jurisdictions, regulatory requirements mandate credit ratings for
certain types of financial transactions or corporate activities. Obtaining and maintaining a favorable credit
rating ensures compliance with these regulations, avoiding potential penalties or restrictions on business
activities.

6) Risk Management: Credit ratings provide valuable insights into the company's credit risk profile,
allowing management to identify areas of weakness and implement risk mitigation strategies proactively.
This can include improving financial management practices, diversifying funding sources, and
strengthening internal controls.
7) Increased Access to Funding Sources: Companies with higher credit ratings have access to a wider
range of funding sources, including bank loans, bond markets, and institutional investors. This
diversification of funding sources reduces reliance on any single source of financing and improves
financial resilience.

8) Expansion Opportunities: A strong credit rating can facilitate business expansion initiatives, such as
mergers and acquisitions, joint ventures, and international expansion. Lenders and investors are more
likely to support expansion plans for companies with proven financial stability and creditworthiness.
.
9) Strategic Partnerships and Alliances: Companies with strong credit ratings are often viewed as
reliable partners by other businesses. This can lead to opportunities for strategic partnerships, joint
ventures, and alliances that can enhance the company's market position, access to technology, and
distribution networks.

10) Regulatory and Legal Advantages: Companies with high credit ratings may benefit from preferential
treatment or exemptions in certain regulatory frameworks. Additionally, a strong credit rating can serve
as evidence of financial stability in legal proceedings, such as contract negotiations, litigation, or
regulatory compliance requirements.

11) Enhanced Brand Reputation: A favorable credit rating reflects positively on the company's brand
reputation and can strengthen customer trust and loyalty. Consumers may perceive highly rated
companies as more trustworthy, leading to increased sales, brand loyalty, and positive word-of-mouth
referrals.

12) Access to Government Contracts and Grants: Government agencies often require contractors to meet
certain financial criteria, including credit ratings, when awarding contracts or grants. Companies with
strong credit ratings are more likely to qualify for government opportunities, expanding their revenue
streams and market reach.

13) Investor Relations and Stakeholder Confidence: Maintaining a favorable credit rating is essential for
effective investor relations and stakeholder communication. Investors, shareholders, and other stakeholders
rely on credit ratings as indicators of the company's financial health and management effectiveness,
fostering trust and confidence in the company's leadership and strategic direction.

14) Cost of Capital Reduction: Companies with higher credit ratings typically enjoy lower borrowing
costs, as they are perceived as less risky by investors and lenders. This reduction in the cost of capital can
lead to significant savings for the company over time, increasing profitability and shareholder value.

15) Rating Differentiation: A favorable credit rating can differentiate a company from its competitors in
the eyes of investors and stakeholders. Companies with strong credit ratings may attract more attention
from analysts, media outlets, and industry experts, enhancing their visibility and reputation in the
marketplace.

16) Expansion of Investor Base: A positive credit rating can broaden the company's investor base by
attracting interest from institutional investors, such as pension funds, insurance companies, and mutual
funds. This expanded investor base can increase demand for the company's securities and support liquidity
in the secondary market.
17) Enhanced Corporate Governance: Maintaining a favorable credit rating requires adherence to sound
corporate governance practices and financial transparency. Companies with strong credit ratings are often
perceived as having robust governance structures, which can enhance trust and credibility among
investors and stakeholders.

18) Access to Trade Credit: Suppliers and vendors may offer more favorable trade credit terms to
companies with strong credit ratings, such as extended payment terms or higher credit limits. This can
improve the company's working capital management and cash flow efficiency, supporting ongoing
operations and growth initiatives.

19) Merger and Acquisition Opportunities: Companies with strong credit ratings may have an advantage in
pursuing merger and acquisition opportunities. A positive credit rating can enhance the company's
credibility and negotiating position during M&A discussions, potentially leading to favorable terms and
valuations.

20) Attraction of Strategic Partnerships: High-rated companies are often sought after as strategic partners
by other businesses seeking to leverage their financial strength and stability. Strategic partnerships can
open doors to new markets, technologies, and distribution channels, driving growth and innovation for
both parties involved.

21) International Expansion Facilitation: A strong credit rating can facilitate international expansion efforts
by providing credibility and reassurance to foreign investors, lenders, and business partners. Companies
with favorable credit ratings may find it easier to access capital and establish operations in foreign markets,
mitigating risks associated with cross-border transactions.

22) Regulatory Flexibility: Companies with strong credit ratings may benefit from regulatory flexibility
or preferential treatment in certain jurisdictions. Regulators may view highly rated companies as lower
risk entities, allowing them to enjoy regulatory relief or streamlined approval processes for certain
business activities or transactions.

23) Brand Enhancement: A positive credit rating can enhance the company's brand reputation and
differentiate it from competitors in the marketplace. Customers, suppliers, and stakeholders may perceive
highly rated companies as more reliable, trustworthy, and resilient, strengthening brand loyalty and
market positioning.

24) Access to Supplier Financing Programs: Suppliers may offer financing programs or supply chain
financing solutions to companies with strong credit ratings. These programs can help improve cash flow,
reduce working capital requirements, and optimize inventory management, supporting operational
efficiency and profitability.

25) Insurance Premium Reduction: Companies with strong credit ratings may qualify for lower
insurance premiums on various types of business insurance, such as property and casualty insurance,
liability insurance, and business interruption insurance. This can result in cost savings and improved
risk management for the company.

26) Attraction of Top Talent: Highly rated companies are often viewed as desirable employers by top talent
in the industry. A positive credit rating can enhance the company's employer brand and attract high-caliber
employees who value stability, growth opportunities, and competitive compensation packages.

27) Enhanced Supplier Relationships: Suppliers may prioritize high-rated companies as preferred
customers and strategic partners, offering preferential treatment, pricing discounts, and supply chain
collaboration opportunities. This can lead to stronger supplier relationships, improved supply chain
efficiency, and greater resilience to market disruptions.
 28) Stakeholder Satisfaction: Maintaining a favorable credit rating can contribute to stakeholder
satisfaction and confidence in the company's long-term viability and success. Shareholders, employees,
customers, and other stakeholders may view a positive credit rating as a reflection of effective
management, prudent financial stewardship, and commitment to value creation.

C) BENEFITS TO BROKERS AND FINANCIAL INTERMEDIARIES

Rating serves as a valuable resource for merchant bankers and other intermediaries within the capital
market landscape. Brokers and securities dealers can leverage ratings to effectively monitor their risk
exposures.
Additionally, merchant bankers utilize credit ratings in the pre-packaging of issues through securitization and
structured obligations. The presence of highly rated instruments provides brokers with an advantageous
position, reducing the need for extensive company analysis.

1) Risk Management: Brokers and financial intermediaries utilize credit ratings as part of
their risk management strategies. By incorporating credit ratings into their risk assessment
frameworks, these entities can better evaluate the creditworthiness of securities and
portfolios, thereby mitigating potential losses and protecting their clients' investments.

2) Investment Recommendations: Credit ratings serve as valuable inputs for brokers when
making investment recommendations to their clients. Highly rated instruments are often
considered safer investments, and brokers can leverage credit ratings to provide informed
advice to investors seeking suitable investment opportunities.

3) Facilitation of Trading: Credit ratings enhance the liquidity of securities in the secondary
market, enabling brokers to execute trades more efficiently. Investors are more inclined to
buy and sell rated instruments due to the transparency and credibility provided by credit
ratings, resulting in increased trading activity and commission revenue for brokers.

4) Structured Finance Transactions: Brokers and financial intermediaries play a significant

role in structuring and facilitating complex financial transactions, such as securitization and
structured obligations. Credit ratings are integral to these transactions as they provide
investors with assurance regarding the credit quality of the underlying assets, facilitating the
issuance and trading of structured products.

5) Compliance Obligations: Regulatory bodies frequently mandate brokers and financial intermediaries to
incorporate credit ratings when assessing portfolios and adhering to regulatory mandates. Integration of
credit ratings into risk management practices enables brokers to maintain compliance with regulatory
frameworks, mitigating the risk of facing penalties or sanctions.

6) Investor Confidence: Brokers rely on the credibility and objectivity of credit ratings to
instill confidence in their clients. By incorporating credit ratings into their investment
analysis and recommendations, brokers can demonstrate their commitment to providing
reliable and transparent financial advice, strengthening their relationships with clients and
attracting new business.

7) Differentiation in the Market: Brokers who incorporate credit ratings into their investment
research and advisory services can differentiate themselves in the competitive brokerage
industry. By offering clients access to credible credit rating information and leveraging it to
identify attractive investment opportunities, brokers can enhance their value proposition and
attract a broader client base.

8) Risk-Based Pricing: Credit ratings enable brokers to implement risk-based pricing

strategies, tailoring investment products and services to meet the risk preferences and
 objectives of different client segments. By aligning pricing with credit risk profiles, brokers
can optimize revenue generation while effectively managing risk exposure.

9) Capital Allocation: Credit ratings provide brokers with valuable insights into the credit
quality of securities and issuers, informing their capital allocation decisions. By allocating
capital to highly rated instruments with lower credit risk, brokers can optimize their risk-
adjusted returns and enhance the overall profitability of their investment portfolios.

10) Reputation and Trust: Incorporating credit ratings into their investment processes
enhances the reputation and trustworthiness of brokers and financial intermediaries. Clients
are more likely to entrust their investments to brokers who demonstrate a thorough
understanding of credit risk and incorporate credible rating information into their investment
recommendations and decisions.

CHAPTER 2: RESEARCH METHODLOGY

Research Methodology

Therefore, it constitutes a crucial component of the study. Furthermore, the methodology encompasses the
procedures employed to collect, capture, process, and analyze data.

OBJECTIVES OF THE STUDY

The objectives serve to provide a specific direction to the study, delineating the aspects of the topic under
examination. A project's objectives offer insight into the manner in which the topic is investigated, the project's
structure, the selected variables, and more. The primary objective of this study is to comprehend the functioning
of Credit Rating Agencies in India. Credit Rating is viewed as an objective assessment of a borrower's
repayment ability, considering various financial and business risks.

i) To comprehend the Functional and Operational Aspects of Credit Rating Agencies.

ii) To explore the factors influencing Credit Scores.
iii) To grasp the significance of Credit Rating Agencies.
iv) Additionally, ten supplementary points are enumerated below to further elucidate the study's objectives:

1. To Investigate the Role of Credit Rating Agencies in Corporate Governance: Corporate governance plays a
pivotal role in ensuring transparency, accountability, and ethical conduct within corporations. This objective
aims to scrutinize the influence of CRAs on corporate governance practices, including their role in promoting
disclosure standards, risk management frameworks, and stakeholder engagement. By analyzing the interactions
between CRAs, corporate boards, and regulatory bodies, this objective seeks to elucidate the impact of credit
ratings on corporate decision-making processes and shareholder value.

2. To Explore the Relationship Between Credit Ratings and Economic Development: Credit ratings serve as
indicators of economic health, reflecting the creditworthiness and investment attractiveness of nations and
regions. This objective seeks to delve into the nexus between credit ratings and economic development in the
Indian context, analyzing how credit ratings influence capital flows, foreign investment, and economic growth.
Through the examination of historical trends, empirical data, and theoretical frameworks, this objective aims to
unravel the complex interplay between credit ratings and broader macroeconomic outcomes.

3. To Evaluate the Accuracy and Reliability of Credit Ratings: The accuracy and reliability of credit ratings are
essential for informed decision-making in financial markets. This objective endeavors to assess the quality of
credit ratings issued by CRAs in India, examining factors such as rating accuracy, predictive power, and
consistency over time. Through comparative analyses, sensitivity tests, and validation exercises, this objective
aims to gauge the reliability of credit ratings as tools for assessing credit risk and investment opportunities.

4. To Analyze the Regulatory Framework Governing Credit Rating Agencies: Regulatory oversight is crucial
for safeguarding the integrity and credibility of credit rating practices. This objective seeks to analyze the
regulatory frameworks governing CRAs in India, including statutory provisions, licensing requirements, and
enforcement mechanisms. By assessing the adequacy and effectiveness of regulatory oversight, this objective
aims to identify gaps, challenges, and opportunities for strengthening the regulatory regime and enhancing
market confidence.

5. To Examine the Impact of Technological Innovations on Credit Rating Practices: Technological

advancements, such as big data analytics, machine learning, and artificial intelligence, are reshaping the
landscape of credit rating practices. This objective aims to explore the implications of technological innovations
on credit rating methodologies, processes, and outcomes. By examining case studies, industry developments,
and emerging trends, this objective seeks to assess the opportunities and challenges presented by technological
disruption in the credit rating industry.
 6. To Investigate the Role of Credit Rating Agencies in Sustainable Finance: Sustainable finance,
encompassing environmental, social, and governance (ESG) considerations, is gaining prominence in
investment decision-making. This objective aims to investigate the role of CRAs in integrating ESG factors
into credit risk assessment and investment analysis. By examining rating methodologies, disclosure
standards, and market trends, this objective seeks to assess the contribution of CRAs to advancing
sustainability goals and responsible investment practices.

7. To Explore the Impact of Credit Ratings on Access to Capital Markets: Access to capital markets is
critical for businesses seeking to raise funds for growth and expansion. This objective aims to analyze how
credit ratings influence access to capital markets for different entities, including corporations, governments,
and financial institutions. By examining empirical data, market trends, and case studies, this objective seeks
to elucidate the relationship between credit ratings, investor perceptions, and capital market access
dynamics.

8. To Investigate the Controversies and Challenges Facing Credit Rating Agencies: Credit rating agencies
have faced scrutiny and criticism in the wake of financial crises and corporate scandals. This objective
aims to investigate the controversies and challenges confronting CRAs in India, including issues related to
conflicts of interest, rating accuracy, and regulatory compliance. By examining case studies, regulatory
reports, and academic literature, this objective seeks to identify areas of improvement and potential
reforms within the credit rating industry.

9. To Assess the Role of Credit Rating Agencies in Financial Stability and Systemic Risk Management:
CRAs play a crucial role in assessing and mitigating systemic risks within the financial system. This
objective aims to evaluate the contribution of CRAs to financial stability, including their role in identifying
emerging risks, assessing contagion effects, and informing regulatory interventions. By analyzing systemic
risk indicators, stress testing frameworks, and regulatory responses, this objective seeks to assess the
effectiveness of CRAs in promoting financial stability and resilience.

10. To Explore International Comparisons and Best Practices in Credit Rating Regulation and Oversight:
Credit rating practices vary across jurisdictions, reflecting differences in regulatory frameworks, market
structures, and institutional arrangements. This objective aims to explore international comparisons and best
practices in credit rating regulation and oversight, drawing insights from global experiences. By examining
case studies, regulatory assessments, and peer-reviewed literature, this objective seeks to identify lessons
learned and potential avenues for regulatory convergence and harmonization
11. To Understand the Functional and Operational Dynamics of Credit Rating Agencies: This objective
entails delving deep into the mechanisms through which CRAs operate within the Indian financial landscape.
This encompasses a comprehensive exploration of the organizational structure of CRAs, the methodologies
employed in credit assessment, and the regulatory frameworks governing their operations. By unraveling the
intricacies of their functioning, this objective aims to provide a nuanced understanding of the role played by
CRAs in the financial ecosystem.

12. To Examine the Factors Influencing Credit Scores: Credit scores, pivotal metrics in credit assessment,
are influenced by a myriad of factors ranging from financial indicators to macroeconomic trends. This
objective seeks to dissect the multifaceted determinants that impact credit scores, including but not limited
to, debt-to- income ratios, payment history, economic conditions, and regulatory changes. Through a
systematic analysis of these factors, this objective aims to illuminate the dynamics shaping creditworthiness
and lending practices in India.

13. To Evaluate the Significance of Credit Rating Agencies: CRAs play a pivotal role in facilitating
informed decision-making processes for lenders, investors, and borrowers alike. This objective endeavors to
elucidate the importance of CRAs in the financial ecosystem, highlighting their role in risk mitigation,
capital allocation, and market efficiency. By examining case studies, industry trends, and empirical
evidence, this objective seeks to underscore the indispensable contribution of CRAs to the stability and
functioning of the Indian economy.

14. To Assess the Impact of Credit Ratings on Financial Markets and Stakeholders: The issuance of credit
ratings exerts a profound influence on financial markets, influencing investor behavior, borrowing costs, and
market dynamics. This objective aims to assess the ripple effects of credit ratings on various stakeholders,
including investors, issuers, regulatory bodies, and policymakers. Through a comprehensive analysis of
market reactions, rating methodologies, and regulatory responses this objective endeavors to unravel the
interconnectedness between credit ratings and financial market outcomes.

