PRESENTATION ON CREDIT RATING PRESENTATION ON CREDIT RATING AGENCIES OF INDIAAGENCIES OF INDIA

Presented By:

Mr. Sunil Agarwal

Mrs.Reena Yadav

Ms.Neelam Kamble

Mr.Sudeep Mandal

Mrs.Afreen Sayed

What is Credit Rating?What is Credit Rating?

In simple words,Credit Rating is an assessment of the credit worthiness of individuals & corporation .

It is based on the history of borrowing & repayment as well as the availability of assets & extent of liabilities.

Need of Credit RatingNeed of Credit Rating

Low Cost Information.Quick Investment Decision.Investor Protection.Facilitates formulation of public guidance

on institutional investment.

Decision & documents

Rating Presentations meetings, conference calls

, and /or site visits

Rating Committee

Appeal Process,If necessary

Surveillance

What is Credit Rating What is Credit Rating Agencies?Agencies?

A credit ratings agency is a company that assigns credit ratings to institutions that issue debt obligations (i.e. assets backed by receivables on loans, such as mortgage-backed securities)

Credit Rating Agencies of Credit Rating Agencies of IndiaIndia

Credit Rating Information Services of India Limited (CRISIL).

Investment Information of Credit Rating Agency (ICRA).

Credit Analysis & Research Limited CARE).

Credit Rating Information Credit Rating Information Services of India LimitedServices of India Limited

(CRISIL)(CRISIL)

FormationFormation First credit agency incorporated

on 1st January ,1988. Promoted by ICICI alongwith

UTI and other financial institution with an equity capital of Rs. 4 crores

IREVNA, international arm and a division of CRISIL handles international customers offers independent information ,solution related to credt rating & Risk assessment etc.

Roopa Kudva- Managing Director and Chief Executive Officer, CRISIL & Region Head, Standard & Poor's, South Asia

ObjectiveObjective

The principal objective of CRISIL is to rate the debt obligations of Indian companies.

It’s rating guides the investors about the risk of timely payment of interest and principal on a particular debt instrument.

Functions of CRISILFunctions of CRISIL

• Ratings.• Research.

i) CRISIL Research.

ii) CRISIL Fund Service.

iii) The Centre of Economy Research.

iv) Investment Research Outsourcing.• Advisory

i) CRISIL Infrastructure Advisory.

ii) Investment & Risk Management Service.

Rating ParametersRating Parameters

For Debenture:• For High Investment Grades: AAA (Triple Safety) – Highest Safety. AA (Double Safety) - High Safety.• For Investment Grades: A – Adequate Safety BBB (Triple B) – Moderate Safety• For Speculated Grade: BB - Inadequate Safety B - High Risk C - Substantial Risk D - Default

Rating Parameters (Contd.)Rating Parameters (Contd.)

Fixed Deposit Rating Symbols –FAAA (triple A): Highest Safety

–FAA (double A): High Safety–FA: Adequate Safety–FB: Inadequate Safety–FC: High Risk–FD: Default

Ratings for short-term instruments –P-1: Timely payment very strong

–P-2: Strong–P-3: Adequate Safety–P-4: Minimal–P-5: Expected to be in default on maturity or is in default

Investment Information & Investment Information & Credit Rating Agency of Credit Rating Agency of

India LimitedIndia Limited (ICRA) (ICRA)

FormationFormation Set up in 1991. Established by Industrial Finance

Corporation Today, ICRA and its subsidiaries

together form the ICRA Group of Companies (Group ICRA).

ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA)

It is a Public Limited Company, with its shares listed on the Bombay Stock Exchange and the National Stock Exchange.

Has a tie-up with Moody Investor Service in the area of technical service which benefit in-house research capabilities.

Mr. Naresh Takkar-Managing Director ,Mr. P.K Chaudhary – Vice Chairman & Group CEO.

Group ICRA

Credit Rating / Grading

Managing Consultant

 

IT (Software)

Information Services /KPO 

ICRA LTD.

ICRA ManagementConsulting Services

Ltd

ICRA TechnoAnalytics Ltd. ICRA Online

Ltd.

