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Executive Summary

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EXECUTIVE SUMMARY

Credit rating agencies (CRAs) issue creditworthiness opinions that help overcome the information

asymmetry between those issuing debt instruments and those investing in these instruments. CRAs havea major impact on the financial markets, with their rating actions closely followed by investors, issuers,

borrowers and governments. It is essential, therefore, that they consistently provide top-quality,

independent, and objective credit ratings. Since August 2007 financial markets worldwide have suffered

a major crisis of confidence. This crisis is a complex phenomenon involving multiple actors. CRAs

alone cannot be blamed for the current financial turmoil; other actors and special circumstances were

implicated. The crisis originated in the US residential subprime mortgage market and subsequently

spread into other sectors of the financial markets. CRAs were close to the origin of the problems with

subprime markets: they were issuing excessively favorable opinions on structured instruments that were

financially engineered to give high confidence to investors. This Impact Assessment considers what

would be the most appropriate policy response to the problems identified

Evidence shows that CRAs have performed markedly worse in assigning ratings to innovative,

structured products than in issuing traditional ratings. The Commissions analysis therefore focuses on

the issues that have arisen from rating structured finance products. However, it has to be borne in mind

that as financial innovation progresses, similar problems may occur in the future in other areas where

credit rating agencies have little or no experience. Moreover, certain deficiencies apparent in structured

finance ratings relate to the structure, business model and internal processes of the entities, i.e. may also

affect the more traditional areas of CRA activity.

Failures in the integrity of CRAs; conflicts of interest in the rating business

All contributors, institutions and stakeholders consulted unanimously expressed the view that potential

conflicts of interest when CRAs rate structured products have not been avoided or managed

satisfactorily.

Lack of quality in methodology and ratings

The significant number of downgrades observed in the second half of 2007 and first quarter of this year

as compared to the first half of 2007 clearly indicates that the ratings given before the start of the turmoil

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were overoptimistic and failed to reflect market conditions in the underlying assets. One cause of this

poor performance is most probably the lack of quality in the methodologies used by the CRAs to issue a

rating.

Lack of transparency in CRAs activity

CRAs do not communicate the characteristics and limitations of ratings for structured finance products

with sufficient precision, nor do they provide sufficient information on critical model assumptions. This

lack of information hinders market participants understanding of the ratings significance. CRAs deliver

information on rating performance, but this information does not facilitate comparison of CRAs

performance.

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CHAPTER-1

Introduction to Credit Rating

Agencies

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CREDIT RATING

Credit rating is an assessment of the credit worthiness of individuals and corporations. It is based upon

the history of borrowing and repayment, as well as the availability of assets and extent of liabilities.Credit is important since individuals and corporations with poor credit will have difficulty finding

financing, and will most likely have to pay more due to the risk of default.

Thus, the assessment of risk associated with particular ecurity/financial instrument regarding timely

repayments of interest and principal is termed as credit rating. The credit rating is an symbolic indicator

of the current opinion of the relative capability of the issuer service its debt obligation in a timely

fashion, with specific reference to the instrument being rated . It can also be defined as an the

expression, thought use of symbols, of the opinion about credit quality of the issuer of

security/instrument.

DEFINITIONS

Following are some definitions of credit rating given by a few well-known rating agencies:-

1. A rating is an opinion on the future ability and legal obligation of the issuer to make

timely payments of principle and interest on a specific fixed income security. The rating

measures the probability that the issues will default on the security over its life, which

depending on the instrument may be a matter of days to 30 years or more. In addition, long

term ratings incorporate an assessment of the expected monetary loss should a default

occur.

2. Credit rating helps investors by providing an easily recognizable, simple tool that couples

a possibly unknown issuer with an informative and meaningful symbol of credit quality.

The above definitions emphasize the use of credit rating to access the probability of timely

repayment of principle and interest by the issuer of debt security.

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EVOLUTION OF CREDIT RATING AGENCIES

After the financial crisis of 1837, Louis Tappan established the first mercantile credit agency in

New York in 1841. So the origin of credit rating can be traced to the era of 1840s. The agency rated the

ability of merchants to pay their financial obligations. It was subsequently acquired by Robert Kun and

its first rating guide was published in 1859. Another similar agency was set up by John Bradstreet in

1849, which published a rating book in 1857. These two agencies were merged together to from Dun

and Bradstreet in 1933, which became the owner of Moodys Investors Service in 1962. The history of

Moodys itself goes back about 100 years. In 1900 John Moody founded Mookys Investors Service, and

in 1909 published his Manual of Railroad Securities. This was followed by the rating of utility and

industrial bonds in 1914, and the rating of bonds issued by U.S. cities and other municipalities in the

early 1920s.

Further expansion of the credit rating industry took place in 1919, when the Poors Publishing

Company published its first rating followed by the Standard Statistics Company in 1922, and Fitch

Publishing Company in 1924. The Standard Statistics Company merged in 1941 to form standard and

poors which was subsequently taken over by McGraw Hill in 1966. For almost 50 years, since the

setting up of Fitch Publishing in 1924, there were no major new entrants in the field of credit rating and

then in the 1970s, a number of credit rating agencies commenced operations all over the world. These

included the Canadian Bond Rating Service (1972), Thomson Bank watch (1974), Japanese Bond Rating

Institute (1975) Dominican Bond Rating Service (1997), IBCA Limited (1978), and Duff and Phelps

Credit Rating Company (1980).

There are credit rating agencies in operation in many other countries such as Malaysia,

Philippians, Mexico, Indonesia, Pakistan, Cyprus, Korea, Thailand and Australia. In India, the Credit

rating and information Services of India Ltd. (CRISIL) was set up as the first rating agency in 1987,

followed by ICRA Ltd. (formerly known as Investment Information and Credit Rating Agency of India

Limited) in 1991, and Credit Analysis and Research Ltd. (CARE) IN 1994. The ownership pattern of all

the three agencies is institutional. Duff and Phelps has tied up with two Indian NBFCs to set up Duff andPhelps Credit Rating India Pvt. Ltd. In 1996.

SEBI GUIDELINES FOR CREDIT RATING AGENCIES

Code of Conduct

1) A credit rating agency shall fulfil its obligation in a prompt, ethical and professional.

2) A credit rating agency shall provide adequate freedom and power to its compliance officer for

the effective discharge of his duties.

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3) Agreement with the client.

4) Every credit rating agency shall enter into a written agreement with each client whose securities

it proposes to rate, and every agreement shall include the following provisions, namely

a. The rights and liabilities of each party in respect of rating of securities shall be defined.

b. The fee be charged by the rating agency shall be specified..

c. The client shall agree to co-operate with the credit rating agency in order to enable the

latter to arrive at, and maintain, a true and accurate rating of the clients securities and

shall in particular provide to the latter, true, adequate and timely information for the

purpose.

d. The credit rating agency shall disclose to the rating assigned to the securities of the latter

5) Every credit rating agency shall carry out periodic reviews of all published ratings during the

lifetime of the securities.