15. To Propose Recommendations for Enhancing the Effectiveness and Transparency of Credit Rating
Agencies: Building upon the insights gleaned from the preceding objectives, this objective seeks to
formulate actionable recommendations for enhancing the effectiveness, transparency, and accountability of
CRAs in India. This may involve advocating for regulatory reforms, promoting best practices in credit
assessment, and fostering greater disclosure and oversight mechanisms. By offering pragmatic solutions, this
objective aims to contribute to the continuous improvement of credit rating practices and the resilience of the
financial system.
 HYPOTHESIS OF THE STUDY

HYPOTHESIS OF THE STUDY

Hypotheses serve as the assumptions made by researchers to investigate a research project. These assumptions
are formulated to align with the project objectives. Framing hypotheses is a crucial step in research as it lays the
groundwork for the research problem or statement upon which the entire study is based. The hypotheses or
research problems of the study are structured to explore the relationship between variables, assessing whether
one factor significantly influences another. Essentially, the following hypotheses aim to determine the degree of
correlation between them:

Hypothesis 1:
H0: There is no influence of credit rating on consumers' decision-making.
H1: There is influence of credit rating on consumers' decision-making.

Hypothesis 2:
H0: There is no influence of credit rating agencies on India's development.
H1: There is influence of credit rating agencies on India's development.

TYPE OF STUDY

The choice of research methodology in a project varies depending on the topic under investigation. The research
topic and methodology are interrelated. Some common research methodologies include:

QUANTITATIVE RESEARCH: Quantitative research employs numerical data to address problems. It

emphasizes problem-solving through the collection, interpretation, and analysis of numeric data.

EXPLORATORY RESEARCH: Exploratory research is conducted when a topic is studied for the first time. It
relies on primary data collection and is loosely structured, often without the need for hypothesis testing.

EXPERIMENTAL RESEARCH: Experimental research is conducted continuously to discover new findings in

various fields. It is prevalent in sectors such as IT, medicine, construction, agriculture, and science, aiming to
find solutions to ongoing problems and enhance existing sectors.
➢ APPLIED RESEARCH– Applied research involves the examination of existing applications to validate
their effectiveness. This type of research aims to test the validity of established principles and theories,
operating under the assumption that variables remain unchanged.

➢ ANALYTICAL RESEARCH– Analytical research utilizes predefined facts and information, analyzing
them to draw critical conclusions. Researchers employ analytical methods to examine existing data and derive
insights from it.

➢ DESCRIPTIVE RESEARCH– Descriptive research entails an in-depth exploration of the topic under
investigation. It typically involves reviewing existing literature to understand previous studies and conclusions
drawn from them. This method is commonly used in fields like social science and finance to study the
characteristics of the subject matter. Our research is based on descriptive methods, allowing for a
comprehensive understanding of credit rating agencies and their operational challenges. By examining both
qualitative and quantitative aspects, we aim to identify opportunities to enhance the landscape of credit rating
agencies in India. Additionally, our research incorporates a review of literature to provide a solid foundation for
the descriptive study.
SAMPLE SIZE

Determining the sample size is crucial in ensuring the reliability and accuracy of research findings. It involves
selecting the appropriate number of respondents or observations to represent the population. For this study, a
sample size ranging from 25 to 50 science students from Mumbai University was chosen, considering factors
such as the rate of non-response and non-availability of participants. Random sampling method was employed
to select the sample, although the small sample size may lead to slight inaccuracies in the data, which can be
addressed through further research.

SAMPLE DESIGN
The survey data was represented using pie charts and bar charts based on responses from 35 participants.
Probability sampling was utilized to ensure that each participant had an equal chance of being selected for the
study.

DATA COLLECTION METHOD

Both primary and secondary sources were utilized to collect data for the study.
PRIMARY SOURCE OF DATA COLLECTION –

Data collection was primarily conducted through a structured questionnaire administered via surveys. The
questionnaire was meticulously designed to align with the study's objectives and considerations. Its structured
format ensured ease of understanding for the respondents and streamlined the data collection process, saving
time.

SECONDARY SOURCE OF DATA COLLECTION –

Secondary data was gathered to supplement the primary data and gain insights into the research problem. This
involved accessing information and knowledge previously discussed by other researchers, obtained from
selective websites and online publications. The secondary data, particularly in the Review of Literature,
provided a foundation for understanding past discussions, identifying research gaps, and exploring further
avenues for investigation.

LIMITATIONS OF THE STUDY

Limitations inherent in the research project can affect the accuracy and reliability of the results:

1. The study was constrained by a short timeframe and limited geographical coverage.
2. The small sample size of 50 respondents may have impacted the study's accuracy; a larger sample size
would have enhanced precision.
3. The scope of discussion was restricted, given the need for more comprehensive exploration in
various scientific fields.
4. Interpretation of the study relies on the assumption of respondents providing accurate and honest answers.
5. Reluctance of students to participate in the survey could potentially undermine the validity of the
research findings.

REVIEW OF LITERATURE
Vepa's (2006) study provides valuable insights into the trends observed in the corporate debenture issues of
the private sector in India, with a specific focus on the rating trends as assessed by CRISIL, a pioneering
credit rating agency in India. Spanning the time period from 1991-1992 to 2004-05, the study sheds light on
significant shifts in the issuance patterns and credit quality of corporate debentures.

One notable trend highlighted in the study is the shift in issuance patterns, where the number of public and
right issues experienced a decline over the study period, while the percentage of private placements out of
total issues witnessed a consistent increase. This shift underscores the growing preference among corporates
for private placements as a means of raising capital, potentially driven by factors such as flexibility in terms
of issuance and pricing.

Despite the increase in private placements, the study reveals that many debt instruments, including
debentures, were downgraded during the period under review. This suggests a heightened level of credit risk
within the corporate debt market, potentially influenced by macroeconomic factors, industry-specific
challenges, and company-specific performance issues.

One intriguing observation made by the author is the presence of multiple credit rating agencies in India,
which provided issuers with the opportunity to approach more than one agency in hopes of securing
favorable ratings. This practice reflects the competitive dynamics within the credit rating industry and
underscores the importance of ratings in influencing investor perception and market access.

The study also underscores the significance of mandatory credit rating regulations introduced in India in 1992-
93. While private placements of debentures gained prominence as a preferred financing route due to the
absence of mandatory rating requirements, the author notes that rated debentures were perceived as safer and
more reliable by investors compared to unrated counterparts. This highlights the value placed by investors on
the independent assessment of credit risk provided by credit rating agencies

Vepa's study provides a comprehensive overview of the evolution of the corporate debenture market in India
and the role of credit rating agencies in shaping investor behavior and market dynamics. The findings
underscore the importance of transparency, disclosure, and independent credit assessment in fostering
investor confidence and facilitating efficient capital allocation in the corporate debt market.

Cantor et al. (2007) conducted a comprehensive analysis examining the behaviors of plan sponsors and
investment managers concerning the utilization of rating guidelines in their investment practices. Their
study, encompassing a sample of 200 plan sponsors and investment managers from the United States and
Europe, aimed to delve into various aspects of the linkage between market dynamics and the adoption of
rating guidelines.

One key finding of the study is the widespread use of rating guidelines among plan sponsors and investment
managers, albeit with considerable variation in their forms and underlying motivations. Despite these
differences, the usage of ratings displayed remarkable similarity between the United States and Europe,
indicating the global relevance of credit rating assessments in investment decision-making processes.

The researchers further observed that the adoption of rating-based guidelines by investment managers was
primarily driven by client requirements rather than regulatory mandates. This highlights the importance of
client preferences and market demand in shaping investment strategies and risk management practices within
the financial industry.

A noteworthy insight from the study is the preference expressed by market participants for the accuracy of
ratings over their stability. This underscores the importance placed on the quality and reliability of credit
ratings in informing investment decisions and risk assessments. While stability is desirable for consistency in
planning and execution, accuracy holds greater significance in ensuring informed decision-making and risk
mitigation.

Additionally, Cantor et al. (2007) delved into several significant issues regarding the relationship between
market dynamics and rating guidelines. These issues likely encompassed topics such as the impact of rating
changes on investment portfolios, the role of credit rating agencies in influencing market sentiment, and the
effectiveness of rating-based risk management strategies.

Czarnitzki and Kraft (2007) conducted a comprehensive study to investigate whether credit ratings offer
more specific insights into the creditworthiness of firms compared to publicly available information, which
is accessible to potential investors at minimal cost. Focusing on a sample of approximately 8000 firms in the
German manufacturing sector during the period of 1999-2000, the researchers compared the credit ratings
assigned by the leading German credit rating agency 'Credit reform' with publicly available data.

One significant finding of the study was the correlation between the age of firms and their likelihood of
default. The researchers observed that younger firms were more prone to default compared to their
established counterparts. This underscores the inherent risk associated with nascent businesses and
highlights the importance of considering firm age as a critical factor in assessing creditworthiness.

Additionally, Czarnitzki and Kraft (2007) found a relationship between firm productivity levels and the
probability of default. Specifically, firms with lower productivity were associated with a higher likelihood of
default, indicating the importance of operational efficiency and profitability in mitigating credit risk.

Furthermore, the study concluded that credit ratings provide additional informational value for lenders
beyond publicly available data. While publicly available information offers a foundation for assessing credit
risk, credit ratings offer more nuanced insights that can aid lenders in making more informed lending
decisions.

However, the researchers noted a tendency among rating agencies to overemphasize the factor of firm size in
constructing rating indices. This suggests a potential limitation in the current methodologies used by rating
agencies, which may not adequately capture the diverse range of factors influencing creditworthiness.
Czarnitzki and Kraft's study contributes valuable insights into the comparative effectiveness of credit ratings
versus publicly available information in assessing the creditworthiness of firms. By highlighting the
importance of firm age, productivity, and the potential limitations of current rating methodologies, the study
offers valuable implications for lenders, investors, and policymakers in their decision-making processes
within the financial landscape.

Jain and Sharma (2008) conducted an extensive examination of the functioning of credit rating agencies
within the context of their role as information disseminators in capital markets. The authors aimed to shed
light on the various conflicts of interest influencing rating decisions and how regulatory frameworks have
attempted to address these issues. Specifically, they delved into the regulatory landscape governing credit
rating agencies in India.

One major focus of the study was on the role of credit rating agencies as providers of vital information to
capital markets through their analysis, which is meant to be informed and independent. However, the authors
identified several conflicts of interest that can potentially impact rating decisions. These conflicts included
issues related to fee structures, the provision of ancillary services by credit rating agencies, ownership
interests of agencies in client securities, and the practice of notching.

Despite the significant role played by credit rating agencies in capital markets, the study revealed that they
are not adequately regulated, with limited responsibility placed on them for their rating actions. This
regulatory gap raises concerns about the integrity and reliability of credit ratings and their impact on investor
decision- making processes.

Moreover, within the Indian regulatory context, Jain and Sharma (2008) uncovered various loopholes in the
regulatory framework governing credit rating agencies. These deficiencies encompassed areas such as
inadequate disclosure requirements, the absence of a private enforcement regime, conflicts of interest at the
management level, and the absence of specific rules governing structured finance ratings.

The authors argued that these shortcomings in the regulatory system need to be addressed promptly and
effectively to enhance the transparency, accountability, and credibility of credit rating agencies in India.
They emphasized the importance of implementing robust regulatory measures to ensure that credit rating
agencies operate with integrity and serve the interests of investors and the broader financial market
ecosystem.

In their paper, Reddy and Gowda (2008) provided a comprehensive analysis of the significance and
challenges associated with credit ratings in India. They also elucidated the basis of credit rating and
prevalent credit rating practices within the Indian context. The study incorporated the perspectives of a
sample of investors from Hyderabad to gain insights into their awareness, reliance, and satisfaction with
credit rating agencies.

The findings of the study indicated a notable level of awareness among respondents regarding various credit
rating agencies operating in India, including CRISIL, CARE, and ICRA, among others. Approximately 40%
of the respondents acknowledged their dependence on credit ratings for making investment decisions in debt
instruments. Notably, a majority of these investors, accounting for over 50%, expressed a preference for
CRISIL over other credit rating agencies when seeking guidance for their investments.

Despite the existence of multiple credit rating agencies leading to some confusion among investors, the study
revealed a general satisfaction with the guidance provided by these agencies. This suggests a level of
confidence among investors in the credibility and reliability of credit ratings in facilitating their investment
decisions.

In another study, Bhattacharyya (2009) conducted an evaluation of the issuer rating system in India, focusing
specifically on ICRA's issuer rating model introduced in 2005. The author employed discriminant analysis to
identify quantitative variables with significant impacts on issuer ratings and assessed their relative
importance.

The study, covering the period from the inception of issuer ratings in 2005 to March 2008, analyzed a
sample of 17 companies rated by ICRA during this timeframe. Among the ten variables utilized by ICRA for
issuer ratings, factors such as PBIT & debt plus net worth ratio, current ratio, and net sales growth rate were
identified as crucial determinants. However, the study emphasized that qualitative factors could also
influence ratings dynamically.

Overall, the research by Reddy and Gowda (2008) and Bhattacharyya (2009) contributes valuable insights
into the functioning and effectiveness of credit rating practices in India. Their findings underscore the
importance of investor awareness, confidence in credit rating agencies, and the need for robust evaluation
frameworks to enhance the reliability and credibility of credit ratings in facilitating informed investment
decisions in the Indian financial markets.

In their study, Bheemanagauda and Madegowda (2010) undertook a comprehensive evaluation of the
performance of major credit rating agencies in India, namely CRISIL, ICRA, and FITCH. Utilizing
secondary data spanning the period from 2000 to 2008, the researchers aimed to assess the effectiveness and
reliability of these agencies in rating long-term debt instruments within the Indian financial landscape.

The analysis conducted in the study revealed a significant increase in the rating business in India during the
specified period. This surge underscores the growing importance and reliance placed on credit ratings by
market participants in assessing the creditworthiness of debt instruments and making informed investment
decisions.

One key finding highlighted in the study is the predominance of investment-grade ratings assigned to the
majority of instruments rated during the study period. This suggests a general trend towards favoring higher
credit quality securities, reflecting the cautious approach adopted by credit rating agencies in assigning
ratings.

However, the study also unveiled a notable disparity between rating upgrades and downgrades, with
downgrades outnumbering upgrades by more than double in terms of both the number of instruments and the
volume of debt. This disparity indicates a bias towards issuers, raising concerns about the objectivity and
accuracy of rating actions.
In light of these findings, the authors recommended the adoption of stringent methods to mitigate the
frequency of downgrades and enhance the integrity of rating assessments. Addressing issuer bias is crucial
for maintaining investor confidence and ensuring the credibility of credit rating agencies in the financial
market.

Furthermore, the study identified Fitch India Ratings as holding the top position in maintaining rating
stability, followed by CRISIL, ICRA, and CARE in descending order. This ranking provides valuable
insights into the relative performance of different credit rating agencies in terms of the consistency and
reliability of their ratings over time.

Bheemanagauda and Madegowda's study contributes to the understanding of the dynamics and challenges
inherent in the credit rating industry in India. By shedding light on the patterns of rating assignments and
revisions, as well as the relative performance of key rating agencies, the study offers valuable implications
for investors, regulators, and market participants in navigating the complexities of credit risk assessment in
the Indian financial market landscape.

CREDIT RATING AGENCY

A credit rating agency (CRA) is a company that assigns credit for issuers of certain types of debt
obligations. In most cases, these issuers are companies, cities, non-profit organizations, or national
governments issuing debt-like securities that can be traded on a secondary. Accredit rating measure
sworthiness, the ability to pay back a loan, and affects the interest rate applied to loans. (A company that
issues scores for individual credit- worthiness is generally called a bureau Interest rates are not the same for
everyone, as set out in their credit rating. There exist more than 100 rating agencies worldwide.

USESOFRATINGS BYCREDITRATINGAGENCIES

Credit ratings are used by investors, issuers, investment banks, broker-dealers, and by governments. 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 and lenders. This intern 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

FUNCTIONSOFACREDITRATING AGENCY

Credit rating serves the following functions:

(1) Provides Superior Information:

It provides superior information on credit risk for three reasons:

(i) It is an independent rating agency, and is likely to provide an unbiased opinion; unlike
brokers, financial intermediaries and underwriters who have a vested interest in the issue

(ii)Due to professional and highly trained staff, their ability to assess risk is better, and finally

(iii)The rating firm has access to a lot of information, which may not be publicly available.
(2) Low Cost Information
A rating firm gathers, analyses, interprets and summarizes complex information in a simple and readily
understood formal manner. It is highly welcome by most investors who find it prohibitively
expensive and simply impossible to do such credit evaluation of their own.

(3) Basis for A Proper Risk and Return

If an i ns t r um en t is r a t ed by a cr e di t r at i n g age ncy, t h en su c h i n s t rum e nt enjo ys
higher confidence from investors. Investors have some idea as to what is the risk that he/she is likely to
take, if investment is done in that security.