ICRA Sapphire INC.

AXIOM Technologies

Ltd.

 

Objectives of ICRAObjectives of ICRA

To assist investors in making well informed investment decision

To provide regulators with a market driven system to encourage the healthy growth of the capital markets in a disciplined manner without costing an additional burden on the Government for this purpose.

FunctionsFunctions

Rating Services. Information Services. Advisory Services. Grading Services.

Rating ParametersRating Parameters For Long Term Debenture Bonds & Preference Shares: LAAA: Highest Safety LAA : High Safety LA : Adequate Safety LA : Adequate Safety LBBB : Moderate Safety LBB : Inadequate Safety LB : Risk prone LC : Substantial Risk LD : Default, Extremely speculative For Medium Term including Fixed Deposit: MAAA: Highest Safety MAA : High Safety MA : Adequate Safety MB : Inadequate Safety

MC : Risk prone

Rating Parameters (Contd.)Rating Parameters (Contd.)

For Short Term including Commercial Papers:

A-1: Highest Safety

A-2: High Safety

A-3: Adequate Safety

A-4: Risk prone

A-5: Default

Credit Analysis & Research Credit Analysis & Research Limited (CARE)Limited (CARE)

FormationFormation

Set up in 1993. Formed jointly by

investment companies, banks & finance companies.

Recognized by SEBI, Government of India & Reserve Bank of India etc.

It has three largest shareholder SBI ,IDBI & Canara Bank.

Shri. O.V Bundellu - Chairman

Objectives of CAREObjectives of CARE

To earn customer satisfaction & investor confidence through fairness & professional excellence.

To provide state of art services of securities rating ,information & related services of international standard.

Functions of CAREFunctions of CARE

Rating Services Information ServicesAdvisory Services

a) Credit Reports

b) Sector Studies

c) Financial RestructuringGrading Services

Rating ParametersRating Parameters

For Long Term Debt Instruments CARE AAA: Highest Safety CARE AA : High Safety CARE A : Adequate Safety CARE BB : Inadequate Safety CARE B : High Risk For Medium term Debt Instruments CARE AAA: Highest Safety CARE AA : High Safety CARE A : Adequate Safety CARE BB : Inadequate Safety CARE C : High Risk

Rating Parameters (Contd.)Rating Parameters (Contd.)

Short term debt instruments: PR 1: Superior capacity PR 2: Strong capacity PR 3: Adequate capacity PR 4: Minimal degree of safety PR 5: Default or likely in default on maturity Credit Analysis Rating CARE 1: Excellent Debt Management Capacity CARE 2: Very good Debt Management Capability CARE 3: Good capability for Debt Management CARE 4: Barely satisfactory capability for debt management CARE 5: Poor capability for debt management

Advantages ,Disadvantages Advantages ,Disadvantages & Measures of Credit Rating & Measures of Credit Rating

Agencies in IndiaAgencies in India

Advantages of Credit Rating Advantages of Credit Rating AgenciesAgencies

For Corporates.For Investors.

Disadvantages of Credit Disadvantages of Credit Rating Agencies Rating Agencies

Credibility of rating given by this agencies is questionable.

Concealment of material information Difference in rating by two agencies. No audit is performed and rely on the

information provided by the client.Frequent changing of grading create

confusion.

Certain Measures taken by Certain Measures taken by SEBISEBI

Agencies must recognise the defaulters. Must ensure no marketing development & the employees

involved in credit rating process must not own share of the issuer.

Must publish information on historical default rates. Must disclose fees charged to the client in rating debt &

default rates. Must maintain records which contain details of discussion

held with stake holder ,rating committee including voting details etc.

Summary & ConclusionSummary & Conclusion

Summary & ConclusionSummary & Conclusion

What is Credit Rating? Need of Credit Rating? Credit Rating Process? Type of Credit Agencies CRISIL (Formation,Functions ,Rating Parameters) ICRA (Formation,Functions ,Rating Parameters) CARE (Formation,Functions ,Rating Parameters) Advantages ,Disadvantages & Measures