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    Credit Ratings: Amity Business School

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    Ricky Bhatia
    The document discusses credit ratings and the rating process at Amity Business School. It provides details on: 1) The various factors analyzed in the credit rating process, including business analysis, financial analysis, management evaluation, and regulatory environment. 2) An overview of ICRA's rating process, including assigning a rating team, conducting research and analysis, rating meetings, and communicating the final rating. 3) The structure of credit risk ratings, which considers internal factors like business, financial, management, and credit facility risks, as well as external industry risks.

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    Credit Ratings: Amity Business School

    Uploaded by

    Ricky Bhatia
    29 views22 pages
    The document discusses credit ratings and the rating process at Amity Business School. It provides details on: 1) The various factors analyzed in the credit rating process, including business analysis, financial analysis, management evaluation, and regulatory environment. 2) An overview of ICRA's rating process, including assigning a rating team, conducting research and analysis, rating meetings, and communicating the final rating. 3) The structure of credit risk ratings, which considers internal factors like business, financial, management, and credit facility risks, as well as external industry risks.

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    7ae9fCredit Ratings

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    The document discusses credit ratings and the rating process at Amity Business School. It provides details on: 1) The various factors analyzed in the credit rating process, including business analysis, financial analysis, management evaluation, and regulatory environment. 2) An overview of ICRA's rating process, including assigning a rating team, conducting research and analysis, rating meetings, and communicating the final rating. 3) The structure of credit risk ratings, which considers internal factors like business, financial, management, and credit facility risks, as well as external industry risks.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    29 views22 pages

    Credit Ratings: Amity Business School

    Uploaded by

    Ricky Bhatia
    The document discusses credit ratings and the rating process at Amity Business School. It provides details on: 1) The various factors analyzed in the credit rating process, including business analysis, financial analysis, management evaluation, and regulatory environment. 2) An overview of ICRA's rating process, including assigning a rating team, conducting research and analysis, rating meetings, and communicating the final rating. 3) The structure of credit risk ratings, which considers internal factors like business, financial, management, and credit facility risks, as well as external industry risks.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 22

    Amity Business School

    Credit Ratings

    Credit rating and procedures

    Amity Business School

    Business Analysis: industry risk, with competition from others, demand and supply position,govt. policies etc. Marketing risk with competitive advantages or disadvantages, market share, selling and distribution network, quality of customer service, operating efficiency involved in location advantages, labour cooperation, cost efficiency, and operating margins and legal position as reflected in security offered, trust deed and trustees reputation etc. Financial analysis: Examining the accounting quality under the methods of depreciation, income recognition, treatment of bad debts, contingent liabilities etc. Earnings protection, under projection of future earnings, EPS, profitability ratios, proportion of interest to gross profit and net profit etc, adequacy of cash flows, reflected in working capital management, current ratio, inventory to sales, etc and financial flexibility, examined in terms of capital financing plans, flexibility in financing through alternative methods, planning methods and their flexibility

    Amity Business School

    Management Evaluation: This is examined in relation to track record of promoters, managers and top executives, their qualification and experience, planning and control systems, capacity to adjust with flexibility, foresight to meet adverse situations, goal setting, monitoring and evaluation with a view to achieve goals. Regulatory and competitive environment : This is assessed in terms of the structure and regulatory framework of the financial system, the efficiency of operations and regulatory authorities, trends in regulation and deregulation and the reaction of the competitors to regulation etc.

    Amity Business School

    Fundamental analysis: Under this head ,the companys liquidity management, capital structure, debt leverage, long term solvency, short term solvency, matching of cash inflows to outflows and ratio analysis of the company. The assets quality, in terms of credit risk management, receivable to current assets, systems of monitoring the sector credit, individual customer risk and management of problem credits. The companys profitability and financial position is also analyzed through study of historic profits, spread on funds deployment, revenue on non-fund based services, accretion to reserves, profit margins etc. Besides, the impact of interest tax rate changes on companys net profit is analyzed. The interest as a proportion to cash inflows or of gross profits is also used to examine the interest burden and potential for future earnings and the impact of debt burden on them is analyzed. These and many more such fundamental factors in a company are also analyzed

    Amity Business School

    Mandate

    ICRAs Rating Process (An Overview)

    Assign Rating Team

    Initial Stage

    Receive Initial Information & Conduct Research


    Meetings and Visits Analysis and Report Preparation Preview Meeting Rating Meeting

    Facts Findings & Analysis

    Rating Finalization Fresh Inputs /Clarifications

    Assign Rating
    Communicate Rating and Rationale Acceptance

    Request for Review

    Surveillance

    Non Acceptance

    Amity Business School

    STRUCTURE OF CREDIT RISK RATING SYSTEM

    Amity Business School

    CREDIT RISK

    1. Internal a. Business risk i. Current market share ii. Market standing iii. Operating efficiency iv. Growth perspective v. SWOT analysis

    Amity Business School

    b) Financial Risk i. Past financial record ii. Quality of past financial records (performance) iii. Projected financials iv. Financial structure v. Cash flow position

    Amity Business School

    c) Management Risk i. Management Track Record ii. Repayment history of previous loans iii. Quality of management

    Amity Business School

    d) Credit Facility Risk i. Availability of security ii. Past payment record iii. Directors/corporate guarantee

    10

    Amity Business School

    e) Project Risk i. DSCR Adequacy ii. Tenure of loan iii. Asset Coverage Ration iv. Future cash flows v. Financial leverage

    11

    Amity Business School

    2. External a) Industry Risk i. Nature of industry ii. Competition and other players in the industry iii. Industry prospects iv. Industry SWOT

    12

    Amity Business School

    CREDIT DERIVATIVE (ISDA)

    13

    Amity Business School

    Unfunded credit derivative products include the following products: Single name Credit Default Swap (CDS) Total Return Swap First to Default Credit Default Swap Portfolio Credit Default Swap Secured Loan Credit Default Swap Credit Default Swap on Asset Backed Securities Credit Default Swaption (CDS) Recovery Lock Transaction
    14

    Amity Business School

    Credit Spread Option CDS index products Constant Maturity Credit Default Swap (CMCDS)

    15

    Amity Business School

    Funded credit derivative products include the following products: Credit Linked Note (CLN) Synthetic collaboration debt obligation (CDO) Constant Proportion Debt Obligation (CPDO) Synthetic constant Proportion Portfolio (Synthetic CPPI)

    Insurance

    16

    Amity Business School

    FUNCTIONS OF CREDIT RATINGS


    Superior Information Low Cost Information Basis for a proper Risk-Return Trade Off Healthy discipline on corporate borrowers Formulation of public guidelines on Institutional Investment

    17

    Amity Business School

    ORIGIN
    CREDIT RATING IN INDIA

    18

    Amity Business School

    BENEFITS OF CREDIT RATING


    Low cost information Quick investment decision Independent Investment decision Investors Protection

    19

    Amity Business School

    BENEFITS TO RATED COMPANIES


    Sources of additional certification Increase in investors population Forewarns risks Encourages financial discipline Merchant bankers job made easy Foreign collaborations made easy Benefits in industry as a whole Low cost borrowing Rating as a marketing tool
    20

    Amity Business School

    CREDIT RATING AGENCIES IN INDIA


    Credit Rating Information Service Ltd. (CRISIL) Investment Information and Credit Rating Agency of India (ICRA) Credit Analysis and Research (CARE) Duff Phelps Credit Rating Pvt. Ltd. (DCR India) Onida Individual Credit Rating Agency ltd. (ONICRA)

    21

    Amity Business School

    RATING METHODOLOGY
    Credit Rating Symbols

    22

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