6) If the client does not co-operate with the credit rating agency so to enable the credit rating

agency to comply with its obligations under regulation, the credit rating agency shall carry out

the review on the basis of the best available information, the credit rating agency shall disclose to

the investors the fact that the rating is so based.

7) A credit rating agency shall not withdraw a rating so long as the obligations under the security

rated by it are outstanding, except where the company whose security is rated is wound up or

merged of dissemination, irrespective of whether the rating is or is not accepted by the client;

8) A credit rating agency shall ensure that the senior management, particularly decision makers

have success to all relevant information about the business on a timely basis.

9) A credit rating agency shall ensure that good corporate policies and corporate governance are in

place.

10) A credit rating agency shall maintain an arms length relationship between its credit rating

activity and any other activity.

Maintenance of Books of Accounts records, etc.:

1) Every credit rating agency shall keep and maintain, for a minimum period of five years, the

following books of accounts, records and documents, namely:

i. Copy of its balance sheet, as on the end of each accounting period;

ii. A copy of its profit and loss account for each accounting period.

iii. A copy of the auditors report on its accounts for each accounting period.

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iv. A copy of the agreement entered into, with each client;

v. Information supplied by each of the clients;

vi. Correspondence with each of the clients;

vii. Rating assigned to various securities including up gradation and down gradation

(if any) of the ratings so assigned.

viii. Rating notes considered by the rating committee;

2) Every credit rating agency shall professional rating committees, comprising members who are

adequately qualified and knowledgeable to assign a rating.

3) All rating decisions, including the decisions regarding changes in rating, shall be taken by the

rating committee.

4) Every credit rating agency shall be staffed by analysts qualified to carry out a rating assignment.

5) Every credit rating agency shall inform the Board about new rating instruments or symbols

introduced by it.

6) Every credit rating agency, shall, while rating a security, exercise due diligence in order to ensure

that the rating given by the credit agency is fair and appropriate, A credit rating agency

shall not rate securities issued by it.

7) Rating definition, as well as the structure for a particular rating product, shall not be changed by a

credit rating agency, without prior information to the Board.

8) A credit rating agency shall disclose to the concerned stock exchange through press releases and

websites for general investors, the rating assigned to the securities of a client, after periodic review,including changes in rating, if any.

TYPES OF CREDIT RATING:-

There is various type of credit rating. The most common forms of credit ratings are:

Long Term Instrument Rating

Equity Rating

Short Term Instrument Rating

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Customers/Borrowers Rating

Sovereign Rating

Individual Rating

Compulsory Rating

These common forms of credit ratings are shown in the following diagram:

Long Terms Instruments Rating :

Long-term instrument rating refers to the rating of bonds, debentures and another long-term debt

securities issued by a government or quasi-governmental body.

Equity Rating:

Equity rating refers to the rating of equity issued in the capital market. The concept of equity rating

is still not adopted by the rating agencies in India.

Short term Instrument Rating :

In this kind of rating we include the rating of commercial papers, short-term public deposits etc.

Customer or Borrower Ratings:

Customer/Borrowers rating require the assessment credit worthiness of the customers to whom the

credit sale is being made or grant of loan is under consideration.

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Credit Ratings

Customer Rating Borrowers RatingFinancial

Instruments Rating

Long Term

Instrument Rating

Short Term

Instrument Rating

Sovereign Rating

Equity Rating

Individuals Rating Compulsory Rating


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Sovereign Rating:

Sovereign rating refers to evaluation of credit worthiness of a country in which investment by a

foreign body (foreign Govt. or corporate body) is envisaged or to which a loan is to be given. This

kind of rating is generally done by the international rating agencies. The international rating agency

standard and poor has improved its outlook on India foreign currency rating to positive from stable

but retained the sovereign rating at junk grade due to high public debt and serious fiscal inflexibility.

1. S&P said the revision reflects Indias improving external liquidity and better prospects for the

governments debt burden to stabilize.

2. S&P had last revised Indias foreign currency outlook from negative to stable in December 2003

on account of improved external finance.

Individuals Rating:

Rating of individuals is called as individuals credit rating.

Compulsory Rating:

The rating at which the government bound the obligation is called the compulsory rating like

commercial papers etc

Following on the rating change, criticism of ratings per se has been in some evidence. One, that

sovereign ratings have not been a good predictor of currency crisis, basically a reference to Asian

difficulties in 1997-98. The principal problem of the Asian miracle was regulatory weakness, with

large gaps in what the central banks knew about the external liabilities of their domestic banks, and

rating agencies were affected by the same information lapses. Second, till this crisis, mainstream

economic theory, had oversimplified the process by which capital flows occur. The received wisdom

in the mid-nineties had little space for the singularity of large currency crises and contagion.

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CREDIT RATING AGENCIES IN INDIA

In India, there are three major credit rating agencies and all of them have been promoted by financial

institutions. These are as follows:-

1. CRISIL (Credit Rating Information Services of India Ltd.)

2. ICRA (Investment Information & Credit Rating Agency of India Ltd.)

3. CARE (Credit Analysis and Research in Equities)

The first credit rating agency (CRISIL) was established in1987 and it started its operations in 1888.

In response to the ever-increasing role of credit rating, two more agencies were not up in 1990

(ICRA) and 1993 (CARE) respectively.

Now, There are five credit rating agencies in India:

1. Credit Rating Information Service of India Ltd. (CRISIL)

2. Investment Information and Credit Rating Agency. (ICRA)

3. Credit Analysis and Research Ltd. (CARE)

4. Phelps Credit Rating India Ltd. (DCR)

5. Onida Individual Credit Rating agency. (ONICRA)

A. CRISIL (Credit Rating Information Service of India Ltd)

The Credit Rating Information Service of India Ltd. was promoted in 1987 jointly by the ICICI

Ltd and the UTI. Other shareholders include the Asian Development Bank Life Insurance

Corporation of India, HDFC Ltd., General Insurance Corporation of India and several foreign and

India banks.

CRISIL was set up with a basic purpose to rate debt obligations, which would guide investors as

to the risk of timely payment of interest and principle. At present, functions performed by CRICIL

fall under three board categories:-

1. Credit Rating Services

2. Advisory Services

3. Research and Information Services

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1.Credit Rating Services: -

The principle function of CRICIL is to rate mandated debt obligations of

Indian Companies, chit funds, real estate developers, non-banking finance companies, and Indian

States and so on. It is the core business of CRISIL while new business has begun to make a moderate

contribution, which is about 80% to the revenue.

