RAYAT SHIKSHAN SANSTHas KARMVEER BHAURAO PATIL COLLEGE, VASHI

PROJECT REPORT ON CREDIT RATING

Submitted to:
PROF. PRIYANKA

Submitted by:
BRIJESH GUPTA (ROLL NO. 15412) Rupesh more (Roll No. 15432) Avinash chourey (roll no.15404) Class: sybbi
1

INDEX
SR. NO. CONTENTS PAGE NO.
3-7
1 CREDIT RATINGS DEFINITION OF RATING MEANING OF CREDIT RATING FUNCTIONS OF CREDIT RATING BENEFICIARIES OF CREDIT RATING INVESTORS ISSUERS

2 CRISIL
ICRA HISTORY FACTOR PRODUCTS & SERVICES ARE DESIGNED

8-12

3 CARE
OUR VISION OUR MISSION OUR VALUES WHY CARE RATING LIMITATIONS OF CREDIT RATING

13-17

Credit ratings
Presented by
brijesh gupta
3

Definition of Ratings:
Rating means an opinion regarding securities, expressed in the form of standard symbols or in any other standardized manner, assigned by the credit rating agency and used by the issuer of such securities, to comply with a requirement specified by SEBI regulation.

Credit Ratings :
Credit rating agency (CRA) is a company that Assigns credit rating 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. In most cases, the issuers of securities are companies, special purpose entities, state and local governments, non-profit organizations, or national governments issuing debt-like securities (i.e.,bonds) that can be traded on a secondary market. A credit rating for an issuer takes into consideration the issuer's credit worthiness (i.e., its ability to pay back a loan), and affects the interest rate applied to the particular security being issued.

Functions Of Credit Rating :

1. Credit rating agencies are a broad category of agencies that analyze the finances of various parties to determine how credit worthy they are.

2. This information is used by companies and individuals, who offer loans, invest in securities or offer other lines of credit to determine which clients to accept and what interest rates to charge.

3. The primary function of the credit rating agencies is to provide credit ratings to the service providers of various forms of debt products and services.

4. They are also meant to provide ratings to the debt instruments being provided by these service providers.

5. The clients of the credit rating agencies are those entities that deal in the provision of debt products and services. At times, it has been observed that the companies that provide debt products and services are rating the debt instruments by them.

Beneficiaries and Benefits of Credit Rating :

Investors : 1. Helps in Investment Decision: Credit rating gives an idea to the investors about the credibility of the issuer company, and the risk factor attached to a particular instrument. So the investors can decide whether to invest in such companies or not. Higher the rating, the more will be the willingness to invest in these instruments and vice-versa. 2. Benefits of Rating Reviews: The rating agency regularly reviews the rating given to a particular instrument. So, the present investors can decide whether to keep the instrument or to sell it. For e.g. if the instrument is downgraded, then the investor may decide to sell it and if the rating is maintained or upgraded, he may decide to keep the instrument until the next rating or maturity. 3. Assurance of Safety: High credit rating gives assurance to the investors about the safety of the instrument and minimum risk of bankruptcy. The companies which get a high rating for their instruments will try to maintain healthy financial discipline. This will protect them from bankruptcy. So the investors will be safe. 4. Easy Understandability of Investment Proposal: The rating agencies give rating symbols to the instrument, which can be easily understood by investors. This helps them to understand the investment proposal of an issuer company. For e.g. AAA (Triple A), given by CRISIL for debentures ensures highest safety, whereas debentures rated D are in default or expect to default on maturity. 5. Choice of Instruments: Credit rating enables an investor to select a particular instrument from many alternatives available. This choice depends upon the safety or risk of the instrument. 6. Saves Investor's Time and Effort: Credit ratings enable an investor to his save time and effort in analyzing the financial strength of an issuer company. This is because the investor can depend on the rating done by professional rating agency, in order to take an investment decision. He need not waste his time and effort to collect and analyze the financial information about the credit standing of the issuer company.

