Download as PPTX, PDF, TXT or read online from Scribd
Download as pptx, pdf, or txt
You are on page 1/ 14
What is a Credit Rating?
• A credit rating is an assessment of the creditworthiness of a borrower
in general terms or with respect to a particular debt or financial obligation. It can be assigned to any entity that seeks to borrow money — an individual, corporation, state or provincial authority, or sovereign government. What are Credit Rating Agencies? • A credit rating agency (CRA) is a company that rates debtors on the basis of their ability to pay back their interests and loan amount on time and the probability of them defaulting. • CRAs were set up to provide independent evidence and research- based opinion on the ability and willingness of the issuer to meet debt service obligations, quintessentially attaching a probability of default to a specific instrument. Credit rating agencies in India • Credit rating agencies in India came into existence in 1980s. In India, CRAs are regulated by SEBI (Credit Rating Agencies) Regulations, 1999 of the Securities and Exchange Board of India Act, 1992. • The Securities and Exchange Board of India tightened disclosure standards for credit rating agencies while assigning ratings to companies and their debt instruments. • The regulator directed that rating agencies must now disclose the liquidity position of a company being rated. • If the rating is assigned on the assumption of cash inflow, the agencies would need to disclose the source of the funding. • Rating agencies must disclose their rating history and how the ratings have transitioned across categories. • Credit rating firms will also have to analyze the deterioration of liquidity and also check for asset liability mismatch. How many credit rating agencies are in India? There are a total of seven credit agencies in India • CRISIL, (Credit Rating Information Services of India Ltd.) • CARE, Credit Analysis and Research (CARE) Ltd. • ICRA,(Investment Information and Credit Rating Agency of India Ltd • SMREA, Small and Medium Enterprises Rating Agency • Brickwork Rating, • India Rating and Research Pvt. Ltd and • Infomerics Valuation and Rating Private Limited. (Infomerics is short for Integrated Financial Omnibus Metrics Research of International Corporate Systems) credit rating agencies and credit bureaus • It is common to confuse the functions of credit rating agencies and credit bureaus, as both rate creditworthiness. • credit rating agencies focus on analyzing big companies and organizations, NGOs, and state or local governments. Whereas, credit bureaus report the creditworthiness of individuals. • Apart from this, credit rating agencies rate from ‘AAA’ to ‘D’ while credit bureaus report credit scores that range from 300 to 900. Credit Rating Interpretation AAA Highest safety and lowest credit risk AA High safety and low credit risk A Adequate safety and low credit risk BBB Moderate safety and moderate credit risk BB Moderate risk of default B High risk of default C Very high risk of default D Already defaulted or expected to default Role/ functions of Credit Rating Agencies • Rating entities based on their ability to pay back loans • Helping investors make judgments and decisions • Assisting the mutual fund industry in managing risks and evaluating funds • Providing policy and regulatory advice to corporations and the government • Rating financial institutions, fixed deposits, bank loans, and hybrid capital instruments Credit Rating Information Services of India Ltd. (CRISIL)
• It was started in 1987. It commenced its operations in January, 1988
making it one of the oldest credit rating agencies in India. • It covers automobile, industrial, financial, IT, media, travel, health, and retail sectors among others. • CRISIL is headquartered in Mumbai, India but also operates in the USA, UK, Hong Kong, China, Argentina, and Poland. • It has market share of more than 60%. • The majority stake of CRISIL was held by the world’s largest rating agency Standard & Poor’s. Credit Analysis and Research (CARE) Ltd. • Credit Analysis and Research Limited Ratings was established in 1993. • It is supported by Canara Bank, Unit Trust of India (UTI), Industrial Development Bank of India (IDBI), and other financial and lending institutions. • it provides ratings for manufacturing, infrastructure, and financial sectors. It also provides recovery ratings • This is considered as the second-largest credit rating company in India. • The headquarter of Credit Analysis and Research Limited Ratings is in Mumbai Investment Information and Credit Rating Agency of India (ICRA) Ltd
• It was created in 1991 by prominent financial institutions and
commercial banks in India with a devoted crew of experts for the MSME sector • Moodys, which is considered as the International credit rating agency holds the major share. • It offers information and guides institutions as well as individual investors and creditors. It also assigns ratings related to performance, mutual funds, corporate governance, etc The Benefit of Credit Ratings
• Helps in Investment Decision-Making
• The Flexibility of Investment Choices • The Promise of Safety • A positive corporate image • Reduce the Price of Public Issues Disadvantages of Credit rating
• Potential for Bias
The rating team's personal bias may affect the data that the rating organization gathers. • Issues with the New Company • Nature is Static • Rating is not a certification of a company's fundamental soundness.
Instant Access to Sustainability Rating Agencies vs Credit Rating Agencies: The Battle to Serve the Mainstream Investor 1st Edition Daniel Cash ebook Full Chapters
Credit Rating Is The Opinion of The Rating Agency On The Relative Ability and Willingness of The Issuer of A Debt Instrument To Meet The Debt Service Obligations As and When They Arise
Instant Access to Sustainability Rating Agencies vs Credit Rating Agencies: The Battle to Serve the Mainstream Investor 1st Edition Daniel Cash ebook Full Chapters
Credit Rating Is The Opinion of The Rating Agency On The Relative Ability and Willingness of The Issuer of A Debt Instrument To Meet The Debt Service Obligations As and When They Arise