(4) Healthy Discipline On Corporate Borrowers

H i gh e r c r ed i t r at i ng to a ny cr e di t i nv es tm en t t e nd s to enhan ce th e co r po r at e i
ma g e an d visibility and hence it induces a healthy discipline on corporates.

(5) Greater Credence to Financial and Other Representation

When a credit rating agency rates a security, its own reputation is at stake. Therefore, it seeks high quality
financial and other information. As the issue complies with the demands of the credit rating agency on a
continuing basis, its financial and other representations acquire greater credibility.

(6) Formation of Public Policy

Public policy guidelines on what kinds of securities are eligible for inclusions in different
kinds of institutional portfolios can be developed with greater confidence if debt securities are
rated professionally.

(7) Facilitates Market Efficiency: Credit rating agencies play a vital role in enhancing market efficiency by
providing investors with standardized and reliable information, thereby reducing information asymmetry
and promoting fair pricing of securities in the market.

(8) Encourages Diversification: Investors rely on credit ratings to assess the risk of various investment
opportunities, which encourages diversification of investment portfolios. By providing insight into the
creditworthiness of different securities, credit ratings enable investors to spread their risk across a range
of assets.

(9) Enhances Access to Capital: Companies with higher credit ratings have better access to capital markets
at favorable terms, including lower interest rates and larger investment opportunities. This encourages
businesses to maintain strong financial health and transparency to attract investment.

(10) Supports Economic Growth: By promoting transparency and confidence in the financial system,
credit ratings facilitate capital flows and investment, which, in turn, support economic growth and
development.

(11) Improves Corporate Governance: Credit rating agencies often consider corporate governance
practices as part of their rating process. As a result, companies may be incentivized to improve their
corporate governance standards to achieve higher credit ratings, leading to better management practices
and accountability.

(12) Encourages Accountability: The rating process encourages companies to maintain transparent
financial reporting and adhere to contractual obligations to avoid negative rating actions. This fosters
greater accountability and responsible financial management within corporations.

(13) Guides Regulatory Decision-Making: Credit ratings can inform regulatory authorities in making
informed decisions regarding capital requirements, risk management regulations, and investor
protection measures, thereby contributing to the stability and integrity of financial markets.
(14) Supports Investor Confidence: Investors often rely on credit ratings as an important tool for
assessing the creditworthiness of issuers and the risk associated with their investments. Higher ratings
can instill confidence in investors, leading to increased participation in financial markets.

(15) Encourages Innovation: Credit rating agencies continually refine their methodologies and criteria to
adapt to changing market conditions and investor needs. This fosters innovation in credit analysis and
risk management practices, contributing to the overall development and efficiency of financial markets.

16) Facilitates Regulatory Compliance: Credit ratings often serve as benchmarks for regulatory
compliance requirements imposed on institutional investors, financial institutions, and corporate entities.
By aligning their investment decisions with credit ratings, entities can ensure compliance with regulatory
standards and risk management guidelines.

17) Enhances Market Transparency: Credit rating agencies contribute to market transparency by providing
independent assessments of credit risk for a wide range of financial instruments. This transparency fosters
investor confidence and promotes efficient price discovery in financial markets.

18) Supports Credit Risk Management: Credit ratings are valuable tools for credit risk management,
enabling financial institutions, investors, and corporations to assess the creditworthiness of counterparties
and make informed lending and investment decisions. Ratings help identify potential credit risks and
guide risk mitigation strategies.

19) Facilitates Capital Allocation: Credit ratings play a crucial role in allocating capital efficiently across
different sectors and industries. Investors use credit ratings to evaluate the risk-return profiles of
investment opportunities and allocate capital to assets with higher credit quality, optimizing portfolio
returns and risk exposure.

20) Promotes Financial Inclusion: Credit ratings can facilitate access to finance for underserved segments
of the population, such as small and medium-sized enterprises (SMEs) and emerging market issuers. By
providing credible assessments of credit risk, ratings help attract investment capital to these sectors,
promoting economic growth and financial inclusion.

21) Encourages Corporate Transparency: The rating process encourages companies to maintain
transparent financial reporting and disclosure practices to build trust and credibility with investors and
rating agencies. Enhanced corporate transparency promotes market integrity and reduces the likelihood of
financial misconduct or fraud.

22) Supports Debt Market Development: Credit ratings are essential for the development of debt
markets, providing investors with confidence in the credit quality of debt securities. Higher ratings
attract more investors to the debt market, increasing liquidity and fostering market depth and resilience.

23) Enhances Credit Risk Pricing: Credit ratings contribute to more accurate pricing of credit risk in
financial markets, reflecting the probability of default and expected loss associated with different
credit instruments. Accurate credit risk pricing enables investors to make informed investment
decisions and facilitates efficient capital allocation.

24) Strengthens Investor Protection: Credit ratings serve as an important tool for investor protection
by providing independent assessments of credit risk and issuer financial health. Investors rely on
ratings to make informed investment decisions and mitigate the risk of financial loss due to credit
defaults or insolvencies.

25) Encourages Responsible Lending Practices: Credit ratings encourage responsible lending practices
among financial institutions by providing objective assessments of borrower creditworthiness. Lenders
use
ratings to evaluate the risk of loan portfolios and establish prudent lending criteria, reducing the likelihood of
loan defaults and credit losses.

26) Supports Sustainable Finance Initiatives: Credit ratings are increasingly used to assess the
environmental, social, and governance (ESG) risks associated with investments and lending activities.
Sustainable finance initiatives rely on credit ratings to evaluate the sustainability performance of
companies and allocate capital to ESG-compliant projects.

27) Facilitates Cross-Border Investment: Credit ratings play a vital role in facilitating cross-border
investment by providing investors with standardized assessments of credit risk across different
jurisdictions. Ratings enable investors to compare investment opportunities globally and allocate capital to
markets with attractive risk-return profiles.

28) Promotes Financial Stability: Credit ratings contribute to financial stability by providing early warning
signals of potential credit risks and vulnerabilities in the financial system. Regulators and policymakers use
ratings to monitor systemic risks and implement measures to safeguard financial stability.

29) Supports Corporate Funding Strategies: Companies use credit ratings to inform their funding
strategies and optimize their capital structure. Higher ratings enable companies to access debt markets at
favorable terms, diversify funding sources, and reduce financing costs, supporting their growth and
expansion objectives.

30) Encourages Investor Education: Credit ratings serve as educational tools for investors, helping them
understand the credit risk associated with different investment opportunities. By promoting financial
literacy and risk awareness, ratings empower investors to make informed decisions and navigate financial
markets effectively.

CREDITRATING ININDIA

In the Indian context, the scope of credit rating is limited generally to debt, commercial paper, fixed
deposits, mutual funds and of late IPO’s as well. Therefore, it is the instrument, which is rated, and not the
company. In other words, credit quality is not general evaluation of issuing organization, i.e. if debt of
company XYZ is rated AAA and debt of company ABC is rated BBB, then it does not mean firm
XYZ is better than firm ABC. However, the issuer company g e ts s t re ng t h an d c r ed ibi lit y w it
h
t he gr a d e of r ati ng aw ar d ed to t he c r edi t i ns t r um e nt it intends to issue to the public to
raise funds. Rating, in a way, reflects the issuer's strength and soundness of operations and
management. It expresses a view on its prospective composite performance and the organizational
behaviour based on the study of past results. Further, the rating will differ for different instruments
to be issued by the same company, within the same time span. For example, credit rating for a
debenture issue will differ from that of a commercial paper or certificate of deposit for the same
company because the nature of obligation is different in each case. Credit rating has been made mandatory
for issuance of the following instruments

(1) As per the regulations of Securities and Exchange Board of India (SEBI) public issue of
debentures and bonds convertible/ redeemable beyond a period of 18 months need credit
rating.

(2) As per the guidelines of Reserve Bank of India (RBI), one of the conditions for issuance of
Commercial Paper in India is that the issue must have a rating not below the P2 grade from CRISIL/A2
grade from ICRA/PR2 from CARE.22

(3) As per the guidelines of Reserve Bank of India (RBI), Nonbanking Finance Companies (NBFCs)
having net owned funds of more than Rs.2 core must get their fixed deposit programmes rated. The
minimum rating required by the NBFCs to be eligible to raise fixed deposits are FA (-) from CRISIL/ MA (-
) from ICRA/BBB from CARE. S imil a r r e gu l a t i on s have b e en i nt r od uc e d by N a t i
ona l H o usi ng B a nk ( N HB ) fo r ho usi ng finance companies also

(4) As per the regulations of the Ministry of Petroleum, the parallel marketers of Liquefied
P et r ol eu m G as ( LPG ) an d Supe r ior K er o s en e O il (S K O) in In di a ar e
a l so s ubj e c t e d to mandatory rating. The three rating agencies have a common approach for such
rating and the dealers are categorized into four grades between 1 to 4 indicating good, satisfactory, low risk
and high risk

(5) T h er e is a p ro pos a l fo r m aking t he r a t i ng of f ix e d de po s i t

p rog ram me s of l imit e d companies, other than NBFCs also mandatory, by amendment of the
companies Act 1956.
In India, credit rating primarily focuses on various debt instruments such as debentures, commercial paper,
fixed deposits, and mutual funds, along with more recent inclusions like Initial Public Offerings (IPOs).
Unlike in some other contexts, where the credit rating might be assigned to the issuing company itself, in
India, it pertains specifically to the instrument being issued. This means that if a debt instrument issued by
company XYZ is rated AAA and another issued by company ABC is rated BBB, it does not necessarily
imply that XYZ is a better company than ABC. However, the issuer company does gain credibility and
strength based on the rating assigned to its credit instrument, reflecting the perceived strength of its
operations and management.

Credit ratings offer an assessment of the prospective performance and organizational behavior of the issuer
based on past results, providing investors with valuable insights into the risk associated with investing in a
particular instrument. It's worth noting that ratings can differ for different instruments issued by the same
company within the same time frame, considering the varying nature of obligations associated with each
instrument.

Several regulatory bodies in India mandate credit ratings for various financial instruments to ensure investor
protection and market integrity:

1. Securities and Exchange Board of India (SEBI): SEBI regulations stipulate that public issuance
of debentures and bonds convertible/redeemable beyond 18 months must undergo credit rating.

2. Reserve Bank of India (RBI): RBI guidelines require that Commercial Paper issuances must have a
rating not lower than P2 grade from CRISIL/A2 grade from ICRA/PR2 from CARE.

3. Non-Banking Finance Companies (NBFCs): NBFCs with net owned funds exceeding Rs. 2 crore must
obtain credit ratings for their fixed deposit programs. Minimum ratings required for eligibility are FA (-)
from CRISIL/MA (-) from ICRA/BBB from CARE. Similar regulations apply to housing finance
companies regulated by the National Housing Bank (NHB).

4. Ministry of Petroleum: Parallel marketers of Liquefied Petroleum Gas (LPG) and Superior Kerosene
Oil (SKO) in India are mandated to undergo mandatory credit rating, categorized into four grades (1 to 4)
indicating different levels of risk.

5. Proposed Amendments: There is a proposal to make credit ratings mandatory for fixed deposit
programs of limited companies other than NBFCs through an amendment to the Companies Act 1956.

Registered Credit Rating Agencies (CRAs) in India, under SEBI, include CRISIL (established in 1988),
ICRA (1991), CARE (1993), Fitch India (1996), and Brickworks (2008). These agencies play a crucial role
in maintaining market transparency and investor confidence by providing impartial assessments of credit
risk across various financial instruments.
CRAs registered with SEBI. Name of the CRA Year of commencement of Operations
CRISIL 1988ICRA 1991CARE 1993Fitch India 1996Brickworks 200823

CRISIL
(Credit Rating Information Services of India Limited)

(CRISIL)
has been promoted by Industrial Credit and Investment Corporation of India Ltd. (ICICI) and
Unit Trust of
IndiaLt d . ( U T I) as a pub l i c li mite d c om pa ny wi t h it s h ead q u ar t er s at M um b
ai . C R IS IL , inc orpor a t ed in 19 87 , pio n eered th e co nc e pt of cr edit ra t i ng in India
an d devel ope d th e methodology for rating of debt in the context of India's financial,
monetary and regulatory system. It was the first rating agency to rate Commercial Paper
Programme in 1989, debt instruments of financial institutions and banks in 1992 and asset-
backed securities in 1992.The main objective of CRISIL has been to rate debt obligation of Indian
companies. Its rating provides a guide to the investors as to the risk of timely payment of interest
and principal on a particular debt instrument. Its rating creates awareness of the concept of credit rating
amongstc or por a t i ons, m er ch ant banke r s , broke r s , r eg ul at ory au th o riti e s , an d he l
ps in cr eat i n g environment that facilitates the debt rating.

CREDIT RATING facilities extended to borrowers by banks. In addition, CRISIL undertakes credit
assessments of various entities including state governments. CRISIL also assigns financial strength ratings
CREDIT RATINGCRISIL through the years has continued to innovate and play the role of a
pioneer in the development of the Indian debt market. CRISIL has pioneered the rating of
subsidiaries and joint ventures of multinationals in India and has rated several multinational entities,
both start-up entities as well as players with a well-established track record in India. Over
the
years, CRISIL has also developed several structured ratings for multinational entities based
on Guarantees from the parent as well as Standby Letter of Credit arrangements from bankers.
The rating agency has also developed a methodology for credit enhancement of
corporate borrowing programmes through the use of partial guarantees. In essence, CRISIL is
uniquely placed in its experience in understanding the extent of credit enhancement arising out of
such structures.

CRISIL's Rating Process

CRISIL'S Ratings Processes in as Given Below:

(1) Request of The Company

The rating process beings at the request of a company desirous of having its issue obligations under
proposed instrument rated by CRISIL.
(2) Assignment to Analytical Team
On receipt of the above request, CRISIL assigns the job to an analytical team that will be responsible for
carrying out the rating assignment.

(3) Obtaining and Processing of Data

The analytical team, which generally contains two experts, obtains requisite information from the client
company and analyses the same. To obtain clarification and better understanding of the client's operations

(4) Findings Presentation

Th e f i n din gs of th e t e am c om pl e t i on of in ve sti g ati on p r oces s ar e p res en ted to R
a tin g committee (which comprises some directors not connected with any CRISIL
shareholder) which then decides on the rating.
(5) Communication of Decision
The decision of the Rating committee is communicated to the client company with remarks
that the company, if it so likes, may present some additional information for reconsideration of rating
grade assigned to the instrument. In case the company has nothing to produce as additional fact,
the rating grade is formally confirmed to the company by CRISIL

(6) Monitoring of Change of Rating

Once the company has decided to use the rating, CRISIL is obliged to monitor the rating, over the life of the
instrument. Depending upon new information, or developments concerning the c om pany

CRISIL'S Rating Methodology

CRISIL analyses five factors while assessing the instrument. These five factors are as follows:

(1) Bus in ess Ana lys is

All the relevant information concerning the business is covered under the following sub-heads.

( a ) Indus t r y Ris k
CRISIL evaluates the industry risk by taking into consideration various factors like nature and
basis of competition, key success factors, demand and supply
Indust ry s tr e ng th is e v al ua t ed w ith in th e e co nom y c on s i de r i n g factors like inflation,
energy requirements and availability, international competitive situation and socio-political scenario;
demand projection growth stages and maturity of markets; cost structure of industry in domestic and
international scenario; or, the government policies toward industry. Industry risk analysis may set an
upper limit on rating.

(b) Market Position of the Company Within the Industry

Market position of the company within the industry is evaluated form different angles, i.e.„
market share and stability of market share; competitive advantage through marketing
anddistribution strength and weakness; marketing/support service infrastructure; diversity of
products and customers base; research and development and its linkage to productobsolescence; quality
important programme; as finally, the long term sales contract, strong marketing position of the
company within the industry attracts better grade rating.

(c) Op e ra tin g Ef f ici en c y

O p e r ati ng e f f i ci en cy of t he compa ny is assesse d vis - à -
v is com p eti t o r s ' c om p ar i s on . Fo r instance, the pricing or cost advantage; availability, cost,
quality of raw material; availability of labour and labour relations; integration of manufacturing operations
and cost effectiveness of plant and equipment’s; level of capital employed and productivity;
energy cost; or finally, the compliance to pollution control requirement on taken into consideration.

(d) Legal Position

Legal position of issue of debt instrument is assessed by letter of
syst em of timely pa y m ent of i n t er e s t an d principal; or protection of forgery and fraud. Thus,
bus iness covers all relevant aspects asrelated to business operations of the client company to
assess the creditworthiness of the company.

