ASSIGNMENT NO.

1
MANAGING FINANCIAL
SERVICES

TOPIC – WORKING OF CRISIL ,

ICRA AND CARE
Functions of Credit rating agencies in India:

The credit rating agencies in India offer varied

services like
 mutual consulting services, which comprises of
operation up gradation, risk management. 
 The have special sections to carry on research
and development work of the industries.
 They provide training to the employees and
executives of the companies for better
management.
 They examine the risk involved in a new project,
chalk out plans to fight with the problem
successfully and thus ameliorate the percentage of
risk to a great extent. For this they carry on
thorough research into the respective industry.
 They have started offering services to the mutual
fund sector through the application of fund
utilization services.
major industries currently graded by the
credit rating agencies

 agriculture,
 health care industry,
 infrastructure,
 and maritime industry
Working of credit rating
agencies in India
 CRISIL:

CRISIL was set up in the year 1987 in order to rate the firms and
then entered into the field of assessment service for the banks.
Highly skilled members manage the agency. Ms. Roopa Kudva
who acts as the Managing Director and Chief Executive Officer of
the company heads it. The company has set up large number of
committees to look after dispersal of various services offered by
the company for example, investor grievance committee,
investment committee, rating committee, allotment committee,
compensation committee and so on. The head office of the
company is located at Mumbai and it has established offices
outside India also. 
NSIC-CRISIL Performance and Credit
Ratings for SSIs
 In association with National Small
Industries Corporation (NSIC), CRISIL
rates SSIs on a special rating scale. The
government has presently subsidised
the fees for this rating by up to 75 per
cent, enabling small enterprises to get
themselves rated.
Eligibility for NSIC-CRISIL Rating
 Any enterprise registered in India as a
micro or small enterprise can benefit
from this rating. As a proof of eligibility,
CRISIL requires a registration certificate
issued by the micro and small enterprise
registration authority, namely, the District
Industry Centre or the Directorate of
Industries.
NSIC Rating Scale

NSIC- CRISIL ratings for SSIs will reflect

two components –
 Financial Strength
 and Performance Capability.
 NSIC Rating Scale
Financial Strength

High Moderate Low

Performance Highest SE 1A SE 1B SE 1C
Capability
High SE 2A SE 2B SE 2C

Moderate SE 3A SE 3B SE 3C

Weak SE 4A SE 4B SE 4C

Poor SE 5A SE 5B SE 5C
NSIC-CRISIL Performance and Credit
Ratings for SSIs - Rating Process
 NSIC - List of documents required
SSI Registration Certificate or copy of the Entrepreneur's Memorandum filed with notified authority along with its acknowledgement

Partnership Deed / Memorandum & Article of Association.

Authority letter to sign the application.

List of all partners / directors with their age, address, certified Net Worth / Income Tax returns, qualifications and experience.

Copy of the audited accounts for the last three years (where accounts for the last year have not been audited, provisional accounts
duly certified by a Chartered Accountant, along with two years audited accounts, are to be submitted).

In case of new project/expansion, copy of the project report containing a brief project profile, cost of project, source/means of finance.

Brief write-up about the products manufactured, end users, marketing tie-up and orders in hand.

Details of subsidy, tax concession available to the applicant.

Quality certificates, export awards won, membership of any associations.

Any other information that would enable us to understand your business better.

Details about group companies (names, constitution, net worth, turnover etc.)

Contact details of Bankers, key suppliers & key customers.

Insurance details of plant & machinery.

ICRA:

 ICRA was established in the year 1991 by the collaboration of financial

institutions, investment companies, and banks. The company has formed
the ICRA group together with its subsidiaries. The company is headed by
Mr. Piyush G. Mankad and offers products like short-term debt schemes,
Issue-specific long-term rating and offers fund based as well as non-fund
based facilities to its clients
 Today, ICRA and its subsidiaries together form the ICRA Group of
Companies (Group ICRA). ICRA is a Public Limited Company, with its
shares listed on the Bombay Stock Exchange and the National Stock
Exchange.
 In rating an NBFC, ICRA evaluates the
company’s business and financial risks, and
uses this evaluation to project the level and
stability of its future financial performance in
various likely scenarios. The ratings are
determined on a “going concern” basis rather
than being based on a mere assessment of the
company’s assets and debt levels as on a
particular date.
Grading of IPO
 CRA's five point IPO Grading Scale is as follows:

IPOGrade5   Strongfundamentals
IPOGrade4   Above-averagefundamentals
IPOGrade3   Averagefundamentals
IPOGrade2   Below-averagefundamentals

IPO Grade 1   Poor fundamentals 

 ICRA provides rating for-
 Non banking finance companies
 Corporate Credit
 Commercial Papers 
  Issuer Rating
  Passenger Vehicle & Two-Wheeler Industries 
  Auto Components Suppliers 
   Commercial Vehicle Manufacturers 
  Upstream Oil Industry 
  Downstream Oil Companies 
  LNG projects 
   Power Distribution Utilities 
  Domestic Primary Aluminium Producers 
  IPPS 
  Tower Infrastructure Companies 
  Mobile Service Providers 
  Toll Road Projects 
  Ports 
  Shipping Companies 
  Fertilizer Industry 
Analytical Framework

 As in the case of other manufacturing companies,

for coal companies too, ICRA’s rating methodology
involves an assessment of the business risks,
financial risks and management quality. This note
highlights
 the factors that are specifically evaluated while assessing the
credit quality of a coal company. For analytical convenience,
these factors may be grouped under the following heads:
 Industry Risk
 Issuer’s Competitive Position
 Operating Efficiency
 Pricing Flexibility
 Customer Diversification and Counterparty Risk
 Reserve Replacement
 Environmental Compliance
 Parent-Subsidiary Structure
 Financial Position
 Management Quality
CARE-
Rating Criteria/Methodology –
 CARE undertakes rating exercise based on
 information provided by the company
 In-house database and data from other
sources that CARE considers reliable. CARE
does not undertake unsolicited ratings.
 The primary focus of the rating exercise is to
assess future cash generation capability and
their adequacy to meet debt obligations in
adverse conditions.
 The analysis attempts to determine the
long-term fundamentals and the
probabilities of change in these
fundamentals, which could affect the credit-
worthiness of the borrower.
 The analytical framework of CARE's rating
methodology is divided into two
interdependent segments. The first deals
with the operational characteristics and the
second with the financial characteristics.
 Besides quantitative factors, qualitative aspects like
assessment of management capabilities play a very
important role in arriving at the rating for an instrument.
 The relative importance of qualitative and quantitative
components of the analysis vary with the type of issuer.
 Rating determination is a matter of experienced and
holistic judgement, based on the relevant quantitative
and qualitative factors affecting the credit quality of the
issuer.
Rating Process
 Symbols used-
CARE AAA best credit quality, offering highest safety for timely servicing of debt
obligations. Such instruments carry minimal credit risk.

CARE AA high safety for timely servicing of debt obligations. Such instruments
carry very low credit risk.
CARE A adequate safety for timely servicing of debt obligations. Such
instruments carry low credit risk.
CARE BBB moderate safety for timely servicing of debt obligations. Such
instruments carry moderate credit risk
CARE BB r inadequate safety for timely servicing of debt obligations. Such
instruments carry high credit risk.
CARE B low safety for timely servicing of debt obligations and carry very
high credit risk. Such Instruments are susceptible to default
CARE C very high likelihood of default in the payment of interest and
principal.
CARE D lowest category. They are either in default or are likely to be in
default soon