Following functions has been included in the rating services by CRICIL

-Rating the debt obligations

-Rating of structural obligations `

-Rating of real estate developers projects

-bond fund rating

-Rating of collective investment schemes.

2.CRISIL Research and Information Service:-

CRISIL Advisory Services for consultancy services to

various state Government, Disinvestments Commission on disinvestments plan for public sector

enterprise, major port authorities, and state Electricity Boards and so on. Other clients availing of

advisory services from CRISIL are the Public sector enterprises, banks and financial institutions and

instigating risk. It also formulates and executes strategies for that.

3.CRISIL Research and Information Services:-

CRISIL Research and Information. Services include

value-added research activities and customized studies in following areas.

-Indian Capital Market

-Indian Industries, and

-Indian Corporate Sector.

Following are the services, which are included in CRIS

A. CRISIL Sector Wise

B. CRISIL View

C. International Information VendingD. CRISIL Index Services

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CRISIL Rating symbols: -

CRISIL assigns ratings only to rupee denominated debt instruments. These symbols are symbolic

expression of opinion/assessment of the credit rating agency. Here is a brief summary of CRISILs

rating symbols used for the rating of:

1. Debenture.

2. Fixed Deposits.

3. Short Term Instruments.(commercial papers)

4. Structured Obligations.

5. Foreign Structured Obligations.

6. Instrument Carrying Non-credit Risk.

7. Financial Strength ratings of insurance companies.

8. Bond Funds

9. Real Estate Projects.

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CRISILs Rating Symbols:-

B.ICRA (Investment Information and Credit Rating Agency)

Instruments High Investment

Grade

Investment Grade Speculative Grade

Debentures

Fixed Deposits

ShortTerm

Instrument

Structured

Obligations

Foreign Structured

Obligations

Instrument

Carrying Non

Credit Risk

Rating of Insurance

Companies

Bond Funds

Real Estate Projects

Highest

Safety

High

Safety

Adequate

Safety

Moderate

Safety

Inadequate

Safety

High

Risk

Substantial

Risk

Default

AAA

FAAA

P1

AAA(So)

AAA(FSo)

AAAr

AAA

AAAf

PA1

AA

FAA

P2

AA(So)

AA(FSo)

AAr

AA

AAf

PA2

A

FA

P3

A(So)

A(FSo)

Ar

A

Af

PA3

BBB

-

-

BBB(So)

BBB(FSo)

BBBr

BBB

BBBf

-

BB

FB

P4

BB(So)

BB(FSo)

BBr

BB

BBf

-

B

FC

-

B(So)

B(FSo)

Br

B

Bf

-

C

-

-

C(So)

C(FSo)

Cr

C

Cf

-

D

FD

P5

D(So)

D(Fso)

Dr

D

Df

-

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Investment Information and Credit Rating Agency has been promoted by IFCI to meet the

requirements of companies based in north India. IECI holds 26% stake in ICRA and the other

shareholders, which are UTI, Banks, LIC, GIC, HDFC and Exem Bank, hold rest. This credit

rating agency started its operation in 1991. ICRA has entered into a memorandum of

understanding (MoU) with Mondays Investors Services in order to bring international experience

and practices to the Indian capital market.

ICRA has diversified the range of its services. It currently provides three types of services namely:

i. Rating Services

ii. Information Services

iii. Advisory Services

1. Rating Services: - In these services, ICRA rates debt instruments issued by Manufacturing

companies, Commercial Banks, Non-Banking Finance Companies, Financial Institutions, Public

Sector Undertaking etc. Apart from this Rating Services includes credit assessment of large,

medium and small-scale enterprises, which are looking for financial assistance from commercial

banks, financial institutions and financial services companies.

2. Information Services: - Information Services offered by ICRA focuses on providing authentic

and unbiased information to various intermediaries, financial institutions, banks, assets

managers, individuals and institutional investors etc. This includes corp. reports, equity

assessment, mandate based studies and industry specific publications.

3. Advisory Services: - Under these services, ICRA provides consultancy to the various player in

financial markets such as investors, issuers, regulators, intermediaries and the media on business

and organizational issues. For this, it has also signed a MoU with international credit rating

agency Moody Investor Services.

ICRA Rating Symbols: -

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The ICRA rating is a symbolic indicator of the current opinion of the relative capability of timely

servicing of the debt obligations. ICRA rates long term, medium term and short-term debt

instruments.

Following is a brief summary of the rating symbols used by ICRA for the following: -

Long Term Instruments (Debentures Bonds, Preference Shares).

Medium-term instruments comprising fixed/certificate of deposits.

Short-term instruments , including commercial papers.

Collative Investment Schemes.

Rating of Insurance Companies.

Bank Lines of Credit Rating Scale.

C.CARE (Credit Analysis and Research Ltd)

Instruments SYMBOLS

Long Term

Instruments

Medium Term

Debt

Short Term

Instruments

Collective

Instrument

Schemes

Insurance

Companies

Bank Lines of

Credit Rating

Scale

Highest

Safety

High

Safety

Adequate

Safety

Moderate

Safety

Inadequate

Safety

High

Risk

Substantial

Risk

Default

LAAA

MAAA

A1

-

iAAA

CR1

LAA

MAA

A2

CS1

iAA

CR2

LA

MA

A3

CS2

iA

CR3

LBBB

-

-

CS3

iBBB

CR4

LBB

MB

-

CS4

iBB

CR5

LB

-

-

CS5

iB

CR6

LC

MC

A4

-

iC

CR7

LD

MD

A5

-

iD

CR8

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Credit analysis and research Ltd. was promoted by IDBI jointly with financial institution, banks

and private finance companies. It started its operation in 1993 and now it offers a wide range of products

and services in the field of credit information and equity research.

These services are categorized into the following categories:-

i. Credit Rating Services

ii. Information Services

iii. Equity Research

a. Credit Rating Services:-CARE rates all types of debt instruments including long term. It

is the core business of this rating agency.

b. Information Services:-Like CRISIL and ICRA. It also provides information services to

various players in the financial market. It provides information on any company, industry

or sector to individuals, mutual funds, and investment companies. So that they can take

well informed investment decision.

c. Equity Research: -Equity Research involves extensive study of the shares listed or

which are going to be listed on stock exchange and forecasts Potential looser and winner

on the basis of this study. For this purpose, it analyzes all the fundamentals affecting the

industry, market share, management capabilities etc.

Apart from basic services, CARE also provides some other services like:

CARE Loan Rating .

Credit Analysis Rating .

Interest Rate Structure Model.

Rating Symbols:-

CARE rating symbols are related with the rating of following:

Long term and Medium term Instruments, which includes which includes fixed deposits,

certificate of deposits structured obligations, debenture and bonds etc.