Issuers: 1.Improves Corporate Image : Credit rating helps to improve the corporate image of a company. High credit rating creates confidence and trust in the minds of the investors about the company. Therefore, the company enjoys a good corporate image in the market. 2.Lowers Cost of Borrowing : Companies that have high credit rating for their debt instruments will get funds at lower costs from the market. High rating will enable the company to offer low interest rates on fixed deposits, debentures and other debt securities. The investors will accept low interest rates because they prefer low risk instruments. A company with high rating for its instruments can reduce the cost of public issue to raise funds, because it need not spend heavily on advertising for attracting investors. 3.Wider Audience for Borrowing : A company with high rating for its instruments can get a wider audience for borrowing. It can approach financial institutions, banks, investing companies. This is because the credit ratings are easily understood not only by the financial institutions and banks, but also by the general public. 4.Good for Non-Popular Companies : Credit rating is beneficial to the non-popular companies, such as closely-held companies. If the credit rating is good, the public will invest in these companies, even if they do not know these companies. 5.Act as a Marketing Tool : Credit rating not only helps to develop a good image of the company among the investors, but also among the customers, dealers, suppliers, etc. High credit rating can act as a marketing tool to develop confidence in the minds of customers, dealer, suppliers, etc. 6.Helps in Growth and Expansion : Credit rating enables a company to grow and expand. This is because better credit rating will enable a company to get finance easily for growth and expansion.

Crisil
Presented by
rupesh more

CRISIL :
A CRISIL rating reflects CRISIL's current opinion on the relative likelihood of timely payment of interest and principal on the rated obligation. It is an unbiased, objective, and independent opinion as to the issuer's capacity to meet its financial obligations. So far, CRISIL has rated 30,000 debt instruments, covering the entire debt market. CRISIL Ratings' clientele includes all the industry majors - 23 of the BSE Sensex constituent companies and 39 of the NSE Nifty constituent companies, accounting for 80 per cent of the equity market capitalization, are CRISIL's clients.

CRISIL's credit ratings are :

An opinion on probability of default on the rated obligation Forward looking Specific to the obligation being rated

But they are not :

A comment on the issuer's general performance An indication of the potential price of the issuers' bonds or equity shares Indicative of the suitability of the issue to the investor A recommendation to buy/sell/hold a particular security A statutory or non-statutory audit of the issuer An opinion on the associates, affiliates, or group companies, or the promoters, directors, or officers of the issuer

CRISIL rates a wide range of entities, including :

Industrial companies Banks Non-banking financial companies (NBFCs) Infrastructure entities Microfinance institutions Insurance companies Mutual funds State governments Urban local bodies

Who We Are:
CRISIL is a global analytical company providing ratings, research, and risk and policy advisory services. We are India's leading ratings agency. We are also the foremost provider of highend research to the world's largest banks and leading corporations. Our defining trait is our ability to convert data and information into expert judgements and forecasts across a wide range of domains, with deep expertise and complete objectivity.

Who We Serve:
We address a rich and globally diversified client base. Within India our customers range from small enterprises to the largest corporations and financial institutions; outside India our customers include the worlds largest banks and leading corporations. We also work with governments and policy-makers in India and other emerging markets in the infrastructure domain

10

ICRA: HISTORY:
ICRA Limited (ICRA) is one of India's premier financial information services company. It offers credit rating information and professional financial consulting services across India, as well as in the Asia-Pacific region through its subsidiaries ICRA Limited, was established in 1991, and was originally named Investment Information and Credit Rating Agency of India Limited (IICRA India). It was a joint-venture between Moody's and various Indian commercial banks and financial services companies. The company changed its name to ICRA Limited, and went public on 13 April 1997, with a listing on the Exchange and the National Stock Exchange. Moody's continues to be the largest single shareholder in ICRA. ICRA has a pan-India presence and has offices in 8 locations. Apart from the four metros, it has offices in Pune, Ahmedabad, Bangalore and Hyderabad.

The ICRA Factor:

1.Facilitating Efficiency in Business : ICRA information products, Ratings, and solutions reflect independent, professional and impartial opinions, which assist businesses enhance the quality of their decisions and help issuers access a broader investor base and even lesser known companies approach the money and capital markets.

2. The Research Factor : We strongly believe that the quality of analytical output is a derivative of an organizations research capabilities. We have dedicated teams for Monetary, Fiscal, Industry and Sector research, and a panel of Advisors to enhance our inhouse capabilities. Our research base enables us to maintain the highest standards of quality and credibility.

11

3. Committed to the Development of the Financial Market: The focus of ICRA in the coming years will continue to be on developing innovative concepts and products in a dynamic market environment, generating and promoting wider investor awareness and interest, enhancing efficiency and transparency in the financial market, and providing a healthier environment for market participants and regulators.

Our Products and Services are designed to:

1. Provide information investors/creditors; and guidance to institutional and individual

2. Enhance the ability of borrowers/issuers to access the money market and the capital market for tapping a larger volume of resources from a wider range of the investing public; 3. Assist the regulators in promoting transparency in the financial markets; and 4. Provide intermediaries with a tool to improve efficiency in the funds raising process.

