HISTORY OF CREDIT

RATING IN INDIA
FIRST EMERGED IN 1940s FOLLOWING
THE FINANCIAL CRISIS OF 1937 IN NEW
YORK.
THE STANDARDS &POOR WAS FORMED
IN 1941.
IN 1970s A NUMBER OF CREDIT RATING
COMPANIES STARTED OPERATIONALL
OVER THE WORLD.
CREDIT RATING IN INDIA
 THE CONCEPT CAME IN INDIA IN 1987
WITH THE SETTING UP OF CRISIL.
 AS THE SCOPE OF CREDIT RATING
WIDENED ICRA & CARE WAS SET UP IN
1991 & 1993 RESPECTIVELY.
 THE FIRST PRIVATE SECTOR CREDIT
RATING INSTITUTION WAS DUFFS &
PHELPS CREDIT RATING INDIA PVT.LTD
FORMED IN 1995(AFTER ANOTHER
MERGER WITH DCR IT’S KNOWN AS FITCH
INDIA LTD).
 DEFINITION OF CREDIT
RATING
 “CREDIT RATING IS AN UNBIASED,OBJECTIVE AND
INDEPENDENT OPINION AS TO AN ISSUER’S
CAPASITY TO MEET FINANCIAL
OBLIGATIONS.”-CRISIL
 “CREDIT RATING IS A SIMPLE AND EASY TO
UNDERSTAND SYMBOLIC INDICATOR OF THE
OPINION OF A CREDIT RATING AGENCY ABOUT
THE RISK INVOLVED IN A BORROWING
PROGRAMME OF AN ISSUER WITH REFERENCE TO
THE CAPABILITY OF THE ISSUER TO REPAY THE
DEBT AS PER TREMS OF ISSUE.THIS IS NEITHER A
GENERAL PURPOSE EVALUATION OF THE
COMPANY NOR A RECOMMENDATION TO BUY,
HOLD OR SELL A DEBT INSTRUMENT.” -ICRA
 NEED FOR CREDIT
RATING
1. THE INCREASING ROLE OF MONEY & CAPITAL
MARKET CONSEQUENT TO
DISINMTERMEDIATION.
2. INCREASED SECURITISATION OF BORROWING
AND LENDING CONSEQUENT TO
DISINMTERMEDIATION.
3. GLOBALISATION OF CREDIT MARKET.
4. WITHDRAWAL OF GOVERNMENT SAFETY NETS &
THE TREND TOWARDS PRIVATISATION.
5. GROWTH OF CONFIDENCE IN THE EFFICIENCY
OF OPEN MARKET MECHANISM.
 IMPORTANCE OF CREDIT
RATING
1. CREDIT RATING & INVESTOR.

3. CREDIT RATING & THE ISSUER.

5. CREDIT RATING & THE INTERMEDIARIES.

7. CREDIT RATING & THE REGULATORY

BODIES.
 RATING METHODOLOGY
1. THE RISK FACTOR.
2. EXAMINING THE INCONSISTENCIES.
3. STREES ON FUNDAMENTALS.
a) INDUSTRY OUTLOOK
b)MANAGEMENT QUALITY
c)ACCOUNTING PRACTICES
d)FINANCIAL POSITION
SHORT TERM LIQUIDITY
f)RATIO ANALYSIS
4.STRUCTURAL FACTORS
5.GLOBAL CHANGES
 RATING PROCESS:INDIAN
SCENARIO
1. INITIAL CONTACT
2. MEETING COMPANY EXECUTIVES
3. MEETING THE MANAGEMENT
4. ASSIGNMENT TO ANALYST TEAM
5. PREPARATION OF RATING PROFILE.
6. PRESENTATION BEFORE THE COMMITTEE
7. RATING DECISION
8. NOTIFICATION OF RATING
9. ISSUE’S REPRESENTATION
10. REVIEW BY RATING COMMITTEE
 FACTORS CONSIDERED
 MANUFACTURING-INDUSTRY RISK,MARKET
POSITION,OPERATING EFFICIENCY,LEGAL
POSITION,ACCOUNTING QUALITY,EARNINGS
PROTECTION,CASH FLOW,FINANCIAL
FLEXIBILITY.
 FINANCIAL-LIQUIDITY MANAGEMENT,ASSET
QUALITY,PROFITABILITY,FINANCIAL
POSITION,INTEREST&TAX SENSIVITY,
 REAL ESTATE
 INDIAN STATES
 BANKS
 DIVERSIFICATION OF
BUSINESS
 INSURANCE COMPANIES
 HEALTH CARE INSTITUTION
 CORPORATE GOVERNANCE RATING
 CONSULTANTS RATING
 EDUCATIONAL INSTITUTIONS RATING
 ADVISORY SERVISES TO STATE GOVT.