(2) Financial Analysis

U nder f i na n ci al ana l ysi s , all rel ev ant as p ects co nn e ct e d w it h th e bu si n ess an d f
in a n c i al position of the company is assessed in the following four important segments. Firstly, the
accounting finally is seen as qualifications of auditors; focus on determining extent to which performance is
overstated; method of income recognition; depreciation policies and inventory calculations; Under
Valued/Over Valuing of assets; or off balance sheet liabilities. Secondly, the Earning Potential return to
long term earning potential under varying conditions is assessed. Key consideration is: Profitability
ratios; pre-tax
coverage ratios; earnings on assets/capital employed; source of future earnings; or ability to finance
growth internally. T hi rdly, th e a dequa cy of th e C as h Fl o ws is a pp r ai s ed in r el atio n
to d e bt an d f i x ed a nd working capital requirements of the company. Main focus of
analysis is on variability
of fu t u re cash f l o ws ; c ap i t al s pending f l ex ib ilit y; ca sh flo w s to f i x ed an d wo r
ki ng cap i t a l

CREDIT RATING requirements; or Working Capital management. Fourthly, the Financial Flexibility is
assessed through financial plans in times of stress and their reliability; ability to attract capital; capitals
pending flexibility; asset redeployment potential; or the debt service schedule.

(3) Management Evaluation

The track record of management is evaluated by observing:

• the goals and philosophies;

• strategies and ability to overcome adverse situations;

• judgment of management performance based on past operating and financial results;

• planning and control systems;

• conservatism or aggressiveness with reference to financial risk;

• depths of managerial, talents and succession plans;

• shareholding pattern and constitution/ of Board of Directors;

• relationship with shareholders;

• or mergers and acquisition considerations.

(4) Regulatory and Competitive Environment

CRISIL evaluates structure and regulatory framework of the financial system in which it
works. Trends in regulation/ deregulation and their impact on the company are evaluated.

(5) Fundamental Analysis

It covers aspects on liquidity management; assets quality; profitability and financial position; and interest
and tax sensitively. Liquidity management includes aspects on capital structure, Asset Quality includes
aspects concerning quality of company's credit risk management, system for monitoring
credit, sector risk, exposure of individual borrowers, or management of problem credits. Profitability
and Financial Position includes aspects on historic profits, spreads on fund deployment, revenues on non-
fund-based services, and accretion to reserves. Interest
or Tax Sensitivity includes aspects dealing with exposure to interest rate changes, revenues on
non-fund based activities, and accretion to reserves. Factors listed above at serial number 1,2,3, are
evaluated for manufacturing companies but for finance companies, emphasis is laid in addition to
above factors at serial number 4 and 5.31

CRISIL’SRATINGSYMBOLSFORLONGTERMINSTRUMENTS
. Certainly, here's an expanded version:
CRISIL, one of India's leading credit rating agencies, employs a comprehensive system of rating symbols to
assess the creditworthiness and safety of long-term financial instruments. These ratings serve as crucial
benchmarks for investors, issuers, and regulatory bodies, providing valuable insights into the level of risk
associated with various investment options. The investment grade ratings assigned by CRISIL reflect
varying degrees of safety and likelihood of timely payment of financial obligations. Let's delve deeper into
each of these rating symbols:

1. AAA (Triple A) - Highest Safety: Instruments rated 'AAA' are deemed to possess the highest degree
of safety, indicating an extremely low risk of default or delay in payment. Investors can have utmost
confidence in the timely repayment of both interest and principal amounts. Such ratings are typically
assigned to instruments issued by entities with exceptionally strong financial profiles and robust risk
management practices.

2. AA (Double A) - High Safety: Instruments rated 'AA' offer a high level of safety, albeit marginally
lower than 'AAA' rated instruments. While they still represent a strong credit quality and minimal risk of
default, there may be slightly higher susceptibility to adverse economic or financial conditions.
Nevertheless, 'AA' rated instruments are considered highly reliable investments with a high likelihood of
meeting their financial obligations in a timely manner.

3. A - Adequate Safety: 'A' rated instruments are judged to offer an adequate degree of safety, indicating
a moderate level of credit risk. While these instruments are still considered investment-grade and
generally reliable, they may be more susceptible to adverse changes in economic or industry-specific
conditions. Investors holding 'A' rated instruments should be cognizant of the potential for fluctuations
in creditworthiness and exercise due diligence in their investment decisions.

4. BBB (Triple B) - Moderate Safety: Instruments rated 'BBB' are characterized by a moderate level of
safety, indicating a moderate risk of default or delay in payment. While these instruments currently
demonstrate an acceptable capacity to meet their financial obligations, they are more vulnerable to adverse
economic or market developments compared to higher-rated securities. Investors should closely monitor
the credit profile of issuers with 'BBB' ratings to assess potential credit risks and ensure adequate risk
management.

In addition to these investment grade ratings, CRISIL also provides ratings for non-investment grade or
speculative grade instruments, denoted by symbols such as 'BB', 'B', 'C', and 'D'. These ratings signify
varying degrees of credit risk, with 'D' representing the lowest rating and indicating imminent default or
non- payment of financial obligations.

Overall, CRISIL's rating symbols serve as invaluable tools for investors seeking to make informed
decisions and manage their risk exposure effectively in the dynamic financial markets of India. By
meticulously evaluating the creditworthiness of issuers and financial instruments, CRISIL plays a pivotal
role in fostering transparency, trust, and stability in the Indian financial ecosystem.

Speculative Grade Ratings:

BB (Double B) Inadequate Safety

Instruments rated 'BB' are judged to carry inadequate safety with regard to timely payment
of financial obligations; they are less likely to default in the immediate future than other speculative grade
instruments, but an adverse change in circumstances could lead to inadequate capacity to make payment
on financial obligations.

B High Risk
Instruments rated 'B' are judged to have greater likelihood of default; while currently financial obligations
are met, adverse business or economic conditions would lead to lack of ability or willingness to pay
interest or principal.
C Substantial Risk
Instruments rated 'C' are judged to have factors present that make them vulnerable to default; timely
payment of financial obligations is possible only if favourable circumstances continue

D Default
Instruments rated 'D' are in default or are expected to default on scheduled payment dates. Such instruments
are extremely speculative and returns from these instruments may be realized only on reorganisation or
liquidation.

NM Not Meaningful
Instruments rated 'N.M' have factors present in them, which render the rating outstanding meaningless.
These include reorganisation or liquidation of the issuer, the obligation is under dispute in a court of law or
before a statutory authority etc.

RATING SYMBOL FOR SHORT TERM INSTRUMENT

P-1 This rating indicates that the degree of safety regarding timely payment on the instrument is very strong.

P-2 This rating indicates that the degree of safety regarding timely payment on the instrument is
strong; however, the relative degree of safety is lower than that for instruments rated 'P-1'.

P-3 This rating indicates that the degree of safety regarding timely payment on the instrument is
adequate; however, the instrument is more vulnerable to the adverse effects of changing circumstances
than an instrument rated in the two higher categories.

P-4 This rating indicates that the degree of safety regarding timely payment on the instrument is
minimal and it is likely to be adversely affected by short-term adversity or less favourable conditions.

P-5 This rating indicates that the instrument is expected to be in default on maturity or is in default.

NM
Instruments rated 'N.M' have factors present in them, which render the rating outstanding meaningless.
These include reorganisation or liquidation of the issuer, the obligation is under dispute in a court of law or
before a statutory authority etc. Not Meaningful

ICRA

ICRA Limited: Empowering Investors through Comprehensive Credit Analysis

Incorporated in 1991, ICRA Limited stands as a beacon of independent professionalism in the Indian
financial landscape. As a leading provider of investment information and credit rating services in India,
ICRA has earned its reputation through a commitment to excellence and integrity in its operations.

Founding Principles and Shareholder Structure:

Established with a vision to offer unbiased and expert credit assessment services, ICRA has stayed true to its
founding principles over the years. With Moody's Investors Service and prominent Indian financial
institutions and banks as major shareholders, ICRA benefits from a robust foundation of expertise and
credibility in the financial markets.

Evolution of Services:
As the Indian capital markets experienced rapid growth and globalization, the demand for professional
credit risk analysis soared exponentially. ICRA responded proactively by expanding its service portfolio to
meet evolving market needs. From traditional credit ratings to equity grading, specialized performance
grading, and mandated studies across diverse industrial sectors, ICRA has consistently widened its service
offerings to cater to the dynamic needs of investors and market participants.

Comprehensive Sectoral Coverage:

ICRA's expertise spans virtually every sector of the Indian economy. Leveraging its deep understanding of
diverse industries, ICRA provides nuanced and insightful credit assessments that empower investors to
make informed decisions. Whether it's assessing the creditworthiness of a manufacturing conglomerate or
evaluating the performance of a burgeoning technology startup, ICRA's sector-specific insights add
immense value to investment decisions.

Global Reach and Collaborations:

In response to the increasing globalization of markets, ICRA has expanded its footprint beyond Indian
shores. Collaborating with international partners and leveraging its association with Moody's Investors
Service, ICRA offers its expertise to clients not only in India but also overseas. This global perspective
enhances ICRA's credibility and reinforces its position as a trusted provider of credit rating and investment
information services.

Diversified Service Offerings:

ICRA's service offerings extend beyond traditional credit ratings. Recognizing the multifaceted needs of
corporate and financial sectors, ICRA provides a comprehensive suite of services tailored to address specific
challenges and opportunities. From credit risk assessment to equity research, from performance grading to
sectoral studies, ICRA's diversified offerings cater to a broad spectrum of clients, both domestically and
internationally.

Commitment to Excellence:
At the heart of ICRA's operations lies an unwavering commitment to excellence and integrity.
Rigorous methodologies, robust analytical frameworks, and adherence to global best practices ensure
the highest standards of quality and reliability in ICRA's credit assessments. By upholding these
principles, ICRA instills confidence in investors, facilitates efficient capital allocation, and fosters
sustainable economic growth.

Conclusion:
In a rapidly evolving financial landscape, ICRA Limited remains steadfast in its mission to empower
investors with actionable insights and reliable credit assessments. With a rich legacy of professionalism,
expertise, and integrity, ICRA continues to be the preferred partner for investors seeking comprehensive
investment information and credit rating services in India and beyond.
CREDIT RATING spanning diverse industrial sectors. In addition to being a leading credit
rating agency with expertise in virtually every sector of the Indian economy, ICRA has broad-based its
services for the corporate and financial sectors, both in India and overseas, and currently offers
its services under the following

ICRA'S Rating Process

The Rating Process Follows:

Rating Process
Rating is an interactive process with a prospective approach. It involves series of steps. The main points are
described as below:

Certainly, let's expand on ICRA's rating process:

ICRA, a prominent credit rating agency in India, follows a meticulous and transparent rating process
aimed at providing accurate assessments of issuer creditworthiness and financial instruments. This process
is characterized by its thoroughness, objectivity, and adherence to international best practices, ensuring
the integrity and reliability of ICRA's ratings. Here's an in-depth exploration of each stage of ICRA's
rating process:

(A) Rating Request: The initiation of the rating process begins with a formal request from the prospective
issuer, outlining the terms and conditions of the rating assignment. This mandate establishes a contractual
agreement between ICRA and the issuer, ensuring confidentiality, information sharing, and the issuer's
right to accept or decline the assigned rating. Additionally, the mandate sets forth the issuer's obligation to
furnish ICRA with the necessary information for conducting the rating assessment and subsequent
surveillance activities.

(B) Rating Team: Upon receipt of the rating request, ICRA assembles a dedicated rating team comprising
experts with relevant industry knowledge and analytical skills. The composition of the team is tailored to
the specific requirements of the issuer's business, ensuring a comprehensive evaluation of all pertinent
factors influencing the creditworthiness of the issuer and its financial instruments.

(C) Information Requirements: ICRA provides the issuer with a comprehensive list of information
requirements and establishes a framework for discussions to facilitate the rating process. These
requirements are derived from ICRA's extensive experience and expertise in assessing credit risk across
various sectors and industries. They encompass a wide range of financial, operational, and strategic aspects
that impact the issuer's credit profile, ensuring a holistic evaluation of creditworthiness.

(D) Secondary Information: In addition to the information provided by the issuer, ICRA leverages
secondary sources of information, including its proprietary research, industry databases, and expert
opinions. This supplementary data enriches the rating analysis, offering valuable insights into industry
trends, regulatory developments, and macroeconomic factors that may influence the issuer's credit risk
profile. ICRA's access to a diverse network of industry experts further enhances its ability to assess sector-
specific risks and market dynamics effectively.

(E) Management Meetings and Plant Visits: A crucial component of ICRA's rating process involves direct
engagement with the issuer's management through meetings and site visits. These interactions enable ICRA
analysts to gain a deeper understanding of the issuer's business strategy, operational capabilities,
competitive positioning, and risk management practices. Site visits provide firsthand insights into the
issuer's facilities, production processes, and asset quality, allowing analysts to assess operational efficiency,
asset utilization, and overall business resilience.

(F) Preview Meeting: Following comprehensive analysis and deliberation, ICRA convenes an internal
committee meeting comprising senior analysts to review the findings and formulate a preliminary opinion
on the rating. This preview meeting serves as a forum for in-depth discussions on key credit risk factors,
potential rating drivers, and any material concerns identified during the rating process. Based on these
deliberations, a preliminary rating opinion is formed, subject to final approval by the rating committee.

(G) Rating Committee Meeting: The final authority for assigning ratings lies with ICRA's rating
committee, which convenes to deliberate on the issuer's credit profile and determine the appropriate rating.
The rating team presents a detailed assessment of the issuer's business, financial performance, and risk
profile, highlighting key considerations and rating drivers. The rating committee evaluates all relevant
factors,
including industry dynamics, competitive positioning, financial strength, and management quality, before
arriving at a consensus rating decision. The assigned rating and rationale are communicated to the issuer's
top management, ensuring transparency and clarity in the rating process.

(H) Rating Communication: ICRA communicates the assigned rating along with the key rating drivers
and considerations to the issuer's top management. Ratings that are accepted by the issuer are published
and made available to the investing public, facilitating informed investment decisions. In cases where the
issuer does not accept the assigned rating, ICRA may review the rating upon request, provided that the
issuer presents fresh information or clarifications addressing the concerns raised during the rating process.
Complete confidentiality is maintained for rejected ratings to uphold the integrity of the rating process.

(I) Rating Reviews: Issuers have the right to appeal for a review of the assigned rating if they believe that
new information or developments warrant reconsideration. ICRA conducts rating reviews periodically,
typically on an annual basis, or more frequently if warranted by material changes in the issuer's credit
profile or market conditions. During the review process, ICRA reassesses the issuer's creditworthiness
based on updated information and may revise the rating, if necessary, to reflect any changes in credit risk or
financial performance.

(J) Surveillance: ICRA's commitment to maintaining the integrity and reliability of its ratings extends
beyond the initial assignment to ongoing surveillance and monitoring of rated entities and instruments. As
per the terms of the mandate, issuers are obligated to provide regular updates and information to ICRA for
the duration of the rated instrument. ICRA conducts periodic surveillance reviews to evaluate the issuer's
creditworthiness and assess any changes in credit risk factors. Surveillance reviews may result in rating
reaffirmations, upgrades, or downgrades based on the issuer's evolving credit profile and market
dynamics. By conducting comprehensive surveillance activities, ICRA ensures that its ratings remain
relevant, timely, and reflective of current credit conditions.

In summary, ICRA's rating process is characterized by its robustness, transparency, and commitment to
maintaining the highest standards of analytical rigor and independence. Through a systematic evaluation of
issuer credit profiles and financial instruments, ICRA facilitates informed decision-making, promotes market
transparency, and enhances investor confidence in the Indian financial markets.

Rating Scale of ICRA

Long Term — Including Debentures Bonds, Preference Shares

LAAA: Highest Safety:
It i n di cat es funda me nt a l l y s t ro ng p osi t i on . Ris k fa c t ors a re n eg lig ibl e . Th e r e m
ay b ecir cums t an ces adv e r s ely af f e ct i n g t he degr e e of sa f et y b ut s u ch c i rcum s t an
ces, a s m ay visualized, are not likely to affect the timely payment of principal and interest as per times.

LAA+, LAA, LAA-: High Safety:

Ri sk fa c t o rs ar e m od e s t an d m ay v ar y s lig ht ly . Th e prot ec t i ve f a ct o r s ar e s t r o ng
, as may be visualized, differs from LAAA only marginally.

LA+, LA, LA-: Adequate Safety:

The risk factors are more variable and grater in periods of economic stress. The protective
factors any adverse change in circumstances, as may be visualized, may alter the fundamental strength
and effect the timely payment of principal and interest as per terms.

LBBB+, LBBB, LBBB- Moderate Safety:

Considerable variability in risk factors. The protective factors are below average.
A re lik ely to af f ect th e ti me ly p a ym ent of principal and interest as per
terms.

LBB+, LBB, LBB-Inadequate Safety:

The timely payment of interest and principal are more likely to be affected by present,
The protective factors fluctuate in case of changes in economy/business conditions.

