2. Credit rating is essentially , the symbolic
indicator of the current opinion of the rating
agency on the relative ability and willingness
of the issuer of a financial (debt) instrument
to meet the service obligation as and when
they arise.
It provides a relative ranking of credit quality
of debt/financial instrument or their grading
according to investment qualities.
3. A credit rating is a measure used by creditors to
determine how much they can trust a certain
borrower, whether the borrower is an individual, a
corporation, or a country. The credit rating is derived
using past financial data or the borrower’s credit
history.
Factors that affect credit rating:-
1. The ability to pay a loan.
2. The amount of credit in existence
3. Credit history
A poor credit rating indicates a high risk of defaulting
on a loan, and thus leads to high interest rates(S&P
D-grade).
4. Rating is nothing but estimated worth or
value in terms of symbolic grade given to a
person’s or organization’s ability to pay back
the loans raised , with the help of individual
or organisation.
As per SEBI regulations, credit rating is
nothing but an opinion regarding securities
expressed in the form of standard symbol or
in any other standarised form assigned by
Credit Rating agency.
5. With offices in 23 countries and a history that
dates back more than 150 years, Standard &
Poor’s is known to investors worldwide as a
leader of financial- market intelligence.
Today Standard & Poor’s strives to provide
investors who want to make better informed
investment decisions with market intelligence in
the form of credit ratings, indices, investment
research and risk evaluations and solutions.
Most notably, we are known as an independent
provider of credit ratings. In 2010 S&P issued
162,418 new and 556,872 revised ratings.
6. Depend on rating agency. Ex.- (S&P)
‘AAA’—Extremely strong capacity to meet financial commitments. Highest
Rating.
‘AA’—Very strong capacity to meet financial commitments.
‘A’—Strong capacity to meet financial commitments, but somewhat susceptible
to adverse economic conditions and changes in circumstances.
‘BBB’—Adequate capacity to meet financial commitments, but more
subject to adverse economic conditions.
‘BBB-‘—Considered lowest investment grade by market participants.
‘BB+’—Considered highest speculative grade by market participants.
‘BB’—Less vulnerable in the near-term but faces major ongoing uncertainties
to adverse business, financial and economic conditions.
‘B’—More vulnerable to adverse business, financial and economic conditions but
currently has the capacity to meet financial commitments.
‘CCC’—Currently vulnerable and dependent on favorable business, financial and
economic conditions to meet financial commitments.
‘CC’—Currently highly vulnerable.
‘C’—Currently highly vulnerable obligations and other defined
circumstances.
‘D’—Payment default on financial commitment
10. • Validation of “Company
Country • Political
Position”
• Economic
• Trends Risk
• Industry – Specific factors
• Quality of Earnings
• Foreign exchange
& Analytical adjustments
• Peer Group Comparisons
Profitability Industry
/ Peer Group Business Factors
Comparisons
Risk
• Industry Trends
• Industry Structure
• Market Size
• Competitive Factors
• Growth Potential
• Market position
• Cyclicality
• Keys to Success
Company • Bases of Competition
• Size
Position • Changing Technology
• Diversification
• Operating Risk
• Management
• Regulatory Environment
11. • Operating sources & uses
Of liquidity • Accounting Regime
• Other potential calls on Accounting • Reporting & Disclosure
Liquidity • Analytical adjustments
• Debt Characteristics • Inventory valuation and
• Bank credit facilities
Liquidity / Governance
Short-term Financial Risk
Factors Risk
• Ownership
• Board of directors
• Working capital need
• Management practices
• Analytical distinctions with
• Financial Strategy
profitability Cash Flow • Risk Tolerance
• Cash flow measures Adequacy • Accounting Practices
• Stability of cash flow
• Internal controls
12. Source of additional certification
Lower cost of borrowing.
Increase the investors population.
Rating as marketing tool.
Self discipline by the companies.
Reduction of cost in public issues.
Motivation for growth
Foreign collaborations made easy
13. Safeguard against bankruptcy.
Low cost information
Recognition of risk.
Creditability of issuer.
Quick investment decisions.
No need to depend on investment advisors
and professionals.
Choice of investments.
Benefits of rating surveillance
14. Specificity.
‡ Relativity.‡
Guidance.‡
Not a Recommendation.‡
Broad Parameters.‡
No Guarantee.‡
15. CRISIL :- Credit rating information services of
India limited.
Fitch Ratings India Private Ltd.
ICRA Limited
Credit Analysis & Research Ltd. (CARE)
Brickwork Ratings India Private Limited
SME Rating Agency of India Ltd. (SMERA)
16. CRISIL is India's leading Ratings, Research, Risk
and
Policy Advisory Company. CRISIL, the first credit
agency was set up in January 1987.‡ It was
started jointly by ICICI & UTI with an equity
capital of Rs-4 cr. Each of them holds 18% of the
capital.‡
Other contributions to the capital are as follows.
Asian Development bank 15%
LIC, GIC & SBI 5% each
HDFC 6.2%
Banks (Indian) 19.25%
Banks (Foreign) 13.55%
17. CRISIL Ratings is India's largest rating agency,
having rated more than 24,541 debt instruments,
of more than USD 655 billion (Rs.30,71,459 cr.),
issued by over 7938 companies.‡ CRISIL
has strong 60% penetration in the domestic bond
market and a 53% market share in the bank loan
rating segment.‡ CRISIL Ratings rates virtually
every kind of organization, including industrial
companies, banks ,SMEs, non-banking financial
institutions, insurance providers, mutual funds,
infrastructure entities, state governments, and
urban local bodies. It also rates securitized
paper.
