DISSERTATION PROJECT REPORT

ON

ROLE OF CREDIT RATING AGENCIES IN INDIA

Submitted in partial fulfillment of the requirements of

Post Graduate Diploma in Management (PGDM)

By

SNEHA SEKAR

2015-2017

PGDM-95

Bharatiya Vidya Bhavans

Usha & Lakshmi Mittal Institute of Management

Copernicus Lane, Kasturba Gandhi Marg

New Delhi
 DECLARATION FORM

I hereby declare that the Project work titled Role of credit rating agencies in India, submitted
by me for the Dissertation during the Post Graduate Diploma in Management to Bharatiya
Vidya Bhavans Usha & Lakshmi Mittal Institute of Management (BULMIM) is my own
original work and has not been submitted earlier either to BULMIM or to any other Institution
for the fulfillment of the requirement for any of theirs study. I also declare that no chapter of this
manuscript in whole or in part is lifted and incorporated in this report from any earlier / other
work done by me or others.

Signature of Student: _____________ Signature of Faculty Mentor: ___________

Name of Student: SNEHA SEKAR Name: Ms. NIDHI SAHORE
Batch: 2015-17 Designation: Assistant Professor
Date: Date:
Place: New-Delhi Place: New-Delhi
 ACKNOWLEDGEMENT

I wish to put on record my sincere gratitude to the following person without whose support the
completion of this project would not have been possible.

With immense pleasure I am to present this project on Role of credit rating agencies in
India.

I want to thank Ms. Nidhi Sahore, Factory Mentor, for helping me and training me efficiently
and for providing me opportunities, guiding & encouraging in working in this project.

My heartiest thanks to my parents who have been always a source of unfailing support &
encouragement in all the conditions of my life.
 EXECUTIVE SUMMARY

The project entitled Credit Rating gives you an insight to the most important concept in any
industry, be it service oriented or a manufacturing firm i.e. working capital.

Credit rating is a qualified assessment and formal evaluation of companys credit history and
capability of repaying obligations. It measures the default probability of the borrower, and its
ability to repay fully and timely its financial debt obligations.

The main purpose of credit rating is to provide investors with comparable information on credit
risk based on standard rating scale, regardless of specifics of companies, separate sector of the
economy and country as a whole.

Credit rating has proven itself to be effective instrument of risk assessment in countries with
advanced economy since it demonstrates transparency of an enterprise. Credit rating reflects
financial, sectoral, operational, legal and organizational sides of companies, which characterize
ability and willingness duly and in full amount to repay obligations.

In world practice, credit rating can be assigned to sovereign governments, regional and local
executive bodies, corporations, financial organizations and etc.

Different Types of Credit Rating are explained in this project. Functions of Credit Rating are
highlighted.

Various advantages and limitation to Credit Rating are highlighted.

This project has also covered the Rating Process, Rating Symbols for short term debentures n
long term bonds, Rating Methodology, of various rating agencies like CRISIL, ICRA, SMERA,
ONICRA, CARE and International Rating Agency.

IPO Grading has also been included in this project.

 TABLE OF CONTENT

PAGE
R.NO PARTICULARS
NO.
 OBJECTIVES OF THE STUDY

To study about the Credit Rating Agencies in India

To find out the future prospective of the industry through Comparative Statement analysis
(Balance sheet & income statement).
To determine the importance of the industry

INTRODUCTION
Definition

CREDIT RATING

It is the evaluation of people or businesses' ability and past performance in paying debts. A credit
rating is generally established by a credit bureau and used by merchants, suppliers, and bankers
to determine whether a loan should be granted or credit extended.

A rating is an opinion on the future ability and legal obligation of the issuer to make timely
payments of principal and interest on a specific fixed income security. The rating measures
the probability that the issuer will default on the security over its life, which depending on the
instrument may be a matter of days to 30 years or more. In addition, long term ratings
incorporate an assessment of the expected monetary loss should a default occur."

"Credit ratings help investors by providing an easily recognizable, simple tool that couples a
possibly unknown issuer with an informative and meaningful symbol of credit quality."
Standard and Poors

Ratings, usually expressed in alphabetical or alphanumeric symbols, are a simple and easily
understood tool enabling the investor to differentiate between debt instruments based on their
underlying credit quality. The credit rating is thus a symbolic indicator of the current opinion
of the relative capability of the issuer to service its debt obligation in a timely fashion, with
specific reference to the instrument being rated. It is focused on communicating to the
investors, the relative ranking of the default loss probability for a given fixed income
investment, in comparison with other rated instruments.

