2. Content
1. Introduction
2. Registration of CRA
i.) Registration & Promoter
ii.) Promoter
iii.) Eligibility
iv.) Grant of certificate of registration
v.) Process
3. Indian CRA (CARE, ICRA, CRISIL)
4. International CRA (MOODY’s, FITCH, Standard & Poor’s)
5. Summary & Conclusion
3. Introduction
Credit rating agency means a body corporate which is engaged in
the business of rating of securities offered by companies.
The debt instruments rated by CRAs include government bonds,
corporate bonds, municipal bonds and collateralized securities,
such as mortgage-backed securities and collateralized debt
obligations.
According to CRISIL, credit rating is “an unbiased and
independent opinion as to issuer’s capacity to meet its financial
obligations. It does not constitute a recommendation to buy , sell
or hold a particular security”.
4. Registration
It may be noted that as per Section 12 of the SEBI Act, 1992, a person has to get
itself registered with SEBI under SEBI (Credit Rating Agencies) Regulations, 1999
in order to carry on the activities of Credit Rating.
Every CRA shall abide by the code of conduct contained in the Third Schedule to
SEBI (Credit Rating Agencies) Regulations, 1999.
It may be noted that SEBI (Credit Rating Agencies) Regulations, 1999 cover
rating of securities only and not rating of fixed deposits, foreign exchange,
country ratings, real estates, etc.
5. Promoter of Credit Rating Agency
I. A public financial institution;
II. A scheduled commercial bank;
III. A foreign bank operating in India with the approval of the Reserve
Bank of India
IV. A foreign credit rating agency recognized under Indian Law and
having at least five years experience in rating securities;
V. any company or a body corporate, having continuous net worth of
minimum rupees one hundred crores as per its audited annual
accounts for the previous five years in relation to the date on
which application to SEBI is made seeking registration.
6. Eligibility Criteria for CAR
Market regulator SEBI has enhanced the eligibility criteria for
credit rating agencies from the existing Rs 5 crore to Rs 25 crore.
The promoter of a CRA will maintain a minimum shareholding of
26% in a CAR for a minimum period of three years from the date
of grant of registration by the board.
7. Application for grant of certificate of CRA
Any person proposing to commence any activity as a credit rating agency on or
after the date of commencement of these regulations shall make an application
to the Board for the grant of a certificate of registration for the purpose.
Any person, who was immediately before the said date carrying on any
activity as a credit rating agency, shall make an application to the Board for
the grant of a certificate within a period of three months from such date:
Provided that the Board may, where it is of the opinion that it is necessary to
do so, for reasons to be recorded in writing, extend the said period upto a
maximum of six months form such date.
8. 1. Receipt of Request
from the company
2. Assignment to
Analytical Team
3. Collecting
Information and
conducting
Preliminary Analysis
6. Site visits and
interaction with
Management
5. Presentation of
Findings
4. Communication of
decision to the issuer
7. Dissemination to
the Public
8. Continuous
Monitoring
Credit Rating Process
9. CREDIT RATING METHODOLOGY
Steps:
Information is collected and then analysed by a team of professionals in an
agency.
If necessary, meetings with top management suppliers and dealers and a visit
to the plant of proposed sites are arranged to collect additional data. This
team of professionals submit their recommendations to the rating committee.
Committee discusses this report and then assigns rating.
Rating assigned is then notified to the issuer and only on his acceptance,
rating is published.
Assures confidentiality of information.
Once the issuer decides to use and publish the rating, agency has to
continuously monitor it over the entire life of instrument, called surveillance.
10. TYPES OF CREDIT RATINGS
1. SOVEREIGN CREDIT RATING
2. SHORT TERM RATING
3. CORPORATE CREDIT RATINGS
13. CRISIL
• CRISIL stands for Credit Rating Information Services of India Ltd.
• Promoted by ICICI Ltd. Along with UTI and some banks and insurance
companies as a public limited company. • Headquarter – Mumbai.
• Services offered are:
a)Credit rating services
b) Advisory services
c)Research and information services
• CRISIL is the largest credit rating agency in India and the market
leader.
• S & P is the major shareholder of CRISIL with a stake of 56.5%.
14. CRISIL DEBENTURE RATING SYMBOLS
SYMBOL SAFTY LEVEL
AAA HIGEST SAFETY
AA HIGH SAFETY
A ADEQUATE SAFETY
BBB MODERATE SAFETY
BB INADEQUATE SAFETY
B HIGH RISK
C SUBSTANTIAL RISK
D SUBSTANTIAL RISK
For Fixed Deposit letter “F” is added before the symbol of Debenture Symbol
15.
16. ICRA
• ICRA stands for Investment Information and Credit
Rating Agency Ltd.
• Promoted by IFCI,SBI,UTI(Unit Trust of
India),LIC,GIC(General Insurance
Corporation),HDFC,UCO bank etc.
• Moody’s Investors Service is the largest shareholder.
• Services rendered by ICRA are:
a. Rating services
b. Information services
c. Advisory services
17.
