INDUSTRIAL IMMERSSION PROJECTSector :- Financial services topic credit ratings

Mentor- PrOF. HEMAL THAKKER

Presented by- ASHISH DILIP MEHTA

Meaning of credit rating.

"Credit ratings help investors by providing an easily recognizable, simple tool that couples a possibly unknown issuer with an informative and meaningful symbol of credit quality." Standard and Poor’s

Who gives credit rating ? What does the rating agency do ? Who regulates the credit rating agency ?

INTRODUCTION

It is necessary in view of the growing number of cases of defaults in payment of interest and repayment of principal sum borrowed by way of fixed deposits, issue of debentures or preference shares or commercial papers.

Maintenance of investor’s confidence, since defaults shatter the confidence of investors in corporate instruments.

Protect the interest of investors who can not into merits of the debt instruments of a company.

Motivate savers to invest in industry and trade.

NEED FOR CREDIT RATING

The main objective is to provide superior and low cost info to investors for taking a decision regarding risk return trade off, but it also helps to market participants in the following ways:

improves a healthy discipline on borrowers, Facilitates formulation of public guidelines on institutional

investments, Helps merchant bankers, brokers, regulatory authorities, etc., in

discharging their functions related to debt issues, Encourages greater information disclosure, better accounting

standards and improved financial information (helps in investors protection),

May reduce interest costs for highly rated companies, Acts as a marketing tool

OBJECTIVE OF CREDIT RATING

Sovereign credit rating

Short term rating

Corporate credit ratings

TYPES OF CREDIT RATINGS

SOVERIGN RATING

Credit rating methodology focus on 4 areas :

Business Analysis Financial Analysis Management Evaluation Fundamental Analysis

METHODOLOGY

RATING PROCESS

GLOBALLY : Moody’s. Standard &Poor. Fitch.

IN INDIA : CRISIL ICRA CARE SMERA Brickwork ratings Fitch

COMPANIES

Credit Rating Information Services of India Limited (CRISIL)

They majorly rate on Banks, SME, NSIC, Real Estate, Debt Instruments, etc.

CRISIL almost serves India’s Largest Companies and some of smaller companies also.

RATING SYETEM

BANKS SME DEBT INSTRUMENT

CRISIL AAA SME 1 CRISIL AAA

CRISIL AA SME 2 CRISIL AA

CRISIL A SME 3 CRISIL A

CRISIL BBB SME 4 CRISIL BBB

CRISIL BB SME 5 CRISIL BB

CRISIL B SME 6 CRISIL B

CRISIL C SME 7 CRISIL C

CRISIL D SME 8 CRISIL D

HIGH MODERATE LOW

SE 1A SE 1B SE 1C

SE 2A SE 2B SE 2C

SE 3A SE 3B SE 3C

SE 4A SE 4B SE 4C

SE 5A SE 5B SE 5C

FINANCIAL STRENGHT

HIGHEST

HIGH

MODERATE

WEAK

POOR

PERFORM-ANCE

CAPABILITY

NSIC

Rating Scale

DA1

DA2

DA3

DA4

DA5

REAL ESTATE

Health Care Fund Management

Quality

IPO

H1 AMC 1 GRADE 5

H2 AMC 2 GRADE 4

H3 AMC 3 GRADE 3

H4 AMC 4 GRADE 2

- AMC 5 GRADE 1

INVESTMENT INFORMATION AND CREDIT RATING AGENCY OF INDIA.(ICRA)

SME RATING AGENCY OF INDIA LTD. (SMERA)

SMERA AAA’ SMERA AAA’ MSME 1

SMERA AA’ SMERA AA’ MSME 2

SMERA A’ SMERA A’ MSME 3

SMERA BBB’ SMERA BBB’ MSME 4

SMERA BB’ SMERA BB’ MSME 5

SMERA B’ SMERA B’ MSME 6

SMERA C’ SMERA C’ MSME 7

SMERA D’ SMERA D’ MSME 8

Corporate & Infrastructur

e

Bank Loan SME

BRICKWORK RATINGS INDIA PRIVATE LTD.

Corporate Governance

Fixed Deposits Issuer Ratings

BWR CG 1 BWR FAAA BWR AAA

BWR CG 2 BWR FAA BWR AA

BWR CG 3 BWR FA BWR A

BWR CG 4 BWR FB BWR BBB

BWR CG 5 BWR FC BWR BB

BWR CG 6 BWR FD BWR B

BWR CG 7 - BWR C

BWR CG 8 - BWR D

BENEFITS OF CREDIT RATINGS

TO THE INVESTORS

BENEFITS OF CREDIT RATINGS

TO THE COMPANY

αPossibility of Bias Exist.α Improper Disclosure May Happen.α Impact of Changing Environment.α Problems for New Companies.α Downgrading by Rating Agency.α Difference in Rating.

DEMERITS OF CREDIT RATING