In fact, the rating is an opinion on the future ability and legal obligation of the issuer to make
timely payments of principal and interest on a specific fixed income security. The rating
measures the probability that the issuer will default on the security over its life, which
depending on the instrument may be a matter of days to 30 years or more. In addition, long-
term rating incorporates an assessment of the expected monetary loss should a default occur.
Credit rating helps investors by providing an easily recognizable, simple tool that couples a
possible unknown issuer with an informative and meaningful symbol of credit quality. Credit
rating can be defined as an expression, through use of symbols, of the opinion about credit
quality of the issuer of security/instrument. Credit rating does not amount to any
recommendation to purchase, sell or hold that security. It is concerned with an act of
assigning values by estimating worth or reputation of solvency, and honesty to repose trust in
a person's ability and intention to repay.

The ratings assigned are generally regarded in the investment community as an objective
evaluation of the probability that a borrower will default on a given security issue. Default
occurs whenever a security issuer is late in making one or more payments that it is legally
obligated to make. In the case of a bond, when any interest or principal payment falls due and
is not made on time, the bond is legally in default. While many defaulted bonds ultimately
resume the payment of principal and interest, others never do, and the issuing company winds
up in bankruptcy proceedings. In most instances, holders of bonds issued by a bankrupt
company receive only a part amount on his investments, invested, once the company's assets
are sold at auction. Thus, the investor who holds title to bankrupt bonds typically loses both
principal and interest. It is no wonder, then, that security ratings are so closely followed by
investors. In fact, many investors accept the ratings assigned by credit agencies as a substitute
for their own investigation of a security's investment quality.

Credit Rating Function

 1) Credit rating plays an important role in developed and developing capital markets
throughout the world.

2) The use of ratings fosters growth in local and international markets, and streamlines their
functioning.

3) Capital markets currently include bonds and other bond-like instruments guaranteeing a
fixed income amounting to an aggregate total of over $80 trillion.

4) Ratings serve a wide array of players in the capital market.

5) The service is designed first and foremost to provide reliable ratings to fulfill the needs of
investors interested in obtaining a reliable, independent estimate of a companys credit risk,
of issuers and borrowers seeking flexible sources of financing on the capital market and
brokering entities enjoying this service namely: savers, governments, economists, the
financial media and other observers.

Clients for Credit Rating

Clients comprise manufacturing companies, non-banking finance companies, nationalized and
private banks, financial institutions, public sector units, utilities, real estate developers, state
governments, municipal corporations, stock brokers and others.
EVOLUTION OF CREDIT RATING AGENCIES:

The origins of credit rating can be traced to the 1840's. Following the financial crisis of 1837,
Louis Tappan established the first mercantile credit agency in New York in 1841. The agency
rated the ability of merchants to pay their financial obligations. Robert Dun subsequently
acquired it and its first rating guide was published in 1859. John Bradstreet set up another
similar agency in 1849, which published a rating book in 1857. These two agencies were
merged together to form Dun and Bradstreet in 1933, which became the owner of Moody's
Investors Service in 1962.

The history of Moody's itself goes back about 100 years. John Moody (1868 - 1958) was a
self-taught reformer who had a strong entrepreneurial drive and a firm belief about the needs
of the investment community - as well as considerable journalistic talent. Relying on his
assessment of the markets needs, John Moody and Company published Moodys Manual of
Industrial and Miscellaneous Securities in 1900, the companys founding year. The manual
provided information and statistics on stocks and bonds of financial institutions, government
agencies, manufacturing, mining, utilities, and food companies. Within two months, the
publication had sold out. By 1903, circulation had exploded, and Moodys Manual was known
from coast to coast.

When the stock market crashed in 1907, Moodys company did not have adequate capital to
survive, and he was forced to sell his manual business. Moody returned to the financial
market in 1909 with a new idea. Instead of simply collecting information on the property,
capitalization, and management of companies, he now offered investors an analysis of
security values. His company would publish a book that analyzed the railroads and their
outstanding securities. It offered concise conclusions about their relative investment quality.
He expressed his conclusions using letter-rating symbols adopted from the mercantile and
credit rating system that had been used by the credit-reporting firms since the late 1800s.
Moody had now entered the business of analyzing the stocks and bonds of Americas
railroads, and with this endeavor, he became the first to rate public market securities. In 1909,
Moodys Analyses of Railroad Investments described for readers the analytic principles that
Moody used to assess a railroads operations, management, and finance. The new manual
quickly found a place in investors hands. In 1913, he expanded his base of analyzed
companies, launching his evaluation of industrial companies and utilities. By that time, the
"Moody's ratings" had become a factor in the bond market. On July 1, 1914, Moody's
Investors Service was incorporated. That same year, Moody began expanding rating coverage
to bonds issued by US cities and other municipalities.

