CREDIT RATING

• Originated in US

• 1860 , Henry Vannum Poor started.

• 1909 – Moody’s Investors Agency

• 1933-34 – controller of currency

 In India
• Credit Rating Information Services of
India Ltd 1987.
DEFINITION
• CRISIL: “Credit Rating Information Services
of India Limited ”Credit rating is an
unbiased and independent opinion as to
issuer’s capacity to meet its financial
obligations.
• It does not constitute a recommendation
to buy/sell or hold a particular security.”
 How:
1.Credit rating is an assessment of the
capacity of an issuer of debt security ,
by an independent agency, to pay
interest and repay the principal as per
the terms of issue of debt.
2. Given after objective judgment of a
team of experts from rating agency
• 3. expressed in code no
• 4. guidance & not recommendation to
investors.
• 5. In India rating is done for particular
security and not for a company as a whole.
• 6. no fiduciary (acts on behalf of another
person) relationship.
 Credit Rating in India
1. Credit Rating and Information Services
Ltd (CRISIL) was setup as the first
agency in 1987.
2. ICRA Ltd (investment information and
credit Rating Agency of India Limited) in
1991.
3.Credit Analysis and Research Ltd
(CARE) in 1993.
• Duff and Phelps credit rating India Pvt Ltd
(DCR)- leading international credit rating
agency
• J.M. Financial & Alliance group in joint venture
with D&P in India.
• Onida Individual Credit Rating Agency Ltd.
(ONICRA)
Functions of credit ratings
• Provides Superior Information
• Low Cost Information
• Basis for a Proper Risk and Return trade off
• Healthy discipline on Corporate borrowers
• Greater Credence to Financial and other
Representation
Benefits of Credit-Rating

A) Benefits to Investors:
• low cost information.

• Quick investment decision

 Safeguards against bankruptcy

 Recognition of Risk

 Independence of Investment Decisions

 Choice of Investments
B) Benefits of Rating to Company:
• Lower cost of borrowing
• Sources of additional certification
• Increase investors population
• Forewarns ( prediction future danger) risk
• Wider audience for borrowing
• Rating as marketing tool
• Motivation for growth
• Benefits to brokers and financial intermediaries.
 Credit Rating Process
• 1.Receipt of the request:
• 2 Assignment to analytical team:
• 3 Obtaining information
• 4 Plant visits and meeting with management
• 5 Presentation of findings
• 6 Rating committee meeting
• 7 Communication of decision
• 8 Dissemination to the public
• 9 Monitoring for possible change:
 Credit Rating Information Services of
India Ltd(CRISIL)

CRISIL has been promoted by

- Industrial Credit and Investment Corporation
of India Ltd (ICICI) and
- Unit Trust of India (UTI) as a public limited
Company (incorporated in 1988 )
- head quarters at Mumbai.
• The principal objective of CRISIL is to rate
the debt obligations of Indian companies.
• Objectives:

• Assist both individual and institutional

investors in making investment decisions in
fixed income securities.
• Enable corporate to raise large amt at fair
cost from wide spectrum of investors.
• Enable intermediaries in placing their
instruments with investors.
Rating methodology:

• 1. analysis of past performance.

• 2. future prospectus.

• PAST PERFORMANCE:
• Not a guide but to view why co performed in certain manner,
what problems faced, what was the management’s response.
• FUTURE PROSPECTUS:
• 1.Industry – analyzing the demand & supply,
growth, nature and basis of competition, govt
policy and its effects in future.
• 2.Co position within the industry- to understand
how the co would be in the future.
• 3. operating efficiency:
• locational advantage, raw material, power, labour
situation , cost structure compared to its nearest
competitors, market position in terms of market
share, selling n distribution arrangements,
customer delivery etc.
• 4.Evaluation of management- with reference to its track
record, recruitment and training system planning & control
system, depth of managerial talents, goals, philosophy of the
co, attitudes towards taking business risks.
• 5. Cash flow projection of the co- CRISIL makes
its own assessment of cash flows and checks the
comfort and also checks the ability to raise funds
quickly.
• Use both qualitative & quantitative methods.

• Uses multi layered decision making process.

• 2 teams.

• team will meet the officials and make assessment of

industry , co, mgt.
• Both team interact with each other
• present their findings simultaneously in a detailed
note to the Branch Internal Committee- comprises
3 senior analysts of CRISIL and internal
committee of 6 senior executives &

• thereafter the note is presented with the

recommended ratings to the rating committee
• Evaluation is done on confidential basis.
• Preference shares rating are similar
except the letter PF are prefixed to the
rating.
 Investment Information and Credit
Rating Agency
• IICRA has been promoted by Industrial Finance Corporation of India as
its main promoter with its head quarters at New Delhi The ICRA Factor
• Our services are designed to
Provide information and guidance to institutional and individual
investors/creditors;
• Enhance the ability of borrowers/issuers to access the
money market and the capital market for tapping a larger
volume of resources from a wider range of the investing
public;
• Assist the regulators in promoting transparency in the
financial markets;
• Provide intermediaries with a tool to improve efficiency in
the funds raising process.
 Credit Analysis and Research Limited
CARE is a credit rating and information services
company promoted by IDBI jointly with investment
institutions, banks and finance companies.

The first company commenced its operations in

October 1993 and announced its first rating in
1993.
Rating Symbols - CRISIL
ICRA
Rating agencies for SME’s
Benefits of CARE for SME