Short Term Instruments

Credit Analysis Rating

Long Term Loan

Short Term Loan

Collective Investment Schemes

CAREs Rating Symbols :-

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D. Duff and Phelps Credit Rating Private Ltd.

Instruments SYMBOLS

Long Term&

Medium Term

Instruments

Short Term

Instruments

Credit

Analysis

Rating

Long Term

Loans

Short Term

Loans

Collective

Investment

Schemes

Highest

Safety

High

Safety

Adequate

Safety

Moderate

Safety

Inadequate

Safety

High

Risk

Substantial

Risk

Default

CAREAAA

PR1

CARE1

CAREAAA

(L)

PL1

CARE1

(CIS)

CAREAA

PR2

CARE2

CAREAA

(L)

PL2

CARE2

(CIS)

CAREA

PR3

CARE3

CAREA

(L)

PL3

CARE3

(CIS)

CAREBBB

-

-

CAREBBB

(L)

-

-

CAREBB

PR4

CARE4

CAREBB

(L)

PL4

CARE4

(CIS)

CAREB

-

-

CAREB

(L)

-

-

CAREC

-

-

CAREC

(L)

-

-

CARED

PR5

CARE5

CAREC

(L)

PL5

CARE5

(CIS)

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It is the latest entrant in the credit rating business in the country as a joint venture between the

international credit rating agency Duff and Phelps and James Martin Financial and Alliance Group. In

addition to debt instruments it also rates companies and countries on request.

Rating services:

Credit Rating Services: - Duff and Phelps rates all types of debt instruments including long term.

It is the core business of this rating agency.

Company rating services: - Duff and Phelps rates all types of company.

Country rating services: - In addition to debt instruments it also rates companies and countries on

request.

Duff and Phelpss Rating Symbols :-

The DCRs rating is given in respect of the following instruments :

1. Long term and short term debt/instruments.

2. Short term debt/instruments.

E.ONICRA-Onida Credit Rating Agency

tsINSTRUMENT SYMBOLS

LongTerm&

Medium Term

Instruments

Short TermInstruments

Highest

Safety

High

Safety

Adequate

Safety

Moderate

Safety

Inadequate

Safety

High

Risk

Substantial

Risk

Default

Ind AAA

Ind D-1+

Ind AA+

Ind D-1

Ind A

Ind D-2+

Ind BBB

Ind D-2

Ind BB

Ind D-3

Ind B

Ind

D-4

Ind C

-

Ind D

Ind

D-5

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ONICRA is the first individual credit agency in India promoted by famous ONIDA group

known for consumer durables. ONIDA covers approximately,75 million households owning three

popular items TVs, refrigerators and washing machine. Other product like music system, air

conditioners, microwaves etc. are also very popular and are in great demand among customers .

ONICRA makes an objective assessment of the risk attached to a financial transaction with respect to an

individual.Individual credit rating is gaining importance because of the following:

1. India moving rapidly towards a cashless society based on credit and consumerism.

2. The changing customer profiles , the customers are no longer restricted to upper strata , middle

class is going to for credit purchases.

Through individual credit rating , an effort is made to measure the risk attached to fulfilling a

financial obligation for a desired financial transaction for an individual.

Onicra Rating Scale: -

ONICRA has been pioneer to introduce the concept of individual credit rating.It has developed a

rating system for various types of credit extension by conducting in-depth study of all aspects of the

behaviour of credit seekers.

Rating system takes into account number of parameters which influence individuals credit behaviour.

The creditworthiness of the individual is measured on various parameters divided into 100 point scale

.The parameters include-

1. Age

2. Qualifications

3. Occupation

4. Stability at work

5. Saving

6. Extent of payment i.e. the amount of loan that an individual can avail of

7. History of repayment.

Every individual being rated is issued a certificate which helps him in obtaining loan/credit.

Onicra Rating Process: -

Every bank or financial institution wants to know creditworthiness of its potential customers so as to

minimize the financial risk. In India there has been no agency to rate the individuals. But Onicra has

filled in this gap. It provides credit ratings of individuals on international patterns, for use of banks and

financial institutions:-

(i) An individual cannot get rated himself directly. Onicra takes up the credit rating for individuals

at the request of lending institution.

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(ii) A lending institution/firm writes to the Onicra whenever a potential customers visit the firm for

customers credit.

(iii) The customer is required to fill in a prescribed form.

(iv) Onicra uses 100 point scale to rate the individual on various parameters.

(v) Depending upon rating assigned by Onicra the lending institutions proceed with granting of

consumer credit.

INTERNATIONAL CREDIT RATING AGENCIES

At international level there are basically two important credit rating agencies which require special

mention , namely:

1. Standard and Poors Corporate and Munnicipal Bond Rating.

2. Moodys Investor Service.

A.STANDARD AND POORS COPORATE AND MUNICIPAL BOND RATING

AGENCY

The credit rating assigned to corporate and municipal bonds by standard and poors corporation

are listed below along with the interpretation used by S and P for each category :

Rating Symbol of The S&P Rating Agency :

1. AAA. Bonds rated AAA have the highest rating assigned by Standard Poors to a debt obligation.

Capacity to pay interest and and repay principal is extremely strong.

2. AA. Bonds rated AA have a very strong capacity to pay interest and repay principal and differ from

the highest-rated issue only in small degree.

3. A. Bond rated A have a strong capacity to pay interest and repay principal, although they are

somewhat more susceptible to the adverse effect of changes in circumstances and economic conditions

than bonds in higher-rated categories.

4. BBB. Bonds rated BBB are regarded as having an adequate capacity to pay interest and repay

principal. Where they normally exhibit adequate protection parameters, adverse economic condition or

changing circumstances are more likely to lead a weakened capacity to pay interest and repay principal

for bonds in this category than for bonds in higher-rated categories

5. BB, B, CCC, CC. Bonds rated BB, B, CCC, and CC are regarded, on balance, as predominantly

speculative with respect to capacity to pay interest and repay principal in accordance with the term of the

obligation. BB indicates the lowest degree of speculation and CC the highest degree of speculation.While such bonds will likely

6. C. The rating reserved for income bonds on which no interest is being paid.

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7. D. Bonds rated D are in default, and payment of interest and/or repayment of is in arrears.

The ratings from AA to B maybe modified by the addition of a plus (+) or minus (-) sign to show

relative standing within the major rating categories. A plus

(+) sign indicates a bond of better-than-average quality in the particular rating chosen, while a minus (-)

sign denotes a bond that is worse than average in that category.

B. MOODY S INVESTOR SERVICES

John Moody formulated a system of letter grades indicating the relative Investment quality of corporate

bonds. The same was published in 1909.