Further expansion of the credit rating industry took place in 1916, when the Poor's Publishing
Company published its first rating followed by the Standard Statistics Company in 1922, and
Fitch Publishing Company in 1924. The Standard Statistics Company merged in 1941 to form
Standard and Poor's, which was subsequently taken, over by McGraw Hill in 1966. For
almost 50 years, since the setting up of Fitch Publishing in 1924, there were no major new
entrants in the field of credit rating and then in the 1970s, a number of credit rating agencies
commenced operations all over the world. These included the Canadian Bond Rating Service
(1972), Thomson Bankwatch (1974), Japanese Bond Rating Institute (1975), McCarthy
Crisani and Maffei (1975 acquired by Duff and Phelps in 1991), Dominican Bond Rating
Service (1997), IBCA Limited (1978), and Duff and Phelps Credit Rating Company (1980).
There are credit rating agencies in operation in many other countries such as Malaysia,
Philippines, Mexico, Indonesia, Pakistan, Cyprus, Korea, Thailand and Australia.

In India, the Credit Rating and Information Services of India Ltd. (CRISIL) was set up as the
first rating agency in 1987, followed by ICRA Ltd. (formerly known as Investment
Information and Credit Rating Agency of India Limited) in 1991, and Credit Analysis and
Research Ltd. (CARE) in 1994. The ownership pattern of all the three agencies is
institutional. Duff and Phelps has tied up with two Indian NBFCs to set up Duff and Phelps
Credit Rating India (P) Limited in 1996.
RESEARCH METHODOLOGY:
The information is collected through secondary sources during the period of internship.

Secondary Data:
The secondary data has been collected from various reference books and websites which have
been mentioned in the bibliography at the end of the project.

Exploratory Research type is being used, as I had conducted an in-depth research in

the credit agencies in India, by using the data of institutes. Data are taken on the
Judgmental basis.

Sampling Elements:-The data of company websites, articles, magazines.

Research Tools:- I have used seven tools under this project:

Company Websites
Investors Presentations
Annual Reports
Association
 RESEARCH DESIGN

The first step of the research

was to understand the need,
UNDERSTANDING THE NEED why was it necessary to do
the research

The data was collected from

company websites and other
COLLECTING THE FACT financial statements of the
company

The data which was been

collected was analyzed,
ANLYSING & SYNTHESING filtered according to the
THE FACTS study

The results are prepared

using the tools provided by
PREPARE THE RESULTS the institution

Look for other possible

explanations. Generalize to
the real world. Suggestions
CONCLUSION
to further research.
FACTORS AFEECTING ASSIGNED RATINGS
The following factors generally influence the ratings to be assigned by a credit rating agency:

1 The security issuers ability to service its debt. In order, they calculate the past and likely
future cash flows and compare with fixed interest obligations of the issuer.

2 The volume and composition of outstanding debt.

3 The stability of the future cash flows and earning capacity of company.

4 The interest coverage ratio i.e. how many number of times the issuer is able to meet its
fixed interest obligations.

5 Ratio of current assets to current liabilities (i.e. current ratio (CR) is calculated to assess
the liquidity position of the issuing firm.

6 The value of assets pledged as collateral security and the securitys priority of claim
against the issuing firms assets.

7 Market position of the company products is judged by the demand for the products,
competitors market share, distribution channels etc.

8 Operational efficiency is judged by capacity utilization, prospects of expansion,

modernization and diversification, availability of raw material etc.

9 Track record of promoters, directors and expertise of staff also affect the rating of a
company...

In the Indian context, the scope of credit rating is limited generally to debt, commercial paper,
fixed deposits and of late mutual funds as well. Therefore, it is the instrument, which is rated,
and not the company.

In other words, credit quality is not general evaluation of issuing organization, i.e. if debt of
company XYZ is rated AAA and debt of company ABC is rated BBB, then it does not mean firm
XYZ is better than firm ABC. However, the issuer company gets strength and credibility with the
grade of rating awarded to the credit instrument it intends to issue to the public to raise funds.
Rating, in a way, reflects the issuer's strength and soundness of operations and management. It
expresses a view on its prospective composite performance and the organizational behavior
based on the study of past results.
Further, the rating will differ for different instruments to be issued by the same company, within
the same time span. For example, credit rating for a debenture issue will differ from that of a
commercial paper or certificate of deposit for the same company because the nature of obligation
is different in each case. Credit rating has been made mandatory for issuance of the following
instruments

1 As per the regulations of Securities and Exchange Board of India (SEBI) public issue of
debentures and bonds convertible/ redeemable beyond a period of 18 months need credit
rating.

2 As per the guidelines of Reserve Bank of India (RBI), one of the conditions for issuance
of Commercial Paper in India is that the issue must have a rating not below the P2 grade
from CRISIL/A2 grade from ICRA/PR2 from CARE.

