CREDIT RATING AGENCIES AND

RATING MODELS ADOPTED

UNDER INDIAN CONDITION

Presented by
Havish P D
4NM15MBA55
MEANING

A credit rating evaluates the credit worthiness of a debtor, especially

a business (company) or a government. It is an evaluation made by a credit
rating agency of the debtor's ability to pay back the debt and the likelihood
of default.

Credit ratings are determined by credit ratings agencies. The credit rating
represents the credit rating agency's evaluation of qualitative and quantitative
information for a company or government; including non-public information
obtained by the credit rating agencies analysts.
NEED OF CREDIT RATING
It is necessary in view of the growing number of cases of defaults in payment of interest

and repayment of principal sum borrowed by way of fixed deposits, issue of debentures or

preference shares or commercial papers.

Maintenance of investors confidence, since defaults shatter the confidence of investors in

corporate instruments.

Protect the interest of investors who can not into merits of the debt instruments of a

company.

Motivate savers to invest in industry and trade.

OBJECTIVE

The main objective is to provide superior and low cost info to investors for taking a
decision regarding risk return trade off, but it also helps to market
Improves a healthy discipline on borrowers,

Lends greater credence to financial and other representations,

Facilitates formulation of public guidelines on institutional investments,

Helps merchant bankers, brokers, regulatory authorities, etc., in discharging their functions
related to debt issues,

Encourages greater information disclosure, better accounting standards and improved

financial information (helps in investors protection),
TYPES

SOVEREIGN CREDIT RATING

SHORT TERM RATING

CORPORATE CREDIT RATINGS

 THERE ARE MAINLY 4 CREDIT RATING
AGENCIES IN INDIA
Credit Rating and Information Services of India Limited (CRISIL)

Investment Information and Credit rating agency (ICRA)

Credit Analysis & Research Ltd. (CARE)

ONICRA
Credit Rating and Information Services of India Limited (CRISIL)
It isIndias first credit rating agencywhich was incorporated andpromoted by the
erstwhile ICICI Ltd, along with UTIand other financial institutions in1987.

After 1 year, i.e. in 1988 it commenced its operations.

It has itshead office in Mumbai.

Investment Information and Credit rating agency (ICRA)

The second credit rating agency incorporated in India was ICRA in1991.

It was set up by leading financial/investment institutions, commercial

banks and financial services companies as an independent and
professional investment Information and Credit Rating Agency.
Credit Analysis & Research Ltd. (CARE)
The next credit rating agency to be set up was CARE in1993.
It is thesecond-largest credit rating agency in India.
It has itshead office in Mumbai.

ONICRA
It is aprivate sector agencyset up by Onida Finance.
It has itshead office in Gurgaon.
It provides ratings, risk assessment and analytical solutions to Individuals, MSMEs
and Corporates.
It isone of only 7 agencies licensed by NSIC(National Small Industries Corporation)
to rate SMEs.
The table below summaries the meanings of the comparative
ratings of the three major credit rating companies.
Moodys S&P Fitch Meaning

(Highest quality; EXTREMELY

Aaa AAA AAA STRONG capacity to meet financial
obligations.)

Aa1 AA+ AA+ (High quality; VERY STRONG capacity

to meet financial obligations. It differs

Aa2 AA AA
from

Aa3 AA- AA- the top-line rating only in small degree.)

(High quality; STRONG capacity to

A1 A+ A+
meet financial obligations

but is somewhat more susceptible to the

A2 A A
adverse effects
 of changes in circumstances and
A3 A- A-
economic conditions.)

(Medium grade; ADEQUATE capacity

Baa1 BBB+ BBB+
to meet financial obligations

but adverse conditions or changing

Baa2 BBB BBB
circumstances are more

likely to lead to a weakened capacity to

Baa3 BBB- BBB-
meet financial commitments.)

(Lower medium grade; LESS

Ba1 BB+ BB+
VULNERABLE but faces major

ongoing uncertainties and exposure to

Ba2 BB BB
adverse conditions which

could lead to inadequate capacity to

Ba3 BB- BB-
meet financial commitments.)

(Low grade; MORE VULNERABLE

B1 B+ B+
and adverse business,
 financial, or economic conditions
B2 B B
will likely impair its capacity

or willingness to meet financial

B3 B- B-
commitments.)

(Poor quality; CURRENTLY

VULNERABLE and dependent
Caa CCC CCC
upon favourable conditions to meet
commitments.)

(Poor quality; CURRENTLY

Ca CC CC
HIGHLY-VULNERABLE.)

(CURRENTLY HIGHLY-
C C VULNERABLE to non-
payment.)

(FAILED to pay one or more

C D D
of its financial obligations.)
CREDIT RATING PROCESS
BENEFITS OF CREDIT RATING
Improves Corporate Image
Lowers Cost of Borrowing
Wider Audience for Borrowing
Good for Non-Popular Companies
Act as a Marketing Tool
Helps in Growth and Expansion
THANK YOU