Moddys Rating Instruments and their rating symbols:-

1. Corporate bonds.

2. Municipal bonds.

3. Commercial papers.

4. Short-term municipal note.

5. Preferred stock.

RATING PROCESS

Instruments SYMBOLS

Corporate

Bonds

Municipal

Bonds

Commercial

Paper

Short-Term

Municipal

Note

Preferred

Stock

Highest

Safety

High

Safety

Adequate

Safety

Moderate

Safety

Inadequate

Safety

High

Risk

Substantia

l

Risk

Default

Aaa

Aaa

Prime-1

MIG 1

aaa

Aa

Aa

Prime-2

MIG 2

Aa

A

Prime-3

MIG 3,4

Baa

Baa

Baa

Ba

Ba

aa

B

B

ba

Caa

Caa

caa

Ca,C

Ca,C

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In India all the credit rating agencies adopt almost a similar rating process for rating new debt

issues and reviewing the rating of existing instruments. The steps generally taken by the rating agencies

in rating process are shown as under: -

No

Yes

1. Rating Request: - the purpose of the rating starts with the rating request made by the issuer of

the instrument issues a letter to the rating agency and signed an agreement with the agency.

23

Issuer

request

for rating

CRISIL

Assigns an

analytical

team

Analytical

team collects

and analysesinformation

Meets

companys

management

and resolves

Questions

Interaction

with back up

team for

industrial

formation

Findings

presented

to a

rating

committe

Rating

committeedecides the

rating

Notification

of rating toissuer

Do

esissu

er

wantst

o

appe

al

Rating is

released

Additional data

provided is

reviewed and

rating revised ifnecessary


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2. Assignment of Analytical Team: - On the basis of rating request credit rating agencies assign

an analytical team comprising two or more analysts. These analysts would be the experts in the

relevant business area. It is a very detailed process. Normally, two-three persons with the

required technical skills team up for investigations (due diligence) for about three weeks. They

go to the company, talk to the people, go through the company's books and records, its accounts,

talk to its auditors, its bankers, its consumers, look at how the company has handled investor

grievances, look at its track record in servicing debt obligations and so on. This pile of data is

then screened and, based on that, the team arrives at a structured report.

This report is then presented before the rating committee. A brainstorming session on due

diligence ensures that no one gets away by making a sweeping statement. After a lot of

interaction, the matter is finally put to vote for a decision on the rating. 29

3. Analytical Team Obtains & Analysis Information:- After assignment of Analytical Team, the

team obtains and analysis information relating to its financial statements, cash flow and other

relevant information which have impact on the companys functioning. Generally, following

kind of information is obtained and analyzed by this team:

A. Annual reports for past five years including cash flow

statements and interim reports.

B. Two copies of the prospectus offering statement and

application for listing on any major stock exchange.

C. Consolidated financial statements for the past three fiscal years.

D. Two copies of the projected financial statements along with

assumptions on the which projection have made.

E. A certified copy of resolution passed by the Board of Directors

authorizing the insurance of debentures instruments, including the name of authorized

signatories.

F. List of bank showing lines of credit along with the contactofficers. Apart from this, analytical team may obtain some addition information, which it

considers to be necessary for this purpose.

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4. Meeting with Management: - After obtaining and analyzing the information explained in

previous step, analytical team meets with the management of the company and obtains more

information on some important aspects which have impact on the credit quality of the instrument

being rated. Though the topics discussed during the management meeting are wide ranging but

discussion with management might reveal more information like:

Managements Philosophy and Plan for the company in future.

Business segment analysis.

Competitive position, strategies, financial polices.

Historical performance.

5. Interaction with Back Up Team:- While Analytical team collects the information from

company; its back up team collects the information on industry which this company

belongs. It also makes interaction with back up team in order to collect information on

industry along with the industry prospects in near future.

6. Rating Committee:- After collecting and analyzing information from company and its

management, the analytical team presents their report to a rating committee which then

decides on the rating. The rating committee meeting is the only aspects of the process in

which the issuer does not participate.

7. Deciding on Rating by Rating Committee:- Now the rating committee makes

assessment or evaluate all the factors concerning the issuer giving greater attention to

some key issues. After proper analysis rating committee arrives at the rating, which is

suitable to the proposed issue.

8. Notification to the issuer:- after the committee has assigned the rating, this decision is

communicated to the issuer along with the reasons or rational supporting the rating. If the

issuer agrees with the ratings and does not wish to appeal fo9r reviewing the rating given

to the instrument, then as a last movement rating is released through print media by the

rating agency. But if issuer raises objection on the rating given by the rating agency and

wants to furnish additional data for that, then this additional information is reviewed and

rating agency may revise previous rating. Then this revised rating is released through

media and formal notification of final rating assigned to the issuer.

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Role of Rating Agencies in Capital Market

The capital and financial markets in developing countries are remarkable for their lack of

sophistication. Apart from a few stock exchanges and government-appointed regulators, there arent

many reliable intermediaries like Credit rating agencies, investment analysts, merchant bankers, or

venture capital firms.

Credit rating agencies have played an important role in the capital markets for almost a century

by providing analytic opinions to investors on the ability and willingness of issuers to make timely

payments on debt instruments over the life of those instruments. Issuers pay for the ratings in order to

lower the cost of and increase their access to capital. Investors trust the agencies impartiality and

quality, and rely on the ratings.

Limitations of credit rating system in India

(1) The first problem of Credit Rating System relates to the rating symbols. Sometimes,

rating symbols according to the tenure of the instrument and not by the instruments

characteristics creates confusion. For example the instruments like Fixed Deposits, Non

Convertible Debentures or Commercial papers are rated by ICRA on the basis of their maturity

period, them will be given the same rating by ICRA.But on the other hand CRISIL provides

rating symbols in accordance with the characteristics of instrument. For example, CRISIL prefix

F to the rating for Fixed Deposits. This problem of assigning rating symbols cause confusion

among treasury managers and investors who otherwise can determine the product or the

instrument on the instrument on seeing the rating.

(2) The rating agencies do not perform an audit and they rely only on the informationprovided by the issuer of the instrument. If the information provided is inaccurate or incomplete,

the ratings process is compromised. Therefore, ultimately, this kind of rating will not reflect the

true picture behind the issuance of security or in other words, it will not assess the true

creditworthiness of the issuer

.

(3) A Credit Rating provides only guidance to the investors and creditors in determining the

risk associated with a instrument. It does not recommend buying selling a particular security

because it does not take into account factors like: market prices and personal risk preferences,

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which might influence investors decision. So apart from Credit Rating, investors should analyze

all those factors depending on his proposed investment decision.

(4) Sometimes, certain instrument of a specific company is provided lower rating by a rating

agency. Now the company has an incentive to go around for the best possible rating by

compromising the authenticity of the rating process itself.