3 As per the guidelines of Reserve Bank of India (RBI), Non Banking Finance Companies
(NBFCs) having net owned funds of more than Rs.2 core must get their fixed deposit
programmers rated. The minimum rating required by the NBFCs to be eligible to raise
fixed deposits are FA (-) from CRISIL/ MA (-) from ICRA/BBB from CARE. Similar
regulations have been introduced by National Housing Bank (NHB) for housing finance
companies also.

4 As per the regulations of the Ministry of Petroleum, the parallel marketers of Liquefied
Petroleum Gas (LPG) and Superior Kerosene Oil (SKO) in India are also subjected to
mandatory rating. The three rating agencies have a common approach for such rating and
the dealers are categorized into four grades between 1 to 4 indicating good, satisfactory,
low risk and high risk.

5 There is a proposal for making the rating of fixed deposit programmers of limited
companies, other than NBFCs also mandatory, by amendment of the companies Act
1956.
FUNCTIONS, BENEFITS AND DISADVANTAGES

Credit rating agencies serves the following functions:

(1) Provides superior Information

It provides superior information on credit risk for three reasons:

(i) It is an independent rating agency, and is likely to provide an unbiased opinion; unlike
brokers, financial intermediaries and underwriters who have a vested interest in the issue,

(ii) Due to professional and highly trained staff, their ability to assess risk is better, and
finally,

(iii) The rating firm has access to a lot of information, which may not be publicly available.

(2) Low cost information

A rating firm gathers, analyses, interprets and summarizes complex information in a simple
and readily understood formal manner. It is highly welcome by most investors who find it
prohibitively expensive and simply impossible to do such credit evaluation of their own.

(3) Basis for a proper risk and return

If an instrument is rated by a credit rating agency, then such instrument enjoys higher
confidence from investors. Investors have some idea as to what is the risk that he/she is likely
to take, if investment is done in that security.
(4) Healthy discipline on corporate borrowers

Higher credit rating to any credit investment tends to enhance the corporate image and
visibility and hence it induces a healthy discipline on corporate.

(5) Greater credence to financial and other representation

When a credit rating agency rates a security, its own reputation is at stake.

Therefore, it seeks high quality financial and other information. As the issue complies with
the demands of the credit rating agency on a continuing basis, its financial and other
representations acquire greater credibility.

(6) Formation of public policy

Public policy guidelines on what kinds of securities are eligible for inclusions in different
kinds of institutional portfolios can be developed with greater confidence if debt securities are
rated professionally.
Benefits of credit rating

For different classes of persons different benefits accrue from the use of rated instruments.
The benefits directly accruing to investors through rated instruments are:

(A)BENEFITS OF CREDIT RATINGS:

(A) Benefits of ratings to the investors

Investors are benefited in many ways if the corporate security in which they intend to invest
their saving has been rated. Some of the benefits are:

(1) Safeguards against bankruptcy

Credit rating of an instrument done by a credit rating agency gives an idea to the investors
about the degree of financial strength of the issuing company, which enables him to decide
about the investment. A highly rated instrument of a company gives an assurance to the
investors of the safety of that instrument and a minimum risk of bankruptcy.

(2) Recognition of risk

Credit rating provides investors with rating symbols that carry information in easily
recognizable manner for the benefit of investors to perceive the risk involved in the
investment. It becomes easier for the investors by looking at the symbol to understand the
worth of the issuing company. The rating symbol gives them the idea about the risk involved
or the expected advantages from the investment.
(3) Credibility of issuer

Rating gives a clue about the credibility of the issuing company. The rating agency is quite
independent of the issuer company and has no business connections or any relationship with it
or its Board of Directors, etc. Absence of business links between the rater and the rated firms
establish ground for credibility and attract investors.

(4) Easy understandability of investment proposal

An investor needs no analytical knowledge on his part and can understand the rating symbol.
The investor can take quick decisions about the investment to be made in any particular rated
security of a company.

(5) Saving of resources

Investors rely upon credit rating. This relieves investors from botheration of knowing about
the fundamentals of a company, its actual strength, financial standing, management details,
etc.

The quality of credit rating done by professional experts of the credit rating agency repose
confidence in him to rely upon the rating for taking investment decisions.

(6) Independence of investment decisions

For making investment decisions, investors have to seek advice of financial intermediaries,
the stockbrokers, merchant bankers, the portfolio managers etc. about the good investment
proposal. For rated instruments, investors need not depend upon the advice of these financial
intermediaries as the rating symbol assigned to a particular instrument suggests the credit
worthiness of the instrument and indicates the degree of risk involved in it.
(7) Choice of investments

Several alternative credit rating instruments are available at a particular point of time for
investing in the capital market and the investors can make choice depending upon their own
risk profile and diversification plan.