18. ICRA LONG-TERM DEBT INSTRUMENT RATING SYMBOLS
SYMBOL SAFETY LEVEL
L AAA HIGEST SAFETY
L AA HIGH SAFETY
L A ADEQUATE SAFETY
L BBB MODERATE SAFETY
L BB INADEQUATE SAFETY
L B HIGH RISK
L C SUBSTANTIAL RISK
L D SUBSTANTIAL RISK
19. ICRA MEDIUM-TERM INSTRUMENTS(ICLUDING FIXED DEPOSITS &
CERTIFICATES OF DEPOSITS)
SYMBOL SAFETY LEVEL
M AAA HIGEST SAFETY
M AA HIGH SAFETY
M A ADEQUATE SAFETY
M B INADEQUATE SAFETY
M C RISK PRONE
M D DEFAULT
20. ICRA SHORT-TERM INSTRUMENTS(INCLUDING COMMERCIAL PAPER) RATING
SYMBOLS
SYMBOLS SAFETY LEVEL
A 1 HIGEST SAFETY
A 2 HIGH SAFETY
A 3 MODERATE SAFETY
A 4 RISK PRONE
A 5 DEFAULT
21.
22. CARE
• Credit Analysis and Research Ltd
• Incorporated in 1993, is based in Mumbai
• Deals with advisory services, information and credit rating.
• Promoted by UTI, Canara Bank, IDBI and many other reputed banks
and companies dealing with financial services.
• VARIOUS SERVICES OFFERED ARE:
a) Rating Services
b) Credit Reports
c) Valuations
d) Credit Appraisal
e) Reviewing Debt Market
• In 1994 commenced publication of ‘CAREVIEW’ a quarterly journal
of CARE Ratings.
23.
24. CARE LONG-TERM AND MEDIUM-TERM INSTRUMENTS RATINGS SYMBOLS
SYMBOLS SAFETY LEVEL
CARE AAA HIGHEST SAFETY
CARE AA HIGH SAFETY
CARE A ADEQUATE SAFETY
CARE BBB MODERATE SAFETY
CARE BB INADEQUATE SAFETY
CARE B SUSCEPTIBLE TO DEFAULT
CARE C HIGH INVESTMENT RISK
CARE D DEFAULT OR LIKELY TO BE IN DEFAULT
25. CARE SHORT-TERM INSTRUMENTS RATING SYMBOLS
SYMBOLS SAFETY LEVEL
PR 1 HIGHEST SAFETY
PR 2 HIGH SAFETY
PR 3 ADEQUATE SAFETY
PR 4 INADEQUATE SAFETY
PR 5 DEFAULT OR LIKELY TO BE IN DEFAULT
28. MOODY’S INVESTORS SERVICES
• John Moody founded the Moody’s agency at the beginning
of the 20th century.
• It undertakes the rating of wide range of debt related
securities , international issues , commercial papers , etc.
Both in USA and international markets.
• Other services include- assessing financial strength of
insurance companies , mutual funds, banks , public utilities.
29. SYMBOLS SAFETY LEVEL
AAA Best Quality (Highly Intrinsic)
AA Quality (Highly Intrinsic)
A Good (Highly Intrinsic)
BAA Best Quality (medium-grade intrinsic)
BA Quality (medium-grade intrinsic)
B Good (medium-grade intrinsic)
CAA Speculative intrinsic
CA Expected to default
C Little prospect for recovery of
principal or interest.
BCA Scale
30.
31. STANDARD AND POOR’S CORPORATION(S &P)
• One of the first credit rating institutions which has a history of 157
years, founded in the year 1860.
• Offers rating on wide range of debt securities , both in the US and
overseas markets.
32. SYMBOL CAPACITY TO MEET OBLIGATION
AAA Extremely Strong
AA Very Strong
A Strong
BBB Weak
BB Economic Condition will effect
B Willingness to meet
CCC Not likely
CC Virtual Certainty
C Lower ultimate recovery
D Default
Long-Term Issue Credit Ratings
33. Short-Term Issue Credit Ratings
Symbols Safety level
A-1 Extremely Strong
A-2 Satisfactory
A-3 Good
B Inadequate Capacity
C Vulnerable
D Default
34.
35. The firm was founded by John Knowles Fitch on December 24, 1914 in New York
City as the Fitch Publishing Company.
Fitch Ratings Inc. is one of the "Big Three credit rating agencies”.
Fitch Ratings is dual-headquartered in New York, US, and London, UK.
Hearst owns 100 percent of the company following its acquisition of an
additional 20 percent for $2.8 billion on April 12, 2018.
FITCH
36. Investment Scale
SYMBOLS SAFETY LEVEL
AAA Best Quality
AA Quality
A Economic situation can affect finance
BBB Medium class companies, which are
satisfactory at the moment
BB More prone to changes in the
economy
B Financial situation varies noticeably
CCC Currently Vulnerable
CC Highly Vulnerable
C Highly Vulnerable
D Has defaulted on obligations
NR Not Publically Rated
37. Short-term credit ratings
SYMBOLS SAFETY LEVEL
F1+ Best Quality
F1 Quality
F2 Good
F3 fair quality
B Minimal capacity to meet its
commitment
C Financial commitment of the obligor are
dependent upon sustained, favorable
business and economic conditions
D Default
38. Summary & Conclusion
The credit rating provide us the following benefits:
1.Lower cost of borrowing
2.Wider audience for borrowing
3.Rating as marketing tool
4.Reduction of cost in public issues
5.Motivation for growth
6.Unknown issuer
7.Benefits to brokers and financial intermediaries
Hence, credit rating for any company matters alot.