(5) Some companies use Credit Rating as a tool to cheat the investors. They get rating done

by morethen one rating agency and publish only that rating which reflects highest safely. But this

published rating may not be true which can mislead investors decision.

(6) Conflict between the two rating agencies can be happen. E.g. IDBI Bank has been

upgraded to AA+ from A on account of the merger with Industrial Development Bank of India(IDBI), said Crisil. Meanwhile, Icra has placed IDBI Bank under rating watch with positive

implications. The agency said that the rating action takes into account the announcement of the

in-principle approval of the merger of the IDBI Bank with IDBI. The rating agency is in the

process of evaluating the impact of the merger and would announce its final view on the

outstanding rating after completion of the merger, an Icra official said. The rating agency is in

the process of evaluating the impact of the merger and would announce its final view on the

outstanding rating after completion of the merger said an official with the rating agency. Agency

has also assigned outstanding ratings of LAA, MAA+ and A1+ to IDBIs long-term,

medium-term and short-term debt plans. Now it can create controversy between the two rating

agency if the ratings of the bank varies.

(7) Ratings volatility

The most important issue arising in the present turmoil is do rating agencies need the quasi

government authority of inside access at all as rating agencies access to inside access at all as

rating agencies access to inside information did not help them anticipate the financial

information is essential to understanding company creditworthiness, it is not helpful to detect

fraud. It is not economically viable for rating agencies to act as guarantors of fraud. Financial

instruments are increasingly designed solely to carry a particular rating, not the other way round.

The effect is to discourage agencies from changing ratings on objective grounds until it is too

late. Further, though companies tend to give credit rating agencies access to confidential

documents in general to justify the highest possible credit rating, there is no requirement that

they divulge everything.

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CHAPTER -2

Review of Literature

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REVIEW OF LITERATURE

2.1 Azhagaiah .R (2004)

In his study in union territory of pond cherry reveals that the analysis of the basis of investment

shows that only 35% (53 out of 150 ) of the respondents depend on credit rating for their investment

in debt instruments. Among various CRAs , majority of the respondents depend on a CRISIL than

other rating Agencies viz: Care, ICRA etc.

2.2 Mohammed K(2003)

This Study was a case on the evaluation of performance of Credit Rating Agencies in India and it

found that CRISIL is ranked No.1 in accordance with the other CRAs in India and Indian topmost

Companies are Rated by the Crisil. On the basis of financial profitability CRISIL is making the 20%-

50% more than the other CRAs and it is making the 1800 + ratings and this study has found that

SEBI played an important role in the guidelines for the credit ratings agencies.

2.3 Chawla V (2004)

This study was also a case study on the critical analysis of CRAs in India and it found that rating

levels should be similar for all agencies and the rating agencies in India can hardly achieve

international performance standard and creditability. This study also found that the all time

influencing political factors are not at all considered in giving a rating to a company .and some times

the rating agency is bound to give the issuer company a good rating irrespective of weather he issuer

deserves the respective ratings or not .Credit ratings in recent times is being looked upon as an

important investment advisory function .In countries with highly developed markets, such as the

US ,and Japan, Though there is no statutory requirement to have the securities rated, as high as 90%

of the securities floated are voluntarily rated due to the pressure exerted by the investors and

bankers. In India , a beginning has been made with the establishment of CRISIL and the RBI

insisting that all commercial papers prior to their issue must be rated. With the growth in the volume

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and depth of the capital markets and the increasing knowledge and awareness of the investors, it can

be expected that voluntary credit rating would be on the increase.

2.4Ravimohan. R (2005)

This study found that as rating agencies gain experience, they involve their own ways of looking at

companies. It found CRISIL has a special group devoted to the task of monitoring its rated

portfolio ,compiling statistics and benchmarks for the rating process and it found that forgetting the

right rating for any issue, read CRISILs CEO and managing Directors views which means that what

actually they speak on the process and method of credit rating. This study took the overall

framework that Credit Rating involves four areas , Business, Financial, Management and Project

Risks

2.5 Fiscal Reforms Bear Fruit as CRISIL Ups Debt Rating

This Study founds that bonds Credit rating is beneficial for the states like Maharastra, Karnataka,

Tamilnadu, and Gujarat, So Credit Rating Agency CRISIL has upgraded ratings for bonds floated by

Maharastra Krishna Valley developed Corporation and Krishna Bhagaya Jala Nigam Ltd. So every

state should go for bond ratings from any of the Credit Rating Agency.

2.6 Gupta R (2000)

This study took as the choice of variables an it found that turnover ratio plays a major role in the

rating the debentures. It carries discriminating capacity of about 16% and short term liquidity and

stability ratio does not play major role in rating and discriminating debentures issues.

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CHAPTER -3

Objectives of the Study

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RESEARCH OBJECTIVES

The objectives of this project report are following:

To know the awareness of investors about Credit Rating Agencies

To know the trustworthiness of Credit Rating Agencies among the investors.

To know the credit rating agency on which investor trust more.

To study all those areas other than debt instrument, for which credit rating is required.

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CHAPTER -4

Research Methodology

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RESEARCH METHODOLOGY

Research methodology is a way to systematically solve the research problem. The research methodology

included the various methods and techniques for conducting a research. Research is a systematic

design, collection, analysis, and reporting of data and finding relevant solution to a specific marketing

situation or problem. Sciences define research as the manipulation of things, concepts or symbols forthe purpose of generalizing to extend, correct or verify knowledge, whether that knowledge aids in

construction of theory or in practice of an art.

Research is thus, an original contribution to the existing stock of knowledge making for its

advancement, the purpose of research is to discover answers to the questions through the application of

scientific procedure.

My research project has a specified framework for collecting the data in an effective manner. Such

framework is called Research Design. The research process which was followed consisted of

following steps:-

34

Problem definition

Data collection

Data preparation and analysis

Report preparation and Presentation

Development of an approach to the problem

Research design formulation


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A. Defining the problem & Research Objectives

It is said, A problem well defined is half solved. The step is to define the project under study and

deciding the research objective. The definition includes study of Credit rating agencies in India and

impact of rating on decisions related to investment.

RESEARCH OBJECTIVES

The objectives of this project report are following:

To know the awareness of investors about Credit Rating Agencies

To know the trustworthiness of Credit Rating Agencies among the investors.

To know the credit rating agency on which investor trust more.

To study all those areas other than debt instrument, for which credit rating is required.

B. Developing the Research Plan:

The second stage of research calls for developing the efficient plan for gathering the needed

information. Designing a research plan calls for decision on the data sources, research approach,

research instruments, sampling plan and contacts method.

The development of Research plan has the following Steps:

1. Research Approach

Surveys are best suited for Descriptive Research. Surveys are undertaken to learn about peoplesknowledge, beliefs, preferences, satisfactions and so on and to measure these magnitudes in the

general public. A survey has been done for the descriptive process for this study.