(8) Other advantages

The investor can quickly understand the credit instrument and weigh the ratings with
advantages from instruments; and make quick decisions to invest or sell or buy securities to
take advantages of market conditions; or, perceiving of default risk by the company.

(B) Benefits of rating to the company

Company which had its credit instrument or security rated by a credit rating agency is benefited in
many ways as summarized below:

(1) Lower cost of borrowing

A company with highly rated instrument has the opportunity to reduce the cost of borrowing
from the public by quoting lesser interest on fixed deposits or debentures or bonds as the
investors with low risk preference would come forward to invest in safe securities though
yielding marginally lower rate of return.

(2) Wider audience for borrowing

A company with a highly rated instrument can approach the investors extensively for the
resource mobilization using the press media. Investors in different strata of the society could
be attracted by higher rated instrument, as the investors understand the degree of certainty
about timely payment of interest and principal on a debt instrument with better rating.
(3) Rating as marketing tool

Companies with rated instruments improve their own image and avail of the rating as a
marketing tool to create better image in dealing with its customers feel confident in the utility
products manufactured by the companies carrying higher rating for their credit instruments.

(4) Reduction of cost in public issues

A company with higher rated instrument is able to attract the investors and with least efforts
can raise funds. Thus, the rated company can economize and minimize cost of public issues
by controlling expenses on media coverage, conferences and other publicity stunts and
gimmicks. Rating facilitates best pricing and timing of issues.

(5) Motivation for growth

Rating provides motivation to the company for growth as the promoters feel confident in their
own efforts and are encouraged to undertake expansion of their operations or new projects.
With better image created though higher credit rating the company can mobilize funds from
public and instructions or banks from self-assessment of its own status, which is subject to
self-discipline and self-improvement, it can perceive and avoid sickness.

(6) Unknown issuer

Credit rating provides recognition to a relatively unknown issuer while entering into the
market through wider investor base who rely on rating grade rather than on 'name
recognition'.

(C) Benefits to brokers and financial intermediaries

Rating is a useful tool for merchant bankers and other capital market intermediaries in the
process of planning, pricing, underwriting and placement of issues. The intermediaries, like
brokers and dealers in securities, could use rating as an input for their monitoring of risk
exposures. The merchant bankers are also using credit ratings for pre-packing of issues by
way of securitization/ structured obligations. Highly rated instruments put the brokers at an
advantage to make less effort in studying the company's credit position to convince their
clients to select an investment proposal. This enables brokers and other financial
intermediaries to save time, energy, costs and manpower in convincing their clients about
investment in any particular instrument.
Disadvantages of credit rating

(1) Biased rating and misrepresentations

In the absence of quality rating, credit rating is a curse for the capital market industry,
carrying out detailed analysis of the company, should have no links with the company or the
persons interested in the company so that their reports impartial and judicious
recommendations for rating committee. The companies having lower grade rating do not
advertise or use the rating while raising funds from the public. In such cases, the investor
cannot get information about the riskiness of instrument and hence is at loss.

(2) Static study

Rating is done on the present and the past historic data of the company and this is only a static
study. Prediction of the company's health through rating is momentary and anything can
happen after assignment of rating symbols to the company. Dependence for future results on
the rating, therefore defeats the very purpose of risk inductiveness of rating. Many changes take
place in economic environment, political situation, government policy framework, which directly
affects the working of a company.

(3) Concealment of material information

Rating company might conceal material information from the investigating team of the
credit rating company. In such cases, quality of rating suffers and renders the rating
unreliable.
(4) Rating is no guarantee for soundness of company

Rating is done for a particular instrument to assess the credit risk but it should not be
construed as a certificate for the matching quality of the company or its management.
Independent views should be formed by the public using the rating symbol.

(5) Human bias

Findings of the investigation team, at times, may suffer with human bias for unavoidable
personal weakness of the staff and might affect the rating.

(6) Reflection of temporary adverse conditions

Time factor affects rating. Sometimes, misleading conclusions are derived. For example,
company in a particular industry might be temporarily in adverse condition but it is given a
low rating. This adversely affects the company's interest

(7) Down grade

Once a company has been rated and if it is not able to maintain its working results and
performance, credit rating agencies would review the grade and down grade the rating
resulting into impairing the image of the company.

(8) Difference in rating of two agencies

Rating done by the two different credit rating agencies for the same instrument of the same
issuer company in many cases would not be identical. Such differences are likely to occur
because of value judgment differences on qualitative aspects of the analysis in two different
agencies.
(9) Conservative Rating

Default by an investment-grade firm is seen as the most costly error for the agency. In order to
preserve their reputation by avoiding the failure of any investment-grade firm, rating agencies
downgrade even "good" firms in response to higher global risk. The downgrades may look
self-fulfilling, but in fact, investors rationally ignore them, as they actually convey no
information about the relative quality of firms.
 TYPES OF RATINGS

Following are the different kinds of rating:

(1) Bond/debenture rating

Rating the short term and medium term debentures/bonds issued by corporate, government
etc. is called debenture or bond rating.

