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CREDIT RATING AGENCIES

CREDIT RATING

A symbolic indicator of the current opinion on the relative capability of the corporate entity to timely service debts and obligations, with reference to the instrument rated. The rating is based on an objective analysis of the information and clarifications obtained from the business entity, as also other sources which are considered reliable by the rating agency.

ISSUERS
Companies Special purpose entities State and local governments Non-profit organizations or National governments

Debt Securities can be easily traded in secondary market

Credit Rating Agency


A Credit Rating Agency (CRA) is a company that assigns credit ratings for issuers of certain types of debt obligations as well as the debt instruments themselves. In some cases, the servicers of the underlying debt are also given ratings. The independence and professional approach of the agency ensure reliable, consistent and unbiased ratings. Ratings facilitate investors to factor credit risk in their investment decision.

Methodology
A Credit Rating Agency for an issuer takes into consideration the issuer's credit worthiness - its ability to pay back a loan operational efficiency commitment to new projects and other associate companies funding policies of the issuer past financial statements and estimates of future earnings: made under various sensitivity scenarios and evaluated against the claims and obligations that require servicing over the tenure of the instrument being rated. This affects the interest rate applied to the particular security being issued. Debt fixed Payment: Principal + Interest Rate

Rating Services for Whom ?


The rating agency offers its rating services to a wide range of issuers including : Manufacturing companies Banks and financial institutions Power companies Service companies Municipal and other local bodies Non-banking financial service companies

Uses of Ratings
For investors:
-Credit rating agencies increase the range of investment alternatives and provide independent, easy-to-use measurements of relative credit risk. -This increases the efficiency of the market, lowering costs for both borrowers and lenders. For borrowers: - It opens the capital markets to categories of borrower who might otherwise be shut out altogether: small governments, startup companies, hospitals, and universities.

International Rating Agencies


A. M. Best (U.S.) Baycorp Advantage (Australia) Dominion Bond Rating Service (Canada) Fitch Ratings (U.S.) Moody's (U.S.) Standard & Poor's (U.S.) Pacific Credit Rating (Peru)

Credit Rating Agencies in India


Credit Rating Information Services of India Limited (CRISIL) Investment Information and Credit Rating Agency of India (ICRA) Credit Analysis & Research Limited (CARE) Duff & Phelps Credit Rating India Private Ltd. (DCR India) ONICRA Credit Rating Agency of India Ltd.

RATING PROCESS
The rating process commences at the request of the prospective issuer and on receipt of information as may be available with such issuer. A team of analysts takes up the work of collection of data and information from the books and records of the concern and interacts with its executives. The team also relies on the in-house research and database and other secondary sources considered reliable by the rating agency.

RATING PROCESS
On completion of the analysis, a RATING REPORT is submitted to the rating committee followed by presentation of key rating issues by the rating team. The ratings are assigned by the rating committee. The rating agency ensures strict confidentiality of the information collected from the issuers during the rating process.

Ratings awarded by Major Credit Rating Agencies


For Long Term Securities - including Debentures, Bonds, Preference Shares LAAA : Highest Safety LAA : High Safety LA : Adequate Safety LBBB : Moderate Safety LBB : Inadequate Safety LB : Risk Prone LC : Substantial Risk LD : Default

Ratings awarded by Major Credit Rating Agencies


For Short Term - including Commercial Paper A1/ A1+ : Highest safety. A2/ A2+ : High safety. A3/ A3+ : Adequate safety. A4/ A4+ : Risk Prone. A5 : Default.

Either already in default or expected to default.

Ratings awarded by Major Credit Rating Agencies


Medium Term - including Certificate of Deposit and Fixed Deposit Programmes
MAAA : Highest Safety MAA : High Safety MA : Adequate Safety MB : Inadequate Safety MC : High Risk MD : Default

CRISIL RATING PROCESS


CRISIL, a Standard & Poor's company is India's leading Ratings, Research, Risk and Policy Advisory company 1. How the Rating Process works: -CRISIL receives the completed application form -CRISIL's representatives visit the company -CRISIL's analysts have a short discussion with the management of the company -CRISIL prepares a rating report, assigns a rating and sends the copy of the report to the company and NSIC

CRISIL RATING PROCESS

2. Time Required
The whole process takes three to four weeks after CRISIL receives complete information.

CRISIL RATING PROCESS

3. Rating Scale:
Reflects two components: -financial strength & -performance capability.

Financial Strength High Performance Capability Highest High Moderate Low SE 1C SE 2C SE 3C

SE 1A SE 1B SE 2A SE 2B

Moderate SE 3A SE 3B

Weak
Poor

SE 4A SE 4B
SE 5A SE 5B

SE 4C
SE 5C

CRISIL RATING PROCESS


For example, -A company with high Performance Capability and high Financial Strength will be rated as 'SE2A & -One with weak Performance Capability and low Financial Strength will be rated 'SE4C'.

CRISIL RATING PROCESS


4. Eligibility Any enterprise registered in India can benefit from this rating.