12

care
Presented by
avinash chourey

13

CARE:
CARE is a leading credit rating company headquartered in Mumbai, India, promoted by leading Banks and Financial Institutions (FIs). The three largest shareholders of CARE are IDBI Bank, Canara Bank and State Bank of India. CARE commenced its operations in October 1993 and announced its first rating in November 1993. CAREs ratings are recognized by Government of India (GoI) and all regulatory authorities in India including Reserve Bank of India (RBI), and Securities and Exchange Board of India (SEBI).

OUR VISION:

To be a respected company that provides best - in its field quality and value services

OUR MISSION:

To offer a range of high-quality services to all the stakeholders in the capital market To build a pre-eminent position for ourselves in India in securities analysis, research and information services and to be an international credit rating agency To earn customer satisfaction and investor confidence through fairness and professional excellence To remain deeply committed to our internal and external stakeholders To apply the best possible tools & techniques for securities analysis aimed to ensure efficiency and top quality

14

OUR VALUES:

Integrity and Transparency: Commitment to be ethical, sincere and open in our dealings Pursuit of Excellence: Committed to strive relentlessly to constantly improve ourselves Fairness: Treat clients, employees and other stakeholders fairly Independence: Unbiased and fearless in expressing our opinion Thoroughness: Rigorous analysis and research on every assignment that we take

Why CARE Rating:

Regulatory Recognition: CARE's Ratings are recognized by regulatory agencies in India and Maldives. CARE is registered with the Securities and Exchange Board of India. CARE Ratings are also recognized by RBI, NABARD, NHB and NSIC in India. RBI has also recognized CARE Ratings as an eligible external credit rating agency for the purpose of Basel II implementation in India. Independent: CARE is an independent rating agency promoted by major banks and financial institutions in India. The three largest shareholders of CARE are IDBI Bank, Canara Bank and State Bank of India. CARE is a board managed company with eminent professionals on the board. The entire Board comprises of Independent Directors. CARE is the only rating agency in India which operates with an independent rating committee comprising of senior and reputed professionals.

15

Professional: CARE Ratings endeavor has been to provide investors and risk managers with independent, authentic and insightful credit opinions based on detailed in-depth research, which encompasses detailed analysis of risks that affect credit quality of an issuer. CARE's analyst strength consists of large number of well qualified and multi-faceted professionals from diverse backgrounds such as; financial analysts, economists, sector specialists, chartered accountants, chartered financial analysts and financial risk managers. Experienced: CARE has more than a decade long experience in rating various types of instruments. CARE has a unique understanding of the economies in which it operates and in terms of their financial profile, cultural & value systems and local businesses. Wide Sectoral Coverage : CARE is a full service rating company offering a wide range of rating and grading services which includes rating debt instruments/enterprise ratings of Corporate, Banks, Financial Institutions (FIs), Public Sector Undertakings (PSUs), State Government Bodies, Municipal Corporations, Non-banking Finance Companies (NBFCs), SMEs, Micro finance Institutions, Structured Finance Securitization Transactions etc.

16

Limitations of Credit Rating:

1. Possibility of Bias Exist: The information collected by the rating agency may be subject to personal bias of the rating team. However, rating agencies try their best to provide an unbiased opinion of the credit quality of the company and/or instrument. If not, they will not be trusted. 2. Improper Disclosure May Happen: The company being rated may not disclose certain material facts to the investigating team of the rating agency. This can affect the quality of credit rating. 3. Impact of Changing Environment: Rating is done based on present and past data of the company. So, it will be difficult to predict the future financial position of the company. Many changes take place due to changes in economic, political, social, technological, legal and other environments. All this will affect the working of the company being rated. Therefore, rating is not a guarantee for financial soundness of the company. 4. Problems for New Companies: There may be problems for new companies to collect funds from the market. This is because; a new company may not be in a position to prove its financial soundness. Therefore, it may receive lower credit ratings. This will make it difficult to collect funds from the market. 5. Downgrading by Rating Agency: The credit-rating agencies periodically review the ratings given to a particular instrument. If the performance of a company is not as expected, then the rating agency will downgrade the instrument. This will affect the image of the company.

6. Difference in Rating: There are cases, where different ratings are provided by various rating agencies for the same instrument. These differences may be due to many reasons. This will create confusion in the minds of the investor.

17