(2) Equity rating

Rating of equity shares issued by a company is called equity rating. An evaluation of

a stock's expected performance and/or its risk level as judged by a rating agency such
as Standard and Poor's. A stock rating will usually help the investor to find out fair value for
the stock, based on an objective evaluation of the company. The greater the amount by which
the fair value exceeds the market value, the more highly recommended a buy the stock is.
Conversely, if the market value of the stock exceeds the fair value of the stock, then analysts
recommend that the stock be sold. Most stock rating systems give stocks 1 to 5 stars, with 5
being the best.

(3) Preference share rating

Rating of preference share issued by a company is called preference share rating.

(4) Commercial paper rating

Commercial papers are instruments used for short-term borrowing. Commercial papers are
issued by manufacturing companies, finance companies, banks and financial institutions and
rating of these instruments is called commercial paper rating.

(5) Fixed deposits rating

Fixed deposits programmers are medium term unsecured borrowings. Rating of such
programmes is called as fixed deposits rating.

(6) Borrowers rating

Rating of borrowers is referred as borrower rating.

(7) Individuals rating

Rating of individuals is called as individual's credit rating.

(8) Structured obligation

Structured obligations are also debt obligations and are different from debenture or bond or
fixed deposit programmes and commercial papers. Structured obligation is generally asset-
backed security. Credit rating agencies assessed the risk associated with the transaction with
the main trust on cash flows emerging from the asset would be sufficient to meet committed
payments, to the investors in worst case scenario.

(9) Sovereign rating

Is a rating of a country, which is being considered whenever a loan is to be extended, or some

major investment is envisaged in a country. It is a grading of a country's ability to meet
its financial obligations. Credit rating agencies provide these ratings and investors use this to
assess the level of risk related with investing in a country. The rating may also include
an evaluation of a country's political risk. For example, India has been given BBB negative
rating by Standard and poors as on April 2012.

Because it is the doorway into a country's investment atmosphere, the sovereign rating is the first
thing most institutional investors will look at when making a decision to invest money abroad.
This rating gives the investor an immediate understanding of the level of risk associated with
investing in the country. A country with a sovereign rating will therefore get more attention than
one without. So to attract foreign money, most countries will strive to obtain a sovereign rating
and they will strive even more so to reach investment grade. In most circumstances, a country's
sovereign credit rating of AAA indicates lowest risk.

(10) Rating of real estate

CRISIL has started assigning rating to the builders and developers with the objective of helping
and guiding prospective real estate buyers. CRISIL thoroughly scrutinizes the sale deed papers,
sanctioned plan; lawyers report government clearance certificates before assigning rating to the
builder or developer. Past experience of the builder, number of properties built by the builder,
financial strength, and time taken for completion are some of the factors taken into consideration
by the CRISIL before giving a final rating to the real estate builder developer.
(11) Bank ratings

CRISIL and ICRA both are engaged in rating of banks based on the following six parameters
also called CAMELS.

C - C stands for capital adequacy of banks. A bank needs to maintain at least 10 % capital against
risky assets of the bank.

A - A stands for asset quality. The loan is examined to determine non-performing assets. An
asset/loan is considered non-performing asset where either interest or principal is unpaid for
two quarters or more. Ratios like NPA to Net Advances, Adequacy of Provision & Debt
Service Coverage Ratio are also calculated to know exact picture of quality of asset of a
bank.

M - M stands for management evaluation. Here, the efficiency and effectiveness of management
in framing plans and policies is examined. Ratios like ROI, Return on Capital Employed
(ROCE), and Return on Assets (ROA) are calculated to comment upon banks efficiency to
utilize the assets.

L - L indicates liquidity position. Liquid and current ratios are determined to find out banks
ability to meet its short-term claims.

S - S stands for Systems and Control studied to determine their adequacy and efficiency.
 CREDIT RATING IN INDIA

In the Indian context, the scope of credit rating is limited generally to debt, commercial paper,
fixed deposits, mutual funds and of late IPOs as well. Therefore, it is the instrument, which is
rated, and not the company. In other words, credit quality is not general evaluation of issuing
organization, i.e. if debt of company XYZ is rated AAA and debt of company ABC is rated
BBB, then it does not mean firm XYZ is better than firm ABC. However, the issuer company
gets strength and credibility with the grade of rating awarded to the credit instrument it
intends to issue to the public to raise funds. Rating, in a way, reflects the issuer's strength and
soundness of operations and management. It expresses a view on its prospective composite
performance and the organizational behaviour based on the study of past results.