LC+, LC, LC- Substantially Risk:

There are inherent elements of risk and timely servicing of debts/obligations could be possible only in
case of continued existence of favourable circumstances.

LD Default. Extremely Speculative: Either already in default in payment of interest and/or

principal as per terms or expected to default. Recovery is likely only on liquidation or reorganization.

Medium Term - including Certificates of Deposits and Fixed Deposits Programmes

MAAA: Highest Safety

The prospect of timely servicing of interest and principal as per terms is the best.

MAA+, MAA, MAA- High Safety

The prospect of timely servicing of interest and principal as per terms is high, but not as high as in MAAA
rating.

MA+, MA, MA-: Adequate Safety

The prospect of timely serving interest and principal is adequate. However, debt servicing may
be affected by adverse changes in the business/economic conditions.

MB+, MB, MB-: Inadequate Safety

Th e tim e ly p ay m ent of i n t er e s t a nd princ ipal a re m o re like
ly to be a f f ec t ed by futur e uncertainties.

Mc+, Mc, Mc- Risk Prone

Susceptibility to default high. Adverse changes in the business/economic conditions could
result in inability/unwillingness to service debts on time as per terms.

Md Default
Either already in default or expected to default.

Short Term - including Commercial Papers

Al+, A1 Highest Safety

The prospect of timely payment of debt/obligation is the best.

A2+, A1 High Safety

The relative safety is marginally lower than A1

A3+, A3 Adequate Safety

Th e prospe c t of time l y p aym e nt of i nt er e s t an d in s t alm e nt is ad e qu at e , but
any ad v ers e changes in business/economic conditions may affect the fundamental strength.

A4+, A4 Risk Prone

The degree of safety is low. Likely to default in case of adverse changes in business/economic conditions.

A5 Default
Either already in default or expected to default. Inadequate capacity.

Short-Term Ratings
IC-CRISIL assigns short-term ratings to debt instruments with original maturities of up to one year,
utilizing symbols ranging from A1 to A5. These ratings serve as a measure of the likelihood of default on
the rated debt securities throughout their entire tenure, providing investors with valuable insights into the
credit quality and repayment risk associated with short-term investments. The assignment of these ratings
reflects ICRA's rigorous assessment of various factors, including the issuer's financial strength, liquidity
position, and repayment capacity.

The short-term rating scale comprises five symbols: A1 through A5. A1 represents the highest credit quality,
indicating minimal default risk, while A5 signifies a higher probability of default or an expectation of default
on repayment obligations. To further differentiate issuers within each rating category, ICRA may append a
suffix of "+" to the symbols A1 through A4, indicating a relatively stronger position within the respective
rating category.

Investors rely on ICRA's short-term ratings to make informed decisions regarding investments in debt
instruments such as commercial paper, certificates of deposit, short-term debentures, and other money
market-related instruments. These ratings provide a valuable benchmark for assessing the
creditworthiness of issuers and the risk associated with short-term debt investments.

ICRA's thorough analysis considers various factors influencing short-term credit risk, including market
conditions, industry dynamics, regulatory environment, and issuer-specific factors. By evaluating these
factors comprehensively, ICRA ensures that its short-term ratings accurately reflect the credit risk profile of
debt instruments and provide investors with reliable guidance for their investment decisions.

Moreover, ICRA's short-term ratings play a crucial role in facilitating efficient capital allocation and
fostering liquidity in the financial markets. Investors rely on these ratings to gauge the creditworthiness of
issuers and determine the appropriate pricing and risk-return trade-offs for short-term investments.
Additionally, issuers benefit from ICRA's ratings by gaining access to a broader investor base and
potentially lowering their cost of capital.

ICRA's short-term ratings serve as a vital tool for investors, issuers, and other market participants,
providing transparency, credibility, and actionable insights into the credit risk associated with short-term
debt instruments. Through its rigorous analytical framework and commitment to excellence, ICRA
continues to uphold its reputation as a leading provider of credit rating services in the Indian financial
markets.

Linkage Between Long-Term and Short-Term Ratings

ICRA's approach to short-term ratings extends beyond a narrow focus on immediate credit risks associated
with specific instruments. While short-term ratings indeed pertain to the creditworthiness of individual debt
securities, they are intrinsically linked to the broader, longer-term credit profiles of the issuers. This
interconnectedness stems from the understanding that an issuer's ability to refinance obligations or access
alternative funding sources is heavily influenced by its overall creditworthiness over an extended horizon.
In recognizing this linkage, ICRA adopts a holistic perspective that incorporates both short-term and long-
term considerations when assigning ratings to debt instruments. While short-term factors such as near-term
business risks and liquidity positions are essential, they are viewed in conjunction with the issuer's long-
term credit profile. This comprehensive approach ensures that ICRA's short-term ratings accurately reflect
the underlying credit risk dynamics and provide investors with a well-rounded assessment of issuer
creditworthiness.
Furthermore, ICRA acknowledges the ongoing nature of short-term instruments like commercial paper,
which often form part of continuous funding programs. This perpetual nature necessitates a longer-term
rating view, as refinancing risk and the issuer's access to alternative funding sources become critical factors
in evaluating short-term creditworthiness. By considering the issuer's long-term credit profile alongside
short-term factors, ICRA provides investors with valuable insights into the issuer's overall financial
health and resilience to market fluctuations.
To provide transparency and guidance to market participants, ICRA offers a broad linkage framework
between its short-term and long-term ratings. This framework serves as a reference point for investors
seeking to understand the relationship between short-term credit assessments and the broader
creditworthiness of issuers. By aligning short-term ratings with long-term credit profiles, ICRA ensures
consistency and coherence in its rating methodologies, thereby enhancing the utility and reliability of its
credit assessments for investors and market participants alike.
In summary, ICRA's approach to short-term ratings reflects a nuanced understanding of the
interconnectedness between short-term credit risks and the broader credit profiles of issuers. By
incorporating long-term considerations into its rating process, ICRA provides investors with a
comprehensive view of issuer creditworthiness, enabling informed decision-making and risk management
in the dynamic financial markets.

ONICRACREDITRATINGAGENCY OF INDIA

ONICRA CREDIT RATING AGENCY OF INDIA Ltd.is recognised as the pioneers of the concept of
individual Credit rating in India. After being the first to introduce the concept, Onicrahas been continuously
conducting in-depth research into all aspects of the behaviour of credit seekers and has developed a
comprehensive rating system for various types of credit extensions. Onicra provides a platform to credit
seekers and granters build long lasting relationship.

Credit Rating
With the advance of credit, the principal has an increased level of exposure in the market. So, amendatory
check is done to assess the credentials of the individual in question before extending a loan or advance.
We assess the financial visibility and look into all related aspects. We have an in-house developed credit
rating module which is customized to suit various customer requirements.

Associate Rating
We provide an objective assessment of existing and potential associates of our clients, with reference to
infrastructure, resources, adherence to defined system and processes and commitment to their customers.
This evaluation helps our clients understand the value their associates bring to their business relationships.

Employment Background Screening

This service provides our clients with authenticated and validated data on employee’s which includes but
is not limited to the Physical Address, qualification both educational and professional, criminal record
check and other pertinent information.

SSI/SME Rating
We help Small Scale Industries that are looking for loans and financial assistance to get assessed on their
credit worthiness, financial viability and performance. This helps their cause to get unbiased analysis in a
funding situation.

Credit Analysis & Research Ltd. (CARE),

incorporated in April 1993, is a credit rating, information and advisory services company promoted by
Industrial Development Bank of India(IDBI), Canara Bank, Unit Trust of India (UTI) and other leading
banks and financial services companies. In all CARE has 14 shareholders. CARE assigned its first rating in
November 1993, and up to March 31, 2006, had completed3175 rating assignments for an aggregate value
of about Rs 5231 billion. CARE's ratings are recognized by the Government of India and all regulatory
authorities including the Reserve Bank of India (RBI), and the Securities and Exchange Board of India
(SEBI). CARE has been granted registration by SEBI under the Securities & Exchange Board of India
(Credit Rating Agencies) Regulations, 1999.The rating coverage has extended beyond industrial companies,
to include public utilities, financial institutions, infrastructure projects, special purpose vehicles, state
governments and municipal bodies. CARE's clients include some of the largest private sector
manufacturing and financial services companies’ as well financial institutions of India. CARE is well
equipped to rate all types of debt instruments like Commercial Paper, Fixed Deposit, Bonds, Debentures
and Structured Obligations. Care’s Information and Advisory services group prepares credit reports on
specific requests from banks or business partners, conducts sector studies and provides advisory services in
the areas of financial restructuring, valuation and credit appraisal systems. CARE was retained by the
Disinvestment Commission, Government of India, for assistance in equity valuation of a number of state
owned companies and for suggesting divestment strategies for these companies.

CARE'S Rating

Process The process

involves:
(i) Client gives request for rating and submits information and details schedules;

(ii) CARE assigns rating team and team analyses the information;

(iii) The team interacts with the clients, undertakes site visits;

(iv) The client interacts with the Team respond to queries raised and provides any additional data
necessary for the analyses;

(v) The team analyses the data submitted by the Client and put up to Internal Committee
of CARE for previews analyses;

(vi) Rating Committee of CARE awards rating to the Client;

(vii) Client may ask for review of the rating assigned and furnish additional information for the
purpose. Client has the option not to accept the final rating in which case CARE will not publish the
rating or monitor it; and, finally,

(viii) If the rating is accepted by the client, CARE gives it for notification and a
periodic surveillance is undertaken by CARE.50

RATINGSYMBOLS OFCARE

A. Long-Term and Medium Term Instrument

CARE AAA (FD)/(CD)/(SO)

Instruments carrying this rating are considered to be of the best quality, carrying negligible
investment risk. Debt service payments are protected by stable cash flows with good margin. While the
underlying assumptions may change, such changes as can be visualized are most unlikely to
impair the strong position of such instruments.
CARE AA (FD)/(CD)/(SO)
Instruments carrying this rating are judged to be of high quality by all standards.
Changes in assumptions may have a greater impact on the long-term risks may be somewhat larger.
Overall, the difference with CARE AAA rated securities is marginal.

CARE A (FD)/(CD)/(SO)
Instruments with this rating are considered upper medium grade instruments and have many favourable
investment attributes. Safety for principal and interest are considered adequate.
A s s um pt i on s t h at do n ot
m at er i al i ze m ay ha ve a g r eat er imp a c t as co m p ar ed to t he instruments
rated higher.

CARE BBB (FD)/(CD)/(SO)

Such instruments are considered to be of investment grade. They indicate
sufficient, at the time of rating. However, adverse changes inassumptions are more likely to
weaken the debt servicing capability compared to the higher rated instruments.

CARE BB (FD)/(CD)/(SO)
Such instruments are considered to be speculative, with inadequate protection for interest and principal
payments.

CARE B (FD)/(CD)/(SO)
Instruments with such rating are generally classified susceptible to default. While interest and principal
payments are being met, adverse changes in business conditions are likely to lead to default.

CARE C (FD)/(CD)/(SO)
Such instruments carry high investment risk with likelihood of default in the payment
of interest and principal.

CARE D (FD)/(CD)/(SO)
Such instruments are of the lowest category. They either are in default or are likely to be in
default soon.

B. Short-Term Instruments
Instruments with maturities of one year or less are classified in this category. These include: CP -
Commercial Paper and ICD - Inter-Corporate Deposits

PR-1 Instruments would have superior capacity for repayment of short-term promissory obligation. Issuers
of such PR-instruments will normally be characterized by leading market position in established industries,
high rates of return on funds employed etc.

PR-2 Instruments would have strong capacity for repayment of short-term promissory obligations. Issuers
would have most of the characteristics as for those with PR1 instruments but to a lesser degree.
PR-3 Instruments have an adequate capacity for repayment of short-term promissory
obligations. The effect of industry characteristics and market composition may be more
pronounced. Variability in earning and profitability may result in change in the level of debt protection.

PR-4 The instrument is in default or is likely to be in default on maturity. ME Rating Agency of India
Limited (SMERA) is a joint initiative by SIDBI(http://www.sidbi.in/), Dun & Bradstreet Information
Services India Private Limited (D&B)(http://www.dnb.co.in/), Credit Information Bureau (India) Limited
(CIBIL)(http://www.cibil.com/) and several leading banks in the country. SMERA is the country's first
rating agency that focuses primarily on the Indian SME segment. SMERA’s primary objective is to provide
ratings that are comprehensive, transparent and reliable. This would facilitate greater and easier flow of
credit from the banking sector to SMEs.

Rating Process Simplified –

• Based on receipt of application form, applicable rating fees and documents from the SME, SMERA
will begin its process of evaluation.

•A Questionnaire, seeking information on financial and qualitative factors, would be sent to the SME
and would need to be filled by an authorised representative of the SME.

•A SMERA correspondent will contact the SME to collect a duly filled questionnaire to facilitate the
rating process.

• The correspondent would also conduct a site visit as part of the evaluation process.

• SMERA shall complete the evaluation exercise and provide SMERA rating within 15 business days
of receipt of all documents from the SME.

Moody's Investor Service

Today, Moody's Investor Service rates thousands of issues of corporate and municipal bonds, commercial
paper, short-term municipal notes, and preferred stock. These security ratings are reported in Moody's Bond
Record, which is published monthly. In addition to assigning issue ratings, Moody's also notes for its
subscribers the essential terms on each security issue; dates when interest, principal or dividend
payments are due; call provisions (if any); registration status; bid and asked price quotations; yield
to maturity; tax status; coverage; and amount of securities outstanding.

Moody's Corporate Bond Ratings

Th e cr ed i t r a t i n gs as s i g n ed by M o o dy's to c or por a t e bonds ar e l is te d b
el o w w ith t he definitions of each rating category:

AAA
Bonds, which are rated Aaa, are judged to be of the best quality. They carry the smallest
degree of investment risk and are generally referred to as "gilt edge".

CREDIT RATING various protective elements are likely to change; such changes as can be
visualized are most likely to impair the fundamentally strong position of such issues.

AA
Bonds, which are rated Aa, are judged to be of high quality by all standards. Together with the
AAA group they comprise what are generally known as high-grade bonds. They are rated l o w er th a n th
e b e st b on ds b ecau s e m ar gi ns of prot ec t i on m ay n ot be as la r g e as in A aa securities or
fluctuation of protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaasecurities.

A
B on ds , wh i ch ar e rat ed A, p ossess m an y f a vo u ra bl e inves tm ent at t r i b ut es an d
ar e to be consi der e d as uppe r m ed i um -
gr a de obl i g a t i o ns . Fact or s gi vi ng s e cur i t y to pri ncipa l a nd interest are considered
adequate but elements may be present which suggest a susceptibility to impairment sometime in the
future.

BAA
Bonds, which are rated Baa, are considered as medium-grade obligations, i.e., they are neither highly
protected nor poorly secured. Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristicallyunr e l i a bl e ove r an y g r eat le n g th of tim e . Su c h b onds l ack
ou ts ta n d in g i nv e s t m e nt characteristics and, in fact, have speculative characteristics as well.

BA
Bonds, which are rated Ba, are judged to have speculative elements; their future cannot be
considered as well assured. Often the protection of interest and principal payments may be

CREDIT RATING moderate and thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in this class.

B
Bonds, which are rated B generally, lack characteristics of a desirable investment. Assurance of interest
and principal payments or of maintenance of other terms of the contract over any long period of
time may be small.

CAA
Bonds, which are rated Caa, are of poor standing. Such issues may be in default and there may
be present elements of danger with respect to principal or interest.

CA
Bonds, which are rated Ca, represent obligations, which are speculative in some degree. Such issues are
often in default or have other marked shortcomings.

C
Bonds, which are rated C, are the lowest rated class of bonds and issues so rated are to be
regarded as having extremely poor prospects of ever attaining any real investment standing.

Moody's Commercial Paper Ratings

P ro mis so r y not e s so l d in t he op e n m ark et by l a rg e c orpora t i ons a nd ha ving an
or i gi nal m a t ur ity of ni ne m onths or l es s ar e known as com mer c i al pape r .
Moody' s a s s i gns t ho s e commercial notes it is willing to rate to one of three quality categories

Prime-1 (or P-l)

- Highest quality

Prime-2 (or P-2)

- Higher quality
Prime-3 (or P-3)
-High quality59
Moody's Ratings of Short-Term Municipal Notes

Short-term securities issued by states, cities, counties, and other local governments are rated by Moody's as
to their investment quality. For these short-term issues Moody's uses the
ratings ym bo l M IG , m eanin g Moody's Inves tm ent G ra d e. As s ho wn bel ow, on l y fo ur r
a t i ng categories are used and speculative issues or those for which adequate information is not
available are not rated. The rating categories are as follows:

MIG I
L oans be ar ing thi s de s i gnat ion ar e of th e b e st q ua l i t y, enjo yi ng s t r on g prot e c t
ion f ro m established cash flows of funds for their servicing or from established and broad-based access
to the market for refinancing, or both.