2. Research Instrument

A close ended questionnaire will be constructed for my survey. A Questionnaire consisting of a

set of statements was presented to respondents for their answers. Personal unstructured

interaction with some high rank officers was also carried out for this survey.

3. Sampling Plan

The sampling design process includes:

(a) Sampling Unit: Who is to be surveyed population must be defined that has to be

sampled. It is necessary so as to develop a sampling frame so that everyone in the target

population has an equal chance of being sampled. The sampling unit for this has be different

investors and brokers.

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(b) Sampling Technique: It helps to determine the selection of data on certain criteria which

may include probability or non probability sampling techniques. For this survey convenience

sampling technique has been used.

(c) Sample Size: How many people have to be surveyed?

Generally large sample gives more reliable results than small samples. The sample of100

respondents has been taken. The sample was drawn from people having different

educational qualifications, occupations and age group.

4. Contact Methods

Once the sampling plan was determined, the question was how the subjects will be contacted i.e.

by telephone, mail or personal interview. Here in this survey, the respondents have been

contacted through questionnaire and unstructured interview.

C. Collecting the information

The collection of data is a tedious task. For conducting any sort of research data is needed. So for my

research, there was plenty of primary data. The information has been collected from the respondents

with the help of unstructured personal interview and the questionnaire filled by respondents.

a) Collection of Primary Data: Primary Data is the data collected from the original source.

questionnaire was the main instruments, which was used for collecting primary data.

b) Collection of Secondary Data: Secondary Data is the one which has already been

collected by someone else and some other person is using that information. The

information from internet, management books, journals and bank brochures has been

used as an secondary source of information

D. Analyze the Information

The next step is to extract the pertinent findings from the collected data that was collected with thehelp of questionnaire.

E. Presentation of Findings

This is the last and important step in the research process. The findings are presented in the form of

graphs, conclusions, suggestions and recommendations after data analysis.

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CHAPTER -5

Data Analysis and

Interpretation

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1. Demographic profile of investor :-

Response % of RespondentBrokers 30

Individuals 70

Interpretation:-

The above table and chart shows that 70% of respondents are individuals while 30% of respondents are

brokers and rest are brokers.

Respondent

Individuals

70%

Brokers

30%Brokers

Individuals

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2. From the following in which source do you like to invest your money?

Response % of Respondent

Share 29

Debenture 37Bonds 34

Respondent

Debenture

37%

Shares

29%Bonds

34%

SharesDebenture

Bonds

Interpretation:-

The above table and chart shows that 29% of respondents invest in share frequently while 37% of

respondents invest in debenture frequently and rest are invest in bonds.

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3. How frequently you investment in share and debenture?

Respondent

Frequently

57%

Cant Say

36%

Very

Frequently

7%

Very Frequently

Frequently

Cant Say

Interpretation:-

The above table and chart shows that 57% of respondents invest in share and debenture frequently while

7% of respondents invest in share and debenture frequently and rest are partly and not invest in share

and debentures.


Very Frequently 07

Frequently 57

Cant Say 36

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4 How many credit rating agencies listed below is recognized by

you?


CRISIL 32

CARE 9

ICRA 9

ONICRA 2

DUFF AND PHELPS 2

NONE OF THESE 46

Respondent

46%

2%

2%

9% 9%

32%CRISIL

CARE

ICRA

ONICRA

DUFF AND PHELPS

NONE OF THESE

Interpretation:-

On the above table it has been shown that most of the respondents know the CRISIL whereas others

are concerned, they have less knowledge.

5. Can you recognize credit rating agencies with its rating symbols?

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Yes 45

No 25

Cant Say 30

Respondent

No

25%

Cant Say

30%Yes

45%Yes

No

Cant Say

Interpretation:-

The majority of the investors can recognize credit rating agency from its symbols. As shown in the

table and chart i.e 45%. 30 % of those investors who give no answer. While only 25% investors says

no

6 . Do you know how many of services provided by CRAs

SERVICES Respondents

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Credit Rating Services 37

Advisory Services 2

Research and Information Services 2

Equity Research 2

Information assistant to Govt. 2

None of these 55

Respondents

55%

2%2%2%

2%

37% Credit Rating Services

Advisory Services

Research and

Information Services

Equity Research

Information assistant to

Govt.

None of these

Interpretation:-

It is shown from the above table and chart that only one service i.e. credit rating service is

recognized by the respondents while the have full ignorance regarding others

7. Do you have trust on credit rating agencies?

Response Respondent

Yes 50

No 25

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Cant Say 25

Respondent

Cant Say

25%

No

25%

Yes

50%

Yes

No

Cant Say

Interpretation:-

The majority of the investors have trust on credit rating agency i.e. 50%.and 25% investors give no

reply and rest of them says they dont have trust on credit rating.

8. Are you following the rating given by credit rating agency while taking

investment decision?

Response Respondent

Yes 09No 30

Cant Say 61

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CRISIL

CARE

ICRA

ONICRA

DUFF AND PHELPS

Interpretation:-

It is find that 50% investors believes on the credit rating given by CRISIL. Rest of investors believes on

rating given by other agencies.

10. Do you think Credit Rating Agencies will prove to be an effective tool for risk

management?

Response Respondent

Yes 36

No 25

Cant Say 39

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Interpretation:-

Only 36% of the investors have the opinion that credit rating agencies will prove to be an effective

tool for risk management. While 25% said no. Most of the investors i.e. 39% have none kind of

opinion.

11. Do you consider it safe for small investor depending upon the rating given by the

Credit Rating Agencies?

Response Respondent

Yes 29

No 37

Cant Say 34

Respondent

Cant Say39%

No

25%

Yes36%

Yes

No

Cant Say

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Respondent

Cant Say

34%

Yes

29%

No

37%

Yes

No

Cant Say

Interpretation:-

The above table and chart shows that only 29% have the opinion that it is safer for the small investors

depending upon the rating given to the instrument by the credit rating agencies. However, 37% said no

that it is not safer for the small investors. While 34%, have no opinion.

12. Do you think a good rating given to an instrument can help it sale easily in the

market?

Response Respondent

Yes 23

No 15

Cant Say 62

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Respondent

Cant Say

62%

No

15%

Yes

23%

Yes

No

Cant Say

Interpretation:-

Again, the majority of the respondent does not have any opinion that a good rating given to a instrument

can help its easily sail in the capital market and there percentage is 62%. 23% respondent said yes that it

helps in its easily sail in the market. While 15% respondent said no that this is not provide any help in

its easily sail.

13.Do you think credit rating agencies are booming to the capital market?