Further, the rating will differ for different instruments to be issued by the same company,
within the same time span. For example, credit rating for a debenture issue will differ from
that of a commercial paper or certificate of deposit for the same company because the nature
of obligation is different in each case. Credit rating has been made mandatory for issuance of
the following instruments

(1) As per the regulations of Securities and Exchange Board of India (SEBI) public issue of
debentures and bonds convertible/ redeemable beyond a period of 18 months need credit
rating.

(2) As per the guidelines of Reserve Bank Of India (RBI), one of the conditions for issuance
of Commercial Paper in India is that the issue must have a rating not below the P2 grade from
CRISIL/A2 grade from ICRA/PR2 from CARE.
(3) As per the guidelines of Reserve Bank of India (RBI), Non

Banking Finance Companies (NBFCs) having net owned funds of more than Rs.2 core must
get their fixed deposit programs rated. The minimum rating required by the NBFCs to be
eligible to raise fixed deposits are FA (-) from CRISIL/ MA (-) from ICRA/BBB from CARE.
Similar regulations have been introduced by National Housing Bank (NHB) for housing
finance companies also

(4) As per the regulations of the Ministry of Petroleum, the parallel marketers of Liquefied
Petroleum Gas (LPG) and Superior Kerosene Oil (SKO) in India are also subjected to
mandatory rating. The three rating agencies have a common approach for such rating and the
dealers are categorized into four grades between 1 to 4 indicating good, satisfactory, low risk
and high risk

(5) There is a proposal for making the rating of fixed deposit programmes of limited
companies, other than NBFCs also mandatory, by amendment of the companies Act 1956.

CRAs registered with SEBI.

Name of the CRA Year of commencement of

Operations
CRISIL 1988

ICRA 1991

CARE 1993

Fitch India 1996

Brickworks 2008
 CRISIL

Credit Rating Information Services Of India Limited (CRISIL) has been promoted by
Industrial Credit and Investment Corporation of India Ltd. (ICICI) and Unit Trust of India
Ltd. (UTI) as a public limited company with its headquarters at Mumbai. CRISIL,
incorporated in 1987, pioneered the concept of credit rating in India and developed the
methodology for rating of debt in the context of India's financial, monetary and regulatory
system. It was the first rating agency to rate Commercial Paper Programme in 1989, debt
instruments of financial institutions and banks in 1992 and asset-backed securities in 1992.

The main objective of CRISIL has been to rate debt obligation of Indian companies. Its rating
provides a guide to the investors as to the risk of timely payment of interest and principal on a
particular debt instrument. Its rating creates awareness of the concept of credit rating amongst
corporations, merchant bankers, brokers, regulatory authorities, and helps in creating
environment that facilitates the debt rating.

CRISIL provides rating and risk assessment services to manufacturing companies, banks,
non-banking financial companies, financial institutions, housing finance companies,
municipal bodies and companies in the infrastructure sector.
CRISIL's comprehensive offerings include ratings for long-term instruments such as
debentures/bonds and preference shares, structured obligations (including asset-backed
securities) and fixed deposits; it also rates short-term instruments such as commercial paper
programs and short-term deposits. As part of bank loan ratings, CRISIL also rates credit
facilities extended to borrowers by banks. In addition, CRISIL undertakes credit assessments
of various entities including state governments. CRISIL also assigns financial strength ratings
to insurance companies.

CRISIL through the years has continued to innovate and play the role of a pioneer in the
development of the Indian debt market. CRISIL has pioneered the rating of subsidiaries and
joint ventures of multinationals in India and has rated several multinational entities, both start-
up entities as well as players with a well-established track record in India. Over the years,
CRISIL has also developed several structured ratings for multinational entities based on
Guarantees from the parent as well as Standby Letter of Credit arrangements from bankers.
The rating agency has also developed a methodology for credit enhancement of corporate
borrowing programmes through the use of partial guarantees. In essence, CRISIL is uniquely
placed in its experience in understanding the extent of credit enhancement arising out of such
structures.

CRISIL's Rating Process

CRISIL'S Ratings processes is given below:

(1) Request Of The Company

The rating process beings at the request of a company desirous of having its issue obligations
under proposed instrument rated by CRISIL.

(2) Assignment To Analytical Team

On receipt of the above request, CRISIL assigns the job to an analytical team that will be
responsible for carrying out the rating assignment.

(3) Obtaining And Processing Of Data

The analytical team, which generally contains two experts, obtains requisite information from
the client company and analyses the same. To obtain clarification and better understanding of
the client's operations, the team meets and interacts with company's executives.

(4) Findings Presentation

The findings of the team completion of investigation process are presented to Rating
committee (which comprises some directors not connected with any CRISIL shareholder)
which then decides on the rating.