MIG2
Loans bearing this designation are of high quality, with margins of protection ample though not so large
as in the preceding group.

MIG3
Loans bearing this designation are of favourable quality, with all security elements accounted for but
lacking the undeniable strength of the preceding grades. Market access for refinancing, in particular, is
likely to be less well established.

MIG4
Loans bearing this designation are of adequate quality, carrying specific risk but having protection
commonly regarded as required of an investment security and not distinctly or predominantly

International Scale Ratings

International foreign currency ratings effectively benchmark credit quality off US Government risk, and
measure the ability of an organization to service foreign currency obligations. In this regard, typically no
organization or debt issue in a country can be rated higher than the country’s “sovereign risk rating” on the
basis that, regardless of a company's stand-alone strength, the government can “block” any organization
within its jurisdiction from obtaining/disbursing foreign currency. Exceptions can arise in the case of
structured finance transactions (if there is an opportunity to pierce the sovereign cap, e.g. by trapping
foreign currency offshore).

National Scale Ratings

The domestic local currency ratings assigned by GCR are tiered against an assumed “best possible” (usually
central government) rating of ‘AAA' in each country and, therefore, do not incorporate the sovereign risks
of a country. Such ratings are designed to give an indication of the relative risks only within a specific
country and are not comparable across different countries. Accordingly, a Zimbabwe Dollar rating accorded
to a Zimbabwean organisation is not comparable to a South African Rand rating accorded to a South
African organisation. The rating methodologies and rating scales utilised in the accordance of both types of
ratings are very similar, but the key difference is that one scale measures the probability of default on
FOREIGN CURRENCY obligations (taking into account all sovereign risk and currency conversion
considerations), while the other measures the probability of default on LOCALCURRENCY obligations. It
stands to reason that, particularly in emerging markets such as Africa, there is a far higher probability of
default with regards to the former.

Short Term Debt Rating Scale:

GCR's Rating Symbols and Definitions Summary

A short term debt rating rates an organisation's general unsecured creditworthiness over the short-term (i.e.
over a 12-month period). Such a rating provides an indication of the probability of default on any
unsecured short term debt obligations, including commercial paper, bank borrowings, BA's and NCD's.

High GradeA1+
Highest certainty of timely payment. Short-term liquidity, including internal operating factors and/or
access to alternative sources of funds is outstanding, and safety is just below that of risk-free treasury bills.

A1
Very high certainty of timely payment. Liquidity factors are excellent and supported by good fundamental
protection factors. Risk factors are minor.

A1-High certainty of timely payment. Liquidity factors are strong and supported by good fundamental
protection factors. Risk factors are very small.

Good GradeA2
Good certainty of timely payment. Liquidity factors and company fundamentals are sound. Although
ongoing funding needs may enlarge total financing requirements, access to capital markets is good. Risk
factors are small.

Satisfactory GradeA3
Satisfactory liquidity and other protection factors qualify issues as to investment grade. However, risk
factors are larger and subject to more variation. Non-Investment Grade

B Speculative investment characteristics. Liquidity is not sufficient to insure against disruption in debt
service. Operating factors and market access may be subject to a high degree of variation.

Default C Issuer failed to meet scheduled principal or interest payments.

Long Term Debt Rating Scale:

GCR's Rating Symbols and Definitions Summary

A long term debt rating rates the probability of default on specific long term debt instruments over the life
of the issue. It is possible that different issues by a single issuer could be accorded different ratings,
depending on the underlying characteristics of each issue (e.g. is it a senior or a subordinated debt
instrument, is it secured or unsecured and, if secured, what is the nature of the security).

AAA
Highest credit quality. The risk factors are negligible, being only slightly more than for risk free government
bonds.

AA-
Very high credit quality. Protection factors are very strong. Adverse changes in business, economic or
financial conditions would increase investment risk although not significantly.

A+AA-
High credit quality. Protection factors are good. However, risk factors are more variable and greater in
periods of economic stress.

BBB+BBBBBB-
 Adequate protection factors and considered sufficient for prudent investment. However, there is
considerable variability in risk during economic cycles.
Non - Investment GradeBB+BBBB-
Below investment grade but capacity for timely repayment exists. Present or prospective financial
protection factors fluctuate according to industry conditions or company fortunes. Overall quality may
move up or down frequently within this category.

B+BB-
Below investment grade and possessing risk that obligations will not be met when due. Financial protection
factors will fluctuate widely according to economic cycles, industry conditions and/or company fortunes.

CCC
Well below investment grade securities. Considerable uncertainty exists as to timely payment of principal or
interest. Protection factors are narrow and risk can be substantial with unfavourable economic/industry
conditions, and/or with unfavourable company developments
.
DD
Defaulted debt obligations. Issuer failed to meet scheduled principal and/or Interest payments.

GCR's Rating Symbols and Definitions Summary

Such ratings are exclusively accorded to insurance/reinsurance companies and rate the probability of
timeously honouring policyholder obligations over the medium term (i.e. over the next 2 to 3 years)

AAA
Highest claims paying ability. The risk factors are negligible.

AA+AAAA-
Very high claims paying ability. Protection factors are strong. Risk is modest, but may vary slightly over
time due to economic and/or underwriting conditions.

A+AA-
High claims paying ability. Protection factors are above average although there is an expectation of
variability in risk over time due to economic and/or underwriting conditions.

BBB+BBBBBB-
Adequate claims paying ability. Protection factors are adequate although there is considerable variability in
risk over time due to economic and/or underwriting conditions.

BB+BBBB-
Moderate claims paying ability. The ability of these organisations to discharge obligations is considered
moderate and thereby not well safeguarded in the event of adverse future changes in economic and/or
underwriting conditions.

B+BB-
Possessing substantial risk that policyholder and contract-holder obligations will not be paid when due.
Judged to be speculative to a high degree.

CCC
Company has been, or is likely to be, placed under an order of the court.

DISADVANTAGESOFCREDITRATING

 BIASE D RA TI NG A ND MI SR EPR ESNTATI ON S

In t he ab s en c e of qu a lit y r at i n g , cr edit ra t i ng is a c ur s e fo r t he c ap i t al m
arket i nd us t r y, carrying out detailed analysis of the company, should have no links with the
company or
the persons interested in the company so that their reports impartial and judiciousrecommendations for
rating committee. The companies having lower grade rating do not advertise or use the rating
while raising funds from the public. In such cases, the investor cannot get information about the
riskiness of instrument and hence is at loss.

 STATIC STUDY
Rating is done on the present and the past historic data of the company and this is only a static s tudy.
P r ed ic ti on of th e compa ny' s h e alt h through r a tin g is mo me n t ar y a nd an yth ing c an
happen after assignment of rating symbols to the company. Dependence for future results on the rating,
therefore defeats the very purpose of risk indicative ness of rating. Many changes take place in economic
environment, political situation, government policy framework, which directly affect the working of a
company.

3. CONCEALMENT OF MATERIAL INFORMATION

Rating company might conceal material information from the investigating team of the credit rating
company. In such cases, quality of rating suffers and renders the rating unreliable.

4. RATING IS NO GUARANTEE FOR SOUNDNESS OF COMPANY

R ati ng is done fo r a p art i cul ar i ns t r um e nt to ass e ss t he cr edi t ri sk b ut it sho ul
d n ot be co nst r ue d as a c er t ific ate fo r the m at ch i n g qu a l ity of t he compa ny or
it s m a n ag em e nt . Independent views should be formed by the public using the rating symbol.

5. HUMAN BIAS
Findings of the investigation team, at times, may suffer with human bias for
unavoidable personal weakness of the staff and might affect the rating.

6. REFLECTION OF TEMPRORARY AD VERSE CONDITIONS Time factor affects rating.

Sometimes, misleading conclusions are derived. For example, company in a particular
industry might be temporarily in adverse condition but it is given a low rating. This adversely
affects the company's interest

7. DOW N GR AD E
O n ce a company h as b een r at e d an d if it is no t ab l e to maintain its w orking re s ul
t s an d performance, credit rating agencies would review the grade and down grade the ratingresulting
into impairing the image of the company.

8. DIFFERNCE IN RATING OF TWO AGENCIES

Rating done by the two different credit rating agencies for the same instrument of the same
issuer company in many cases would not be identical. Such differences are likely to
occur because of value judgment differences on qualitative aspects of the analysis in two different agencies.

9. CONSERVATIVE RATING
Default by an investment-grade firm is seen as the costliest error for the agency. In order to p r es er v
e th eir r ep ut at i o n by a v oi din g th e f a ilu re of a ny i n v est m ent- g r a de fi rm , r
ati ng agencies downgrade even "good" firms in response to higher global risk. The downgrades
may
look self-fulfilling, but in fact, investors rationally ignore them, as they actually convey no information
about the relative quality of firms

10. Rating Volatility and Herding Behavior: Credit ratings may exhibit excessive volatility or herd
behavior, particularly during periods of market stress or uncertainty. Rating agencies may react to market
events or peer actions rather than conducting independent analysis, leading to abrupt changes in ratings that
may not accurately reflect underlying credit fundamentals. This volatility can exacerbate market volatility
and investor uncertainty, undermining market stability and confidence.

11. Limited Accountability and Regulatory Oversight: Despite their significant influence on financial
markets, credit rating agencies may face limited accountability and regulatory oversight. Regulatory
regimes governing credit rating agencies vary across jurisdictions, leading to inconsistencies in standards
and enforcement. Weak regulatory oversight can create opportunities for misconduct, conflicts of interest,
and rating manipulation, eroding investor protection and market integrity.

12. Systemic Risk Amplification: The reliance on credit ratings as benchmarks for risk assessment and
investment decision-making can amplify systemic risks within the financial system. When large numbers
of investors base their investment strategies on credit ratings, any errors or inaccuracies in ratings can
propagate through the system, leading to contagion effects and market disruptions. The interconnectedness
of financial institutions and markets can magnify the impact of rating downgrades or defaults, posing
systemic risks to the stability of the financial system.

13. Procyclical Regulatory Impact: Regulatory frameworks that incorporate credit ratings as criteria for
capital adequacy or risk management purposes may inadvertently exacerbate procyclical behavior in
financial markets. For example, Basel III regulations require banks to hold more capital against lower-rated
assets, potentially amplifying credit contractions during economic downturns. Procyclical regulatory
impacts can exacerbate market volatility, impair credit availability, and hinder economic recovery efforts,
highlighting the need for more nuanced risk management frameworks.

14. Lack of Differentiation and Granularity: Credit rating agencies may face challenges in providing
differentiated and granular ratings, particularly for complex financial instruments or niche market
segments. Standardized rating scales and methodologies may not adequately capture the unique risk
profiles of certain issuers or securities, leading to oversimplified assessments or insufficient risk
differentiation. This lack of granularity can obscure meaningful distinctions in credit risk, hindering
investors' ability to make informed investment decisions and manage portfolio risks effectively.

15. Rating Lag and Information Asymmetry: Credit ratings may lag behind material changes in credit risk
or market conditions, creating information asymmetry between rating agencies and market participants.
Delays in rating updates or revisions can leave investors unaware of evolving credit risks, exposing them to
potential losses or mispricing of securities. Information asymmetry can also be exploited by sophisticated
market participants to capitalize on discrepancies between market prices and credit ratings, further
distorting market efficiency and investor welfare.

16. Impact on Borrowing Costs and Access to Capital: The assignment of credit ratings can significantly
impact issuers' borrowing costs and access to capital markets. Lower-rated issuers may face higher
financing costs due to perceived credit risk, constraining their ability to raise capital or refinance existing
debt. Moreover, downgrades in credit ratings can trigger margin calls, covenant breaches, or liquidity
pressures, exacerbating financial distress and hindering business operations. This sensitivity to credit
ratings underscores their influence on corporate financing decisions and capital market dynamics.
17. Data Privacy and Cybersecurity Risks: Credit rating agencies handle vast amounts of sensitive
financial and proprietary information, raising concerns about data privacy and cybersecurity risks.
Unauthorized access, data breaches, or malicious attacks on credit rating agencies' systems can
compromise the confidentiality, integrity, and availability of sensitive information, leading to reputational
damage and regulatory sanctions. Safeguarding against data privacy breaches and cybersecurity threats
requires robust risk management frameworks and investments in advanced technology and personnel
training.

18. Regulatory Capture and Conflict of Interest: There's a risk of regulatory capture or conflicts of interest
within credit rating agencies, particularly when they are compensated by the issuers whose securities they
rate. This may lead to biased ratings or pressure to inflate ratings to attract more business from issuers.
Such conflicts undermine the independence and objectivity of credit rating agencies, eroding investor trust
and confidence in the integrity of the ratings process.

19. Limited Coverage and Timeliness: Credit rating agencies may have limited coverage of certain sectors
or regions, resulting in gaps in rating coverage for investors. Moreover, the timeliness of credit ratings may
vary, with some ratings lagging behind changes in credit risk or market conditions. This lack of timely
information can hinder investors' ability to make informed decisions and manage risk effectively,
particularly in fast-moving markets or during periods of volatility.

20. Pro-Cyclical Nature of Ratings: Credit ratings have a pro-cyclical tendency, meaning they may
exacerbate market fluctuations and economic cycles. During economic downturns, credit rating agencies
tend to downgrade more issuers, which can amplify investor panic and exacerbate market distress.
Conversely, during economic expansions, rating upgrades may fuel excessive risk-taking and asset
bubbles. This pro-cyclical behavior can contribute to market instability and systemic risk in the financial
system.

21. Lack of Transparency in Methodology: Credit rating agencies often face criticism for the lack of
transparency in their rating methodologies. The proprietary nature of rating models and criteria makes it
challenging for investors to fully understand how ratings are determined and to assess the robustness of
the analysis. This opacity can lead to skepticism and distrust among investors, who may question the
reliability and validity of credit ratings.

22. Legal Liability and Litigation Risk: Credit rating agencies may be exposed to legal liability and
litigation risk if investors incur losses based on reliance on inaccurate or misleading ratings. In recent years,
several lawsuits have been filed against credit rating agencies alleging negligence, conflicts of interest, and
failure to adequately assess credit risk. Legal challenges can damage the reputation and credibility of credit
rating agencies, leading to increased scrutiny from regulators and investors.

23. Rating Shopping and Gaming: Issuers may engage in rating shopping, whereby they seek ratings from
multiple credit rating agencies and selectively disclose favorable information to obtain higher ratings. This
practice undermines the integrity of the ratings process and can distort market perceptions of credit risk.
Additionally, issuers may attempt to manipulate their financial statements or business practices to
artificially inflate their credit ratings, leading to mispriced securities and increased investor vulnerability.

24. Inadequate Consideration of Environmental, Social, and Governance (ESG) Factors: Credit rating
agencies have faced criticism for insufficiently incorporating environmental, social, and governance (ESG)
factors into their rating assessments. As awareness of ESG risks grows among investors and regulators,
there's a growing expectation for credit rating agencies to incorporate these factors into their analysis.
Failure to adequately consider ESG risks may result in ratings that fail to accurately reflect the full
spectrum of credit risk facing issuers, potentially exposing investors to unforeseen risks and liabilities.

25. Ratings Overreliance: Investors may exhibit overreliance on credit ratings as a proxy for credit risk
assessment, leading to complacency and inadequate due diligence. Relying solely on credit ratings
without conducting independent analysis can result in mispriced securities and increased vulnerability to
credit events. Investors should supplement credit ratings with thorough fundamental analysis and risk
assessment to mitigate the limitations of rating agencies and make well-informed investment decisions.
 IPOGRADING

IPO grading (initial public offering grading) is a service aimed at facilitating the assessment of equity
issues offered to public. The grade assigned to any individual issue represents a relative
assessment of the 'fundamentals' of that issue in relation to the universe of other listed equity securities in
India. Such grading is assigned on a five-point point scale with a higher score indicating stronger
fundamentals.

IPO Grading Is Different from an Investment Recommendation

Investment recommendations are expressed as 'buy', 'hold' or 'sell' and are based on a security
specific comparison of its assessed 'fundamentals factors' (business prospects, financial positioned.) and
'market factors' (liquidity, demand supply etc.) to its price. On the other hand, IPO grading is expressed on
a five-point scale and is a relative comparison of the assessed fundamentals of the graded issue to other
listed equity securities in India. As the IPO grading does not take cognizance of the price of the security, it
is not an investment recommendation. Rather, it is one of the inputs to the investor to aiding in
the decision making process. All other things remaining equal, a security with stronger fundamentals
would command a higher market price.
Certainly, let's expand further on IPO grading:

1. Facilitates Informed Investment Decisions: IPO grading serves as a valuable tool for investors to
make informed investment decisions. By providing a standardized assessment of the fundamentals of an
IPO, investors can better evaluate the relative merits and risks associated with investing in the offering.
This empowers investors to align their investment strategies with their risk tolerance and financial
objectives, contributing to more efficient capital allocation in the market.

