CREDIT RATING AGENCIES IN CREDIT RATING AGENCIES INDIA IN INDIA

By: Pankaj Jain Muzammill Qureshi By: Panda Jain

Introduction to Credit Rating

A credit rating assesses the credit worthiness of an individual, corporation, or even a country. It known as an evaluation of a potential borrower's ability to repay debt, prepared by a credit bureau at the request of the lender. Credit ratings are calculated from financial history and current assets and liabilities Poor credit rating indicates high risk of defaulting loan

Need for Credit rating

Growing number of cases of defaults in payment of interest and repayment of principal sum borrowed Maintenance of investors confidence, since defaults shatter the confidence of investors in corporate instruments Protect the interest of investors Motivate savers to invest in industry and trade Credit rating shows the exact worth of the organization.

Ratings Rewarded By Major Credit Rating Agencies

High investment grades: AAA & AA - Highest safety A - Adequate safety

Speculative grades :
BBB Sufficient safety BB -Inadequate safety B - High risk C - Substantial risk D - Default

Who uses Credit Rating?

Investors-

In absence of credit rating system, risk evaluation depends on name recognition

Credit rating helps investors in selecting appropriate instrument from broad spectrum of investment options. Banks use ratings of other banks for decisions regarding interbank lending, swap agreements, etc.

Credit rating agencies also provides services ice industry reports, corporate reports, seminars and open access to the analysts of the agencies.

 IssuersCompared to unrated securities, issuers of rated securities have access to much wider investor base & more faith is placed.
Investor confidence enables issuers of highly rated instruments to access market even under adverse market conditions. IntermediariesMerchant bankers use rating for planning, pricing, underwriting, placement. Brokers and dealers in securities use rating as an input for their monitoring of risk exposures

 RegulatorsRestrict entry to market of new issues rated bellow a particular grade. Prohibit investors from purchasing or holding of instruments rated bellow a particular level

What can be Credit Rated ?

INDIVIDUAL

CORPORATE
SOVEREIGN (i.e. A Country) FINANCIAL INSTRUMENTS Bonds Bank Deposits Commercial Paper Term Loans Preference Shares Secured Debt Unsecured Debt Securities

Credit Rating Agencies in India

CRISIL ( Credit Rating Information Services of India Limited) Moodys Corporation Fitch Ratings CARE (Credit Analysis & Research Ltd) ICRA (Investment information and Credit Rating Agency Limited)

ONICRA Credit Rating Agency of India, Ltd

Brickwork Ratings India Put Ltd

Products & Services Offered

Credit ratings: Bonds/Long Term Instrument Commercial Paper/Short Term Instrument Structured Finance Bank Loan ratings

SME ratings Real Estate Ratings Business Schools Ratings

Other Ratings Broker Quality Grading Financial Strength Ratings Fund Ratings

GVC Ratings (Governance & value creation) Maritime Grading MFI Grading ( Microfinance Institution) Project Credit Ratings Recovery Risk Ratings

GRAs V/s NRAs

GRAs have emerged as key players in the functioning of international financial markets NRAs do not have long tradition and reputation as GRAs

NRAs may increase the number of rated entities

Since compared to GRAs they seem to specialize in rating smallersized and less internationalized entities and also charge lower rating fees

Credit rating Agencies In India

Credit Rating Information Services of India Ltd. (CRISIL) (1987)

Investment Information and Credit Rating Agency of India (ICRA) (1991)

Credit Analysis & Research Ltd. (CARE) (1994)

Fitch India

Brickworks(2007)

Credit Rating Information Services of India Ltd. (CRISIL)

CRISIL was incorporated in 1987 Promoted by many financial institution Largest rating agency in india with 75% market share Now CRISIL is an S&P company with a majority shareholding Subsidiaries Crisil rating Crisil global research and analytics Crisil research Capital market Crisil infrastructure Risk management services

ICRA (formerly Investment Information and Credit Rating Agency of India Limited)
ICRA was set up by IFCI(Industrial Finance Corporation of India) on 16th January1991. ICRA Limited is in Alliance with Moody's Investors Service and ICRA s largest shareholder. a public limited company major shareholders are UTI,LIC,GIC,PNB,SBI,Central Bank of India, Bank of Baroda, UCO Bank Rating

Mutual Fund Rating SME Rating Credit Rating Corporate Debt Rating Insurance Sector Rating Infrastructure Sector Rating
Grading

Grading of IPO Microfinance Institutions Colleges/Universities Construction Grading Real Estate Grading

CARE
inception in April 1993 promoted by IDBI CARE Ratings has completed over 13023 rating assignments having aggregate value of about Rs. 36653 bn Services such as Grading, Rating, Research

FITCH INDIA
Fitch India ,a 100% subsidiary of Fitch

BRICKWORKS
Incorporated in 2007

Future of CRAs
Growth in Financial market Money market Capital market Primary market Secondary market

Career Opportunities:
Financial analyst Rating analyst Credit analyst Business analyst Internships/Apprentice Research analyst