Response Respondent

Yes 12

No 61

Cant Say 27

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Yes

No

Can't Say

Interpretation:-

we find that 27% of the respondent do not know whether this is boom to the capital market or not. 61%

directly said no. while 12% said yes, it helps in booming the capital market.

14. Should the rating agencies monitor the issue already rated?

Response Respondent

Yes 18

No 21

Cant Say 61

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Respondent

Cant Say

61%

No

21%

Yes

18%

Yes

No

Cant Say

Interpretation:-

Majority of the investors i.e. 61% said that they cant say whether rating agencies monitor the issue

already rated or not. While 18% said, yes and again 21% said no.

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CHAPTER -6

Observations and Findings

IN THE CASE OF THE INVESTORS

1. From the project it is clearly shown that the investor has the lack of knowledge and awareness

regarding credit rating agencies. They are not aware that what kinds of services are given by the credit

rating agencies and their role in debt and equity ratings. As the study shows that only 32% of the

respondents know about the CRISIL and out of 70 respondents 68% did not know anything about the

credit rating agencies working in India.

2. The majority of the investors do not made their investment decision on the rating given to the

instrument by credit rating agencies. As shown in the table and chart i.e 61%. 30 % of those investors

who give no answer. While only 9% investors make their investment based on rating.

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3. So if we see the above table we find that 27% of the respondent do not know whether this is

boom to the capital market or not. 61% directly said no. while 12% said yes, it helps in booming the

capital market.

4. Only 36% of the investors have the opinion that credit rating agencies will prove to be an

effective tool for risk management. While 25% said no. Most of the investors i.e. 39% have none kind

of opinion. However, 37% said no that it is not safer for the small investors. While 34%, have no

opinion. Only one service i.e. credit rating service is recognized by the respondents while the have full

ignorance regarding others.

5. Majority of the investors i.e. 61% said that they cant say whether rating agencies monitor the

issue already rated or not. While 18% said, yes and again 21% said no

.

IN THE CASE OF BROKERS AND FINANCIAL INSTITUTIONS

After analyzing, the information given by the process in the questionnaire it can be included that

although they all invest in Shares and Debentures but not all have the knowledge of the Credit Rating

Agencies. At the time of rating any investment decision in any debt instrument, only few Brokers take

put consideration the rating given to the instrument by the different rating agencies. The Brokers who

have the knowledge about Credit Rating Agencies they also have the knowledge Multiply Credit

Rating & Sovereign Rating. Most of the Brokers only knows what this Multiple Credit Rating &

Sovereign Rating but they do not know whether those are helpful in booming the capital market or not.

Most of the Brokers have or opinion that if the rating any country goes up or down it has a long impact

on the countrys economy and the stock market. When it is asked from the brokers that there should be

separate Credit Rating Agencies at Asia level who rates all the countries of Asia and this debt

investments, most of the brokers said Yes that they should be, but they are enable to told the advantages

or disadvantages of this.

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Recommendations and

Suggestions

Recommendations and Suggestions

1. Lack of information hinders market participants understanding of ratings significance so it is

suggested that proper information about the credit rating and its significance should be provided

to the investors.

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2. Secondly, ratings should be published in daily newspapers so that investors could be able to

know about this.

3. Credit Rating Agencies should communicate the characteristics and limitations of rating for

structured finance.

4. Ratings should only be optimistic and should reflect the market conditions in underlying assets.

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Conclusion

Conclusion

It is concluded that mainly investors and brokers recognize and have trust on CRISIL because it is an

old Credit rating agency. Only few investors can recognize credit rating agencies with their rating

symbols.

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It is also concluded that although the investors know about the credit rating agencies and they have trust

on rating yet they do not follow the credit rating while making the investment decisions. It was asked

from them that why they do not consider the rating they did not tell the exact reasons of this but few of

them said that:-

1. lack of knowledge and lack of proper information about credit rating given by credit rating

agencies.

2. Lack of quality in methodology

3. They think that ratings are overoptimistic and failed to reflect the market conditions in

underlying assets.

4. CRAs do not communicate the characteristics and limitations of ratings for structured finance.

Investors know that credit rating agencies only provide credit rating services. They do not know about

other services provided by them. So some seminars should be conducted to inform the investors.

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Limitations of the Study

LIMITATIONS OF THE STUDY

1. Sample size is very small.

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2. Research work was carried out in Chandigarh only. So the findings may not be applicable

to the others parts of the country.

3. Shortage of time was reason for the incomprehensiveness.

4. The respondents did not give the true and fair information. Therefore, the result of the

research is not cent percent accurate.

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Bibliography

BIBLIOGRAPHY

1. Data collected from websites:

www.google.com

www.indiainfoline.com

www.fivepaise.com

www.moneycontrol.com

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http://www.indiainfoline.com/http://www.fivepaise.com/http://www.moneycontrol.com/http://www.indiainfoline.com/http://www.fivepaise.com/http://www.moneycontrol.com/


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www.yahoo.com

2. Data collected from Book

Financial Services.

Merchant Banking and Financial Services.

3. Data collected from Newspapers

Hindustan times

Economic times

Financial express

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Annexure

Questionnaire

Dear RespondentI am student of M.B.A. I am doing my project on Credit Rating Agencies. Please give

me true and fair information.

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1. Demographic profile of investors:-

Occupation.

Qualification..

Age:-

Less than 25 years years 25-50 Above50 years

2. In which source do you like to invest your money from the following?

Shares ., debentures., bonds

3.How frequently you invest in share and debenture?

(a) Very Frequently (b) Frequently (c) Cant say

4. How many credit rating agencies listed below is recognized by you?

(a) CRISIL (b) CARE (c) ICRA

(d) ONICRA (e) DUFF AND PHELPS

(f) None of these

5. Can you recognize credit rating agencies with its rating symbols?

(a) Yes (b) No (c) Cant say

5. Do you know how many of services provided by CRAs

Credit Rating Services

Advisory Services

Research and Information Services

Equity ResearchInformation assistant to Govt.

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6. Do you have trust on credit rating agencies?


7. Do you follow the rating given by credit rating agency while taking investment

decision?


If Yes or No, what are the pros and cons?

8. On which credit rating agency you trust more?

(a) CRISIL (b) CARE (c) ICRA

(d) ONICRA (e) DUFF AND PHELPS

9. Do you think Credit Rating Agencies will prove to be an effective tool for risk

management?


10. Do you consider it safe for small investor depending upon the rating given by the

Credit Rating Agencies?


11. Do you think a good rating given to an instrument can help it sale easily in the

market?


12. Do you think credit rating agencies are booming to the capital market?

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13. Should the rating agencies monitor the issue already rated?


14. The areas in which Credit Rating should be?

(a) Equity share (b) Real Estate (c) Insurance Policies (d) Others

Documents

sumit project2