Credit Rating Agency Abhinandan

8/3/2019 Credit Rating Agency Abhinandan

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PRESENTED BY:

ABHINANDAN JENA

10MBMA54

CREDIT RATING&

CREDIT RATING AGENCIES


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A credit rating assesses the credit worthiness ofan individual, corporation, or even a country.

Credit ratings are calculated from financial historyand current assets and liabilities.

A credit rating tells a lender or investor theprobability of the subject being able to pay back aloan.

A poor credit rating indicates a high risk ofdefaulting on a loan, and thus leads to highinterest rates.


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Credit is important since individuals andcorporations with poor credit will have difficultyfinding financing, and will more likely have to paymore due to risk of default.

The ratings are expressed in code numbers

which can be easily comprehended by layinvestors.

Credit rating, as exists in India, is done for a

specific security and for the company as a whole.

A credit rating does not create fiduciaryrelationship between the agency & the users.


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Company that assigns credit ratings for issuers ofcertain types of debt obligations as well as the debtinstruments themselves.

Also its an agency that performs the rating of debtinstruments.

CRA s scope at present is not only limited to therating of debts but they are also undertaking financial

analysis & assessment of financial products ,individuals ,

Institutions & governments.


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CRA play a key role in the infrastructure of the modernfinancial system.

For investors, credit rating agencies increase the range ofinvestment alternatives and provide independent, easy-to-use measurements of relative credit risk; this generallyincreases the efficiency of the market, lowering costs forboth borrowers & lenders.

This in turn increases the total supply of risk capital in theeconomy, leading to stronger growth. It also opens the

capital markets to categories of borrower who mightotherwise be shut out altogether: small governments, startup companies, hospitals, and universities.


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Superior information

Low cost information

Basis for proper risk, return & Trade off

Healthy discipline on corporate borrowers

Formulation of public policy guidelines onInstitutional

investment


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CRISIL : Credit rating information services ofIndia limited.

ICRA : Investment Information & credit ratingagency of India limited.

CARE : Credit analysis & research limited.

Fitch ratings India private limited.(earlier-Duff &Phelps credit rating )

Fitch is the only international agency with apresence on the ground in INDIA.


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The first credit agency setup on January 1, 1988, jointly started by ICICI andUTI with an equity capital of Rs. 4 crores, as public Ltd company.

CRISIL is India's leading rating agency, and is the fourth largest in the world.

With over a 60% share of the Indian Ratings market, CRISIL Ratings is the

agency of choice for issuers and investors.

CRISIL Ratings is a full service rating agency that offers a comprehensiverange of rating services. CRISIL Ratings provides the most reliable opinions on

risk by combining its understanding of risk and the science of building risk

frameworks, with a contextual understanding of business.

It offers a comprehensive range of integrated product & service offerings-real

time news, analysed data , incisive insights & opinions &expert advice-to

enable investors , issuers , policy makers de-risk their business & financial

decision making , take informed investment decisions& develop workable

solutions.


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ICRA was set up by IFCI on 16th January 1991.

It is a public limited company with an authorized share capital of Rs.10crores, Rs. 5 crores is paid up.

ICRAs major shareholders IFCI (26%), and the balance by UTI, LIC, GIC,

PNB, Central Bank of India, Bank of Baroda, UCO Bank and banks (SBI) .

OBJECTIVE - to provide information & guidance to investors for

determining the credit risk associated with a debt instrument.


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It was setup by IDBI in collaboration with some banks &

financial service companies in NOV 1993.

It offers services such as credit rating of debentures/ preference

shares / F.D / CP / information services & equity research

extensive study of the shares listed on major stock exchangesthrough EIL (economy,industry,company) analysis.


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Mainly it consists of four areas

Business analysis - covers an analysis of industry risk, market position

in the country, operating efficiency of the company & legal position.

Financial analysisanalysis of accounting quality, earningsprotection, cash flow adequacy & financial flexibility.

Management evaluationstudy of track record of the managementscapacity to overcome adverse situations, goals, philosophy & strategies.

Fundamental analysisanalysis of liquidity management, asset quality,

profitability & interest & tax sensitivity.


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Information is collected & then analyzed by a team of professionals in an agency.

If necessary , meetings with top management suppliers & dealers & a visit to the plant or

proposed sites are arranged to collect additional data. This team of professionals submits

their recommendations to the rating committee.

Committee discusses this report & then assigns rating.

Rating assigned is then notified to the issuer & only on his acceptance , rating ispublished.

Assures confidentiality of information.

Once the issuer decides to use & publish the rating, agency has to continuously monitor itover the entire life of instrument.called Surveillance.


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Institutions whose instruments were given highest rating didnt perform

well. For eg. CARE gave the highest rating to CRB capital, which failed, it

created a panic among investors & credit agencies.

Frequent revision of grading creates confusion questioning credibility of theexpertise of rating agencies.

No audit, only rely on information provided by the issuer which may be

inaccurate & incomplete.

Biasing investors lose their investments.

Rating agencies often fail to correctly predict a borrowers financial health

in the short term. The latest case is NCD issue of BPL which was

downgraded by CRISIL from A to D. Investors who depends on these

ratings is not given any warning by rating agencies to wind down his

investment in time.


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THANKYOU..

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Credit Rating Agency Abhinandan