Introduction to Credit Rating

A credit rating assesses the credit worthiness of an individual, corporation, or even a country. Credit ratings are calculated from financial history and current assets and liabilities. A credit rating tells a lender or investor the probability of the subject being able to pay back a loan. A poor credit rating indicates a high risk of defaulting on a loan, and thus leads to high interest rates.

Introduction to Credit Rating  An assessment of the credit worthiness of individuals and corporations. as well as the availability of assets and extent of liabilities.  . It is based upon the history of borrowing and repayment. and will most likely have to pay more due to the risk of default. Credit is important since individuals and corporations with poor credit will have difficulty finding financing.

Introduction to Credit Rating  Moodys‟: “Ratings are designed exclusively for the purpose of grading bonds according to their investments qualities”.  . Australian Ratings: „A corporate credit rating provides lenders with a simple system of gradation by which the relative capacities of companies to make timely repayment of interest and principal on a particular type of debt can be noted‟.

Introduction to Credit Rating      Credit rating is an assessment of the capacity of the issuer of debt security by an independent agency. to pay interest and repay principal as per the terms of issue of debt. A debt rating is not one time evaluation of credit risk. The ratings are expressed in code numbers which can be easily comprehended by the lay investors. Credit rating. A credit rating does not create fiduciary relationship between the agency and the users . which can be regarded as valid for the entire life of the security. is done for a specific security and not for a company as a whole. as exists in India.

return & Trade off Healthy discipline on corporate borrowers Formulation of public policy guidelines on Institutional investment .Functions of Credit Rating Agencies      Superior information Low cost information Basis for proper risk.

Benefits of Credit Rating     Low cost information Quick investment decision Independent investment decision Investor protection .

Benefits to rated companies          Sources of additional certification Increase the investor population Forewarns risk Encourages financial Discipline Merchant bankers job made easy Foreign collaborations made easy Benefits the industry as a whole Low cost of borrowing Rating as a marketing tool .

Ltd.Credit Rating Agencies in India     Credit Rating Information Services Limited (CRISIL) Investment Information and Credit Rating Agency of India (ICRA) Credit Analysis and research (CARE) Duff Phelps Credit Rating Pvt. (DCR India) .

1988. with a contextual understanding of business. CRISIL is India's leading rating agency. CRISIL Ratings is a full service rating agency that offers a comprehensive range of rating services. The first credit agency floated on January 1. . With over a 60% share of the Indian Ratings market. CRISIL Ratings is the agency of choice for issuers and investors. It was jointly started by ICICI and UTI with an equity capital of 4 crores. CRISIL Ratings provides the most reliable opinions on risk by combining its understanding of risk and the science of building risk frameworks.Credit Rating Information Services Ltd. and is the fourth largest in the world.

Its rating guides the investors about the risk of timely payment of interest and principal on a particular debt instrument.Credit Rating Information Services Ltd. and have no interest in the entity being rated. A team of analysts carries out the credit analysis   . The rating committee comprises members who have the professional competence to meaningfully assess the credit analysis that underlies the rating. CRISIL's rating process and rating committee are designed to ensure that all assigned ratings are based on the highest standards of independence and analytical rigor.  The principal objective of CRISIL is to rate the debt obligations of Indian companies.

Credit Rating Information Services Ltd. A detailed flow chart of CRISIL's rating process is as under: .

Credit Rating Symbols Debenture Rating Symbols High Investment Grades: AAA(triple A): Highest Safety AA (double A): High Safety Investment Grades: A: Adequate Safety BBB (triple B): Moderate Safety Speculative Grades: BB: Inadequate Safety B: High Risk C: Substantial Risk D: Default .

With the growth and globalisation of the Indian capital markets leading to an exponential surge in demand for professional credit risk analysis. ICRA’s major shareholders include Moody's Investors Service and leading Indian financial institutions and banks. equity gradings. . specialised performance gradings and mandated studies spanning diverse industrial sectors. ICRA is a leading provider of investment information and credit rating services in India. executing assignments including credit ratings. ICRA has been proactive in widening its service offerings.Investment Information and Credit Rating Agency of India (ICRA)     ICRA Limited (an Associate of Moody's Investors Service) was incorporated in 1991 as an independent and professional company.

both in India and overseas.Investment Information and Credit Rating Agency of India (IICRA)  In addition to being a leading credit rating agency with expertise in virtually every sector of the Indian economy. and currently offers its services under the following banners: Rating Services Information. Grading and Reasearch Services Advisory Services Economic Research Outsourcing     . ICRA has broadbased its services for the corporate and financial sectors.

It is a public limited company with an authorized share capital of 10 crores.50 crores was subscribed by IFC. GIC SBI and others.Investment Information and Credit Rating Agency of India (IICRA)  IICRA was set up by Industrial Finance Corporation of India on 16th January 1991. The initial paid up capital of Rs. LIC. UTI.   . 3.

Extremely speculative .Investment Information and Credit Rating Agency of India (IICRA) Long term Debentures Bonds and Preference shares-Rating Symbols LAAA: Highest Safety LAA: High Safety LA: Adequate Safety LBBB: Moderate Safety LBB: Inadequate Safety LB: Risk prone LC: Substantial Risk LD: Default.

Services offered by CARE are Credit rating Information Service Equity Research etc  . banks and finance companies.Credit Analysis and Research Limited (CARE)  The CARE was promoted in 1993 jointly with investment companies.

Credit Analysis and Research Limited (CARE) Long term debt instruments-Rating Symbols CARE AAA: Highest Safety CARE AA: High Safety CARE A: Adequate Safety CARE BB: Inadequate Safety CARE B: High Risk For medium term debt instruments CARE AAA: Highest Safety CARE AA: High Safety CARE A: Adequate Safety CARE BB: Inadequate Safety CARE C: High Risk .

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