2.Risk Mitigation and Diversification: For investors seeking to mitigate risk and diversify their
investment portfolios, IPO grading offers valuable insights into the risk profile of different IPOs. By
considering the graded fundamentals of multiple IPOs across various sectors and industries, investors can
construct a well- diversified portfolio that balances risk and return potential. This diversification strategy
helps investors mitigate single-stock risk and achieve more stable long-term investment returns.

3. Improves Market Efficiency and Price Discovery: IPO grading enhances market efficiency and price
discovery by providing investors with standardized information about the fundamental attributes of newly
listed securities. By incorporating IPO grades into their investment decision-making process, market
participants contribute to more accurate price formation and better allocation of capital. This fosters
greater liquidity, transparency, and overall efficiency in the IPO market, benefiting both issuers and
investors.

4.Regulatory Compliance and Investor Protection: SEBI's mandate for IPO grading underscores its
commitment to regulatory compliance and investor protection. By establishing a standardized framework
for evaluating the fundamentals of IPOs, SEBI ensures that issuers adhere to disclosure norms and
transparency requirements, safeguarding the interests of retail investors. IPO grading helps mitigate
information asymmetry between issuers and investors, promoting fair and orderly capital markets.

5.. Enhances Corporate Governance Standards: The IPO grading process incentivizes issuers to uphold
high standards of corporate governance, financial transparency, and disclosure practices. Companies
seeking a favorable IPO grade are motivated to strengthen their governance structures, adopt robust
internal controls, and enhance transparency in financial reporting. This commitment to corporate
governance excellence benefits investors by reducing agency costs, mitigating the risk of fraud or
mismanagement, and enhancing long-term shareholder value.
6.Encourages Long-Term Investor Engagement: IPO grading encourages long-term investor engagement
and commitment by providing a reliable assessment of the fundamental quality of newly listed securities.
Investors who rely on IPO grades as part of their investment analysis are more likely to adopt a patient,
buy- and-hold investment approach, rather than engaging in short-term speculation or market timing
strategies. This long-term orientation fosters stability and resilience in the IPO market, supporting
sustainable growth and value creation for all stakeholders.

7. Contributes to Market Education and Awareness: SEBI's emphasis on IPO grading contributes to market
education and awareness by raising public understanding of the factors influencing investment risk and
decision-making. Through investor education initiatives, regulatory guidance, and dissemination of grading
reports, SEBI promotes financial literacy and empowers investors to make sound investment choices
aligned with their financial goals. By fostering a more informed and educated investor base, IPO grading
strengthens the overall integrity and resilience of the capital markets.

8.Enhanced Market Transparency: IPO grading contributes to enhanced market transparency by

providing investors with a standardized and objective assessment of the fundamentals of an IPO. This
transparency fosters investor confidence and facilitates more informed decision-making, leading to
efficient price discovery and improved market efficiency.

9.Investor Education and Empowerment: IPO grading serves as a valuable tool for investor education and
empowerment, helping investors understand the key factors influencing the attractiveness and risk profile
of an IPO. By providing a relative assessment of an IPO's fundamentals compared to other listed equity
securities, IPO grading enables investors to make more informed investment decisions aligned with their
risk tolerance and investment objectives.

10.Risk Mitigation and Portfolio Diversification: For investors, IPO grading offers a mechanism for risk
mitigation and portfolio diversification. By incorporating IPO grades into their investment analysis,
investors can identify IPOs with stronger fundamentals and potentially lower investment risk. This
enables investors to construct more diversified portfolios that balance risk and return across different
asset classes and market segments.

11.Regulatory Oversight and Compliance: IPO grading is subject to regulatory oversight and compliance
requirements to ensure the integrity and reliability of the grading process. Regulatory bodies such as
SEBI (Securities and Exchange Board of India) establish guidelines and standards for credit rating
agencies and other entities involved in IPO grading, promoting fairness, transparency, and investor
protection in the capital markets.

12. Issuer Accountability and Disclosure: For issuers, IPO grading underscores the importance of
accountability and disclosure in the capital raising process. By undergoing IPO grading, issuers
demonstrate a commitment to transparency and corporate governance, which can enhance investor
confidence and credibility in the eyes of the investing public. IPO grading encourages issuers to provide
comprehensive and accurate information to investors, reducing information asymmetry and promoting fair
market practices.

13Market Liquidity and Efficiency: IPO grading can have implications for market liquidity and efficiency
by influencing investor perceptions and trading behavior. IPOs with higher grades may attract greater
investor interest and liquidity, leading to more active trading and tighter bid-ask spreads. Enhanced market
liquidity and efficiency benefit investors by reducing transaction costs and improving price discovery in the
secondary market.

14. Global Benchmarking and Investor Confidence: IPO grading aligns India's capital markets with global
best practices and standards, enhancing investor confidence and attracting foreign investment. By adopting
a standardized grading scale and methodology, India's IPO market becomes more comparable and
compatible with international markets, facilitating cross-border investment flows and increasing market
participation.
15.Continuous Improvement and Stakeholder Engagement: The IPO grading process involves continuous
improvement and stakeholder engagement to enhance its effectiveness and relevance. Credit rating
agencies, regulatory bodies, issuers, and investors collaborate to identify areas for refinement and
innovation in the IPO grading framework, ensuring that it remains responsive to evolving market dynamics
and investor needs.

16. Long-term Value Creation: Ultimately, IPO grading contributes to long-term value creation by
promoting transparency, investor confidence, and market integrity. By providing investors with reliable
and objective assessments of IPOs, IPO grading helps channel capital to companies with strong
fundamentals and growth potential, fostering sustainable economic growth and wealth creation in the long
run.

These aspects collectively underscore the significance of IPO grading as a vital component of the capital
market ecosystem, facilitating efficient capital allocation, informed investment decisions, and
sustainable market development.

How Long Would the Assigned Grade Be Valid?

The assigned grade would be a onetime assessment done at the time of the IPO and meant to aid i nv e s t
or s wh o ar e i nt e r es t ed in i n ve s t i ng in th e IP O . Th e gr a d e wi l l n ot have an y
ongoing validity.

Main features of SEBI decision

Certainly, let's expand on the main features of SEBI's decision on IPO grading:

1. Objective Assessment of Risks: SEBI's decision aims to provide investors with an objective assessment
of the risks associated with an Initial Public Offering (IPO). By assigning a grading based on predefined
criteria, investors can make more informed decisions regarding the potential risks and rewards of investing
in a particular IPO.

2. Enhanced Transparency and Disclosure: The IPO grading exercise enhances transparency and disclosure
in the capital markets by requiring issuers to undergo a rigorous evaluation process. This fosters greater
confidence among investors by ensuring that pertinent information about the issuer's financial health,
business prospects, and risk factors is readily available and transparently communicated.

3. Standardized Evaluation Criteria: SEBI's decision mandates that IPO grading be conducted using
standardized evaluation criteria, ensuring consistency and comparability across different IPOs. This
enables investors to assess the relative riskiness of various IPOs and make comparisons based on objective
parameters, such as financial performance, industry dynamics, and corporate governance practices.

4. Independent Assessment by Recognized Agencies: The grading exercise is conducted by recognized

credit rating agencies that adhere to established regulatory standards and best practices. These agencies
bring specialized expertise and analytical rigor to the evaluation process, enhancing the credibility and
reliability of the IPO grading system.

5. Investor Protection and Empowerment: SEBI's decision serves to protect the interests of investors by
empowering them with access to comprehensive and standardized information about IPOs. By
providing investors with an independent assessment of the risks and merits of an IPO, SEBI enables
them to make more informed investment decisions aligned with their risk tolerance and investment
objectives.

6. Market Discipline and Quality Benchmarking: The IPO grading system promotes market discipline
by incentivizing issuers to maintain high standards of corporate governance, financial transparency, and
risk
management. A favorable IPO grade can serve as a quality benchmark for issuers, signaling to investors
that the offering meets stringent evaluation criteria and reflects sound business fundamentals.

7. Facilitation of Pricing Discovery: While the grading exercise excludes the issue price from its scope, it
facilitates pricing discovery by providing investors with insights into the underlying risk profile of the
IPO. Investors can use the grading information as part of their valuation analysis and pricing assessments,
contributing to more efficient and transparent price formation in the IPO market.

8. Educational Role for Retail Investors: The IPO grading system plays an educational role for retail
investors by raising awareness about the factors influencing investment risk and decision-making.
Through the dissemination of grading reports and investor education initiatives, SEBI empowers retail
investors to develop a better understanding of the IPO evaluation process and make sound investment
choices.

9. Continuous Monitoring and Review: SEBI's decision incorporates provisions for continuous
monitoring and review of the IPO grading system to ensure its effectiveness and relevance in evolving
market conditions. Regular evaluations and stakeholder feedback mechanisms enable SEBI to identify
areas for improvement and implement necessary reforms to enhance the integrity and efficiency of the
grading framework.

10. Global Alignment and Best Practices: SEBI's decision aligns India's IPO grading framework with
international best practices and regulatory standards. By adopting a standardized grading scale and
leveraging the expertise of recognized credit rating agencies, India's IPO market becomes more
comparable and compatible with global capital markets, enhancing investor confidence and attracting
foreign investment.

11. Exclusion of Issue Price from Grading Scope: SEBI's decision to exclude the issue price from the
IPO grading exercise underscores the focus on evaluating fundamental aspects of an issuer's business
and financial performance rather than pricing considerations. By decoupling grading from issue pricing,
SEBI aims to provide investors with independent and objective assessments of an IPO's quality and risk
profile, enabling more informed investment decisions.

12. Involvement of Recognized Credit Rating Agencies: SEBI mandates that IPO grading be conducted by
recognized credit rating agencies, leveraging their expertise in evaluating credit risk and corporate
governance practices. The involvement of established rating agencies ensures adherence to rigorous
analytical standards, robust methodologies, and regulatory compliance, instilling confidence in the
integrity and credibility of IPO grades.

13. Adoption of a 5-Point Grading Scale: The adoption of a 5-point grading scale, ranging from 1
(lowest grade) to 5 (highest grade), provides investors with a standardized framework for assessing the
relative quality and riskiness of IPOs. This grading system facilitates comparability across different
issuers and offerings, enabling investors to gauge the merits of an IPO relative to peers and industry
benchmarks.

14. Issuer's Choice of Rating Agency: SEBI's decision to allow the issuing company to choose the rating
agency for grading its IPO reflects a commitment to promoting issuer autonomy and flexibility in the
IPO process. By empowering issuers to select a rating agency that aligns with their preferences and
objectives, SEBI seeks to foster competition, innovation, and quality improvement among rating
agencies, ultimately benefiting investors through enhanced rating coverage and accuracy.

15. Promotion of Investor Education and Awareness: SEBI's initiative to introduce IPO grading serves as a
catalyst for investor education and awareness, empowering retail and institutional investors with valuable
insights into the quality and risk profile of IPOs. By disseminating IPO grades through public disclosures
and investor communication channels, SEBI aims to facilitate greater transparency, accountability, and
trust in the IPO market, thereby promoting investor confidence and participation.
`6. Alignment with Global Best Practices: SEBI's decision to introduce IPO grading aligns with
international best practices in securities regulation and corporate governance. Drawing lessons from global
experiences, SEBI seeks to strengthen the regulatory framework for IPOs in India, harmonizing standards
and practices with global benchmarks to enhance market integrity, efficiency, and competitiveness.

`7. Continuous Monitoring and Evaluation: SEBI emphasizes the importance of continuous monitoring and
evaluation of IPO grading practices to ensure their effectiveness, relevance, and alignment with evolving
market dynamics and regulatory requirements. By conducting periodic reviews and assessments, SEBI can
identify areas for improvement, address emerging challenges, and refine the IPO grading framework to
better serve the interests of investors and market participants.

In conclusion, SEBI's decision on IPO grading represents a significant milestone in the evolution of India's
capital markets, signaling a commitment to investor protection, market integrity, and regulatory excellence.
By instituting a transparent and standardized process for evaluating IPO quality and risk, SEBI aims to
enhance market efficiency, foster investor confidence, and support sustainable capital formation and
economic growth.

CRISIL IPO Grading

CRISIL, the originator of this concept, has been at the forefront of developing the IPO grading model into a
usable form. The views and feedback of the regulator, Market participants, investors and investor forums
have been core inputs in the development of this product. Therefore, CRISIL has a uniquely evolved
understanding of this globally revolutionary idea. CRISIL believes that IPO grading provided by an
independent agency would be freeform bias and add structure to the tools available at present for assessing
the Investment attractiveness of an equity security. The IPO grading will be based on CRISIL’s proprietary
framework that has been developed to help investors arrive at their own judgment on factors that drive
Equities as an asset class. The debt market has benefited immensely from the availability of such an
assessment in the form of credit rating - a representation of a relative assessment of the fundamentals of the
debt security i.e., likelihood of timely repayment of interest

Certainly, let's expand on CRISIL's IPO grading system:

1. Comprehensive Assessment Framework: CRISIL's IPO grading system is based on a comprehensive

assessment framework that takes into account multiple factors influencing the investment attractiveness
of an equity security. These factors may include the issuer's business prospects, financial performance,
corporate governance practices, industry dynamics, and macroeconomic environment. By evaluating
these aspects holistically, CRISIL provides investors with a nuanced understanding of the underlying
fundamentals driving the IPO's potential.
2. Independent and Unbiased Analysis: CRISIL's IPO grading model emphasizes independence and
objectivity in its analysis, free from bias or conflicts of interest. As a trusted and reputable credit rating
agency, CRISIL maintains strict adherence to ethical standards and regulatory guidelines, ensuring the
integrity and reliability of its grading assessments. By leveraging its expertise and proprietary
methodologies, CRISIL delivers impartial and credible evaluations of IPOs, empowering investors to
make well-informed investment decisions.

3.Regulatory Compliance and Stakeholder Engagement: CRISIL actively engages with regulators, market
participants, investors, and investor forums to ensure that its IPO grading system complies with regulatory
requirements and reflects stakeholder feedback. By incorporating input from various stakeholders, CRISIL
enhances the robustness and relevance of its grading model, aligning it with evolving market dynamics and
investor preferences.

4.Educational and Empowering Tools for Investors: CRISIL's IPO grading system serves as an educational
and empowering tool for investors, enabling them to assess the relative merits of IPOs and make informed
investment choices. By providing transparent and standardized evaluations of IPOs, CRISIL equips
investors with the knowledge and insights needed to navigate the complexities of the equity market and
mitigate investment risks effectively.

5. Enhanced Market Transparency and Efficiency: CRISIL's IPO grading enhances market transparency
and efficiency by promoting greater disclosure and accountability among issuers. The availability of
standardized grading assessments facilitates price discovery and risk management in the IPO market,
fostering fairer and more efficient capital allocation. Investors benefit from increased visibility into the
underlying fundamentals of IPOs, reducing information asymmetry and enhancing market liquidity.

6. Continuous Innovation and Improvement: CRISIL remains committed to continuous innovation and
improvement in its IPO grading methodology, incorporating feedback from market participants and
leveraging advanced analytical tools and techniques. By staying at the forefront of industry best practices
and technological advancements, CRISIL ensures that its IPO grading system remains robust, relevant,
and responsive to the evolving needs of investors and the marketplace.

7. Global Benchmarking and Best Practices: CRISIL's IPO grading system adheres to international best
practices and standards, positioning it as a global benchmark for assessing the investment attractiveness of
IPOs. By aligning its grading framework with global methodologies and benchmarks, CRISIL enhances
the comparability and credibility of its ratings, attracting international investors and fostering greater
integration with global capital markets.

8. Risk Mitigation and Investor Protection: CRISIL's IPO grading system plays a vital role in mitigating
investment risks and protecting investor interests by providing early warnings of potential credit or market
risks associated with IPOs. By identifying and quantifying risk factors, CRISIL enables investors to make
informed decisions and implement risk management strategies to safeguard their investment portfolios.
This proactive approach to risk assessment contributes to greater market resilience and stability, bolstering
investor confidence and trust in the IPO market.

9.Customized Evaluation Criteria: CRISIL tailors its IPO grading criteria to suit the unique
characteristics and industry dynamics of each issuer. By customizing the evaluation framework, CRISIL
ensures that its
grading assessments accurately reflect the specific risk factors and growth prospects relevant to the issuer's
business model and market environment. This customization enhances the relevance and applicability of
CRISIL's IPO grading system across diverse sectors and market segments.

10. Quantitative and Qualitative Analysis: CRISIL's IPO grading methodology combines quantitative
metrics with qualitative analysis to provide a holistic assessment of an issuer's investment attractiveness.
While quantitative factors such as financial ratios and performance metrics offer objective benchmarks,
qualitative considerations such as management quality, competitive positioning, and regulatory
environment provide valuable insights into the issuer's long-term prospects and sustainability. By
integrating both quantitative and qualitative inputs, CRISIL delivers comprehensive and nuanced grading
assessments that capture the multifaceted nature of investment risk.

11. Sector-specific Expertise: CRISIL leverages its deep sectoral expertise and industry knowledge to
conduct specialized evaluations of IPOs within specific sectors or verticals. Drawing on its extensive
experience and research capabilities, CRISIL analyzes sector-specific drivers, trends, and risks to provide
tailored grading assessments that address the unique challenges and opportunities facing issuers in
different industries. This sector-specific approach enhances the relevance and accuracy of CRISIL's
grading evaluations, enabling investors to make more informed sectoral investment decisions.

12. Stakeholder Education and Outreach: CRISIL conducts educational initiatives and outreach programs
to raise awareness among investors, issuers, and market participants about the significance and utility of
IPO grading. Through seminars, workshops, publications, and digital platforms, CRISIL disseminates
information about its grading methodology, key evaluation criteria, and best practices in investment
decision-making. By fostering greater investor literacy and market awareness, CRISIL empowers
stakeholders to navigate the IPO market with confidence and clarity.

13. Long-term Performance Monitoring: CRISIL provides ongoing monitoring and analysis of IPO
performance post-listing to assess the accuracy and predictive power of its grading assessments. By
tracking key performance indicators, market trends, and issuer developments over time, CRISIL evaluates
the efficacy of its grading model in anticipating future outcomes and identifying areas for refinement or
enhancement. This continuous performance monitoring enables CRISIL to iterate and improve its grading
methodology, ensuring its relevance and effectiveness in a dynamic market environment.

14. Integration with ESG Factors: CRISIL integrates environmental, social, and governance (ESG) factors
into its IPO grading framework to evaluate the sustainability and responsible business practices of issuers.
By considering ESG criteria such as carbon footprint, diversity initiatives, and board governance
structures, CRISIL assesses the long-term resilience and ethical conduct of IPO candidates. This
integration of ESG factors enhances the depth and breadth of CRISIL's grading assessments, aligning
them with evolving investor preferences and global sustainability standards.

15. Transparency and Accountability: CRISIL upholds high standards of transparency and accountability
in its IPO grading process, providing clear explanations of its assessment criteria, methodologies, and
rationale for grading decisions. By fostering transparency and open communication, CRISIL enhances
investor trust and confidence in its grading evaluations, facilitating greater market transparency and
integrity. Investors can access detailed grading reports and supporting documentation to understand the
basis of CRISIL's grading assessments and make informed investment decisions accordingly.
16. Adaptability to Market Change: CRISIL's IPO grading system demonstrates adaptability to evolving
market dynamics, regulatory requirements, and investor preferences. By continuously monitoring market
trends, regulatory developments, and investor feedback, CRISIL adjusts its grading methodology and
criteria to reflect changing market conditions and emerging risks. This agility and responsiveness ensure
that CRISIL's grading assessments remain relevant, reliable, and robust in an ever-changing investment
landscape.

Through these initiatives and attributes, CRISIL's IPO grading system serves as a trusted and invaluable
resource for investors, issuers, and market participants, promoting transparency, accountability, and
informed decision-making in the IPO market.

CREDIT RATING and principal. The IPO grading product of CRISIL, is a relative assessment of the
fundamentals of the equity security. Investment decisions for IPO are at present based on voluminous and
complex disclosure documents, which pose a challenge to investors to arrive at informed decisions. The
focus, in these documents is meeting regulatory guidelines on disclosures. Though seemingly there is a lot
of information available on IPOs through free research on websites, media and other sources, investors
often look for structured, consistent and unbiased analysis to aid their investment decisions. Moreover,
information available on new companies varies with the size of the issue, the market conditions and the
industry that the issuing company belongs to. CRISILIPO grading aims to bridge this gap and facilitate
more informed investment decisions.

Contents of The CRISIL IPO Grading Report

 The report for each CRISIL IPO grading will contain a summary and a detailed report.
  Summary-One-page report highlighting the key elements of analysis

 Detailed Report-Comprehensive commentary on the assessment parameters. This report will be a

one-time assessment based on the information disclosed in the draft prospectus filed with
Securities Exchange Board of India (SEBI); our understanding of the industry and company
fundamentals; and interactions with the issuer management and other stakeholders. The report will
comprise our assessment on the following parameters:

 Management quality

 Business prospects: Industry and company

 Financial performance

 Corporate governance

 Project related factors

DATA

ANALYSIS Q1 WHAT IS THE FULL FORM OF CRA

Credit Remote 31
Agency

Credit Rating 4
Agency
Credit Required 1
Agency
The above pie chart showed how much percent people are aware about full form of CRA which is CREDIT
RATING AGENCY. The Red colored portion shows the no of people who are have chooses the correct
option which is CREDIT RATING AGENCY and the Blue and Green colored portion shows the percentage
pf people who have chosen incorrect options

 Among the given sample of 100% people who know the full form of CRA is 86.1% of 100%.

 People who have chosen incorrect options is 11.1% and 2.8% respectively.
Q2 How is rating denoted

AA+ A- 30

-1,2 5

In the above pie chart showed,

 82.9% people have chosen the correct option which is AA+, A-

 17.1% people have chosen the incorrect option which is -1,2

 Rating is denoted with the help of AA+, A-
Q3 DO YOU KNOW ABOUT CREDIT RATING AGENCY

YES 18

NO 18

The above pie chart showed how much percent people are aware about CREDIT RATING AGENCY. The
Blue colored portion shows the no of people who are having knowledge regarding CREDIT RATING
AGENCY and the Red colored portion shows the percentage of people who are not aware about the same.

 Among the given sample of 100% people who know about CREDIT RATING AGENCY are 50%
of 100%.

 People who are lacking knowledge about Monetary Policy are 50%
Q4 WHAT IS THE FULL FORM OF CRISIL

CREDIT RATING 33
INFORMATION SERVICES OF
INDIA
CREDIT RELATIVE INFORMATION 3
SERVICE OF INDIA

CREDIT RATING INFORMAL 0

SERVICE OF INDIA

FULL FORM OF CRISIL

35

30

25

20

15

10

0
CREDIT RATING INFORMATION OF CREDIT RELATIVE INFORMATION OF CREDIT RATING INFORMAL SERVICE
INDIAINDIAOF INDIA

In the above pie chart showed,

 Among the given sample of 100% people who know about the full form of CRISIL are 91.7%
of 100% which is correct

 Whereas 8.3% have chosen credit relative information services of India

Q5 WHOCONTROLSCREDITRATINGAGENCIESIN INDIA

CRA 7

CRISIL 14

SEBI 15

In the above pie chart showed,

 41.7% people have chosen SEBI

 19.4% people have chosen CRA
 38.9% people have chosen CRISIL
Q6 WHICH IS THE LARGEST CREDIT RATING AGENCY IN INDIA

SEBI 15

CRA 3

CRISIL 17

WHICH IS THE LARGEST CREDIT RATING AGENCY IN INDIA

18

16

14

12

10

2
SEBI CRA CRISIL
0

In the above pie chart showed,

 42.9% people have chosen SEBI

 8.6% people have chosen CRA
 48.6% people have chosen CRISIL
CHAPTER 5: FINDINGS, CONCLUSIONS AND SUGGESTIONS

The data was collected from primary sources. For the only primary a survey was done online and 35 responses
were collected by the researchers whereas secondary data was collected from multiple websites and journals.

• Majority of the respondents i.e. 48.8% like to invest to exempt tax and for security purpose

• Majority of the respondents i.e. 48.8% are ready to bear high risk to get higher returns back. • It is observed
that the majority of the respondents i.e. 56.3% invest in banking sectors as compared in corporate sector only
50% of respondents invest

• From the following research we can see that majority of the respondents have knowledge about credit
rating agencies.

• Majority of the respondents i.e. 32.5% tells that credit rating shows the exact financial position of the
company.

• Majority of the respondents i.e. 52.5% says that there are enough number of Credit rating Agencies in India.

• Majority of the respondents i.e. 52.5% would like to invest in bank term deposits.

• Majority of the respondents i.e. 53.8% came to know about credit rating agencies from the newspapers.

• From the following survey it is observed that respondents prefer CRISIL as a Credit Rating Agency.

• Majority of the respondents i.e. 62.5% are satisfied with the ratings given by the agencies.

1. Agreement with the Client Every Credit Rating Agency shall enter into Written Agreement which contains

i. The rights and liabilities of each party

ii. The fee to be charged by the credit rating agency

iii. Agreement to a periodic review of the rating by the credit rating agency

iv. Agreement of co-operation with the credit rating agency

v. Credit rating agency shall disclose to the client the rating assigned to the securities

vi. Client shall agree to disclose the following documents: -

a. The rating assigned to the client’s listed securities by any credit rating agency during the last three years

b. Any rating given by any other credit rating agency, which has not been accepted by the client.

2. Monitoring of Rating 1. Every credit rating agency shall carry out periodic reviews of all published ratings
during the lifetime of the securities. If the client does not co - operate with the Credit Rating Agency so
Credit Rating Agency shall carry out the review on the basis of the best information available.
3. A credit rating agency shall not withdraw a rating so long as the obligations under the security rated by it
are outstanding Internal Procedures. Every Credit Rating Agency shall frame appropriate procedures and
systems in order to prevent contravention of –

(a) The Securities and Exchange Board of India (Insider Trading) Regulations, 1992

(b) The Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices
relating to the Securities Market) Regulations, 1995 and

(c) Other laws relevant to trading of securities. . Disclosure of Rating Definitions and Rationale Every Credit
Rating Agency: 1. Shall make public the definitions of the concerned rating, along with the symbol.

4.Ratings do not constitute recommendations to buy, hold or sell any securities Every credit rating agency
shall make available to the general public information relating to the rationale of the ratings, which shall
cover an analysis of the various factors justifying a favorable assessment, as well as factors constituting a
risk.

5. Submission of Information to the Board Information called by Board from a Credit Rating Agency for the
purpose of regulations, Credit Rating Agency shall furnish such information to the Board – a. Within a
period, specific by the Board or, b. If no such period specified by the Board, c. If no such period is specified
then within a reasonable time. Every Credit Rating Agency shall, at the close of each accounting period,
furnish to the Board copies of its Balance Sheet and Profit and Loss account.

6. Compliance with circulars etc., issued by the Board Every credit rating agency shall comply with such
guidelines, directives, circulars and Instructions as may be issued by the Board from time to time, on the
subject of credit rating.

7. Appointment of Compliance Officer 1. Every Credit Rating Agency shall appoint Compliance Officer
who shall be responsible for monitoring rules and regulations and circulars issued by Board or the Central
Government. 2. The compliance officer shall immediately and independently report to the Board any
noncompliance observed by him.

8. Maintenance of Books of Accounts, records, etc. Every credit rating agency shall keep and maintain, for a
minimum period of five years the following books of accounts, records and documents, namely:

(a) Copy of its balance sheet, as on the end of each accounting period;

(b) A copy of its profit and loss account for each accounting period;

(c) A copy of the auditor’s report on its accounts for each accounting period.

(d) A copy of the agreement entered into, with each client;

(e) Information supplied by each of the clients;

(f) Correspondence with each client;

(g) Ratings assigned to various securities including up gradation and down gradation (if any) of the ratings
so assigned 9. Steps on Auditor’s Report Every credit rating agency shall, within two months from the date
of the auditor’s report, take steps to rectify the deficiencies if any, made out in the auditor’s report, in so far
as they relate to the activity of rating of securities 10.

Confidentiality Every credit rating agency shall treat, as confidential, information supplied to it by the client
and no credit rating agency shall disclose the same to any other person. Credit Rating is as very important
since investors should be equipped with easy methods to make their investment decisions. If ratings are
assigned in a proper, systematic, transparent way, then it will be a boon for investors and will go a long way
in making the investment world a safe place. It is an undisputed fact that Credit Rating Agencies play a vital
role in financial markets by to reduce the informative gap between lenders and investors, on one side, and
issuers on the other side, about the creditworthiness of companies or countries an investment grade rating
can put a security, company or country on the global radar, attracting foreign money and boosting a nation's
economy. Indeed, for emerging market economies, the credit rating is the key to showing their worthiness of
money from foreign investors. Credit rating helps the market regulators in promoting stability and efficiency
in the securities market. Ratings make markets more efficient and transparent. But at the same time the
Credit Rating Scenario took to turmoil in the early Summer of 2007 where the investor first started to lose
their faith on such companies at a massive scale. Ratings being as opinionated, and objective should not be
granted with a business purpose in a mind. Which indeed was the real cause behind the Crash of 2007, that
could have been averted with a simple downgrade of instruments held and issued by Lehman as well as other
Companies and which would have saved the US Federal Reserve to infuse an extra 4.1 Trillion Dollars in the
US Economy and bail out everyone. But it always stays as an undisputed fact that Credit Rating Agencies
still have a huge role to play in the financial markets and one cannot just do away with the. Rating agencies
play an important role in the world markets, they can best serve markets when they operate ethically,
independently, adopt and enforce internal guidelines to avoid conflict of interest, and provide confidential
information from issuers. . FOR INVESTORS 1. An investor should always keep in mind that nothing
comes along guarantee or without risk not even promised returns on Life Insurance Policies and hence
should always keep in mind the principle of “Caveat Emptor” which means let the buyer beware. 2. Investor
themselves are to responsible for their money. Hence one should always be cautious and thoroughly examine
the facts, creditworthiness before zeroing down on any investment decision and most importantly compare it
with other options as well. 3. It is also very important for an investor or any other person for the matter
concerned to always maintain a goo as well as healthy credit track record and have a good credit score along
with timely payment of taxes and any other obligations to ensure safe and smooth future borrowings in times
of need. 4.Investors must always invest on one’s guts rather just following someone and should always align
their investments with the way markets are going as at the end of the day markets are the one providing them
returns on their investment and not others. B. FOR CREDIT RATING AGENCIES 1.CRISIL, ICRA &
CARE, the three major rating agencies are handling 90%- 95% of the business of credit rating promoted by
financial institutions who while advancing loans take the help of credit rating agencies to get the company
rated. All these agencies have continued to
expand their activities in recent years. They must also be updated about the reforms in the financial sector
which can have an impact on the businesses of these agencies as the market is volatile in nature especially in
case of debt instrument like bonds and Commercial Papers as well. 2.Nevertheless, Credit Rating Agencies
have always found out ways and methods to evade regulations and are far from sight of control under the
government authorities as they escape with a simple subject matter of line that these are our opinions and are
no way intended to be an assurance. Hence there shall be stringent laws and each rating should be fair
enough and truly based on the facts and figures of the company rather than how big billables they are to the
agency. This has become very important after the recent IL and FS case in India. Also, at the end of the day
it is their responsibility to be ethical and true to the outside people because there are many investors who
invest just on their reports based on faith. 3.Another aspect is regarding the procedure or the methodology
that these rating agencies follow for rating. Sometimes companies not satisfied with rating of one agency
approach use another rating agency for better rating. For this purpose, the rating process or procedure
followed for rating must be relevant, accurate and regulated. Rating agencies should not only take into
consideration past & present performance; the projected future performance must not be ignored.
 BIBLIOGRAPHY
1. www.sebi.gov.in/acts/CreditRatingAgencies.
2. www.standardandpoors.com.
3. http://www.careratings.com.
4. https://www.scribd.com/doc/169675953/Blackbook-Project-on-Credit-Rating
5. Wikipedia
6. Financial Times
7. India Financial Systems by M Y. KHAN and BHARTI PATHAK.
8. Regulating Credit Rating Agencies by ALINE DARBELLAY.
9. The credit rating industry/An industrial organization Analysis by
Lawrence JWhite.
10. The Subprime Solution by ROBERT J SHILLER.
11. Credit Rating and Bank Behaviour by D. M. NACHANE and
SAIBALGHOSH.
Credit Rating Agencies and The Global Financial Crisis by ECONSTOR

ANNEXURE

Q1 What is the full form of CRA

1. Credit Remote Agency

2. Credit Rating Agency
3. Credit Required

Agency Q2 How is rating

denoted

1. AA+, A-

2. -1, 2

Q3 Do you know about credit rating agency

1.Yes

2.No

Q4. What is the full form of Crisil

1. Credit Rating Information Services of India

2. Credit Relative Information Service of India

3. Credit Rating Informal Service of India

Q5. Who controls credit rating agencies in

India 1.CRA

2. CRISIL

3. SEBI

Q6. Which is the largest credit rating agency in India

1.SEBI

2. CRA

3. CRISIL