(5) Communication Of Decision

The decision of the Rating committee is communicated to the client company with remarks
that the company, if it so likes, may present some additional information for reconsideration
of rating grade assigned to the instrument. In case the company has nothing to produce as
additional fact, the rating grade is formally confirmed to the company by CRISIL.

(6) Monitoring Of Change Of Rating

Once the company has decides to use the rating, CRISIL is obliged to monitor the rating, over
the life of the instrument. Depending upon new information, or developments concerning the
company, CRISIL may change the rating. Any change, so effected, is made public by CRISIL.
CRISIL'S Rating Methodology

CRISIL analyses five factors while assessing the instrument. These five factors are as follows:

(1)Business Analysis
All the relevant information concerning the business is covered under the following sub-
heads.

(a) Industry Risk

CRISIL evaluates the industry risk by taking into consideration various factors like nature and
basis of competition, key success factors, demand and supply position, structure of industry,
government policies etc. Industry strength is evaluated within the economy considering
factors like inflation, energy requirements and availability, international competitive situation
and socio-political scenario; demand projection growth stages and maturity of markets; cost
structure of industry in domestic and international scenario; or, the government policies
toward industry. Industry risk analysis may set an upper limit on rating.

(b) Market Position Of The Company Within The Industry

Market position of the company within the industry is evaluated form different angles, i.e.
market share and stability of market share; competitive advantage through marketing and
distribution strength and weakness; marketing/support service infrastructure; diversity of
products and customers base; research and development and its linkage to product
obsolescence; quality important programme; as finally, the long term sales contract, strong
marketing position of the company within the industry attracts better grade rating.

(c) Operating Efficiency

Operating efficiency of the company is assessed vis--vis competitors' comparison. For
instance, the pricing or cost advantage; availability, cost, quality of raw material; availability
of labor and labor relations; integration of manufacturing operations and cost effectiveness of
plant and equipment; level of capital employed and productivity; energy cost; or finally, the
compliance to pollution control requirement on taken into consideration.
(d) Legal Position
Legal position of issue of debt instrument is assessed by letter of offer; terms of debenture
trust deed, trustees and their responsibilities; system of timely payment of interest and
principal; or protection of forgery and fraud. Thus, business covers all relevant aspects as
related to business operations of the client company to assess the creditworthiness of the
company.

(1) Financial Analysis

Under financial analysis, all relevant aspects connected with the business and financial
position of the company is assessed in the following four important segments. Firstly
the accounting finally is seen as qualifications of auditors; focus on determining extent
to which performance is overstated; method of income recognition; depreciation
policies and inventory calculations; Under Valued/Over Valuing of assets; or off
balance sheet liabilities.

Secondly, the Earning Potential return to long term earning potential under varying
conditions is assessed. Key consideration is: Profitability ratios; pretax coverage
ratios; earnings on assets/capital employed; source of future earnings; or ability to
finance growth internally.

Thirdly, the adequacy of the Cash Flows is appraised in relation to debt and fixed and
working capital requirements of the company. Main focus of analysis is on variability
of future cash flows; capital spending flexibility; cash flows to fixed and working
capital requirements; or Working Capital management. Fourthly, the Financial
Flexibility is assessed through financial plans in times of stress and their reliability;
ability to attract capital; capital spending flexibility; asset redeployment potential; or
the debt service schedule.

(2) Management Evaluation

The track record of management is evaluated by observing:

the goals and philosophies;

 strategies and ability to overcome adverse situations;
judgment of management performance based on past operating and financial
results;
planning and control systems;
conservatism or aggressiveness with reference to financial risk;
depths of managerial, talents and succession plans;

shareholding pattern and constitution/ of Board of Directors;

relationship with shareholders;
or mergers and acquisition considerations.

(3) Regulatory And Competitive Environment

CRISIL evaluates structure and regulatory framework of the financial system in which
it works. Trends in regulation/ deregulation and their impact on the company are
evaluated.

(4) Fundamental Analysis

It covers aspects on liquidity management; assets quality; profitability and financial
position; and interest and tax sensitively. Liquidity management includes aspects on
capital structure, matching of assets and liabilities; or policy on liquid asset in relation
to financing commitments and maturing deposits. Asset Quality includes aspects
concerning quality of company's credit risk management, system for monitoring
credit, sector risk, exposure of individual borrowers, or management of problem
credits. Profitability and Financial Position includes aspects on historic profits, spreads
on fund deployment, revenues on non-fund-based services, and accretion to reserves.
Interest or Tax Sensitivity includes aspects dealing with exposure to interest rate
changes, revenues on non-fund based activities, and accretion to reserves.

Factors listed above at serial number 1,2,3, are evaluated for manufacturing companies
but for finance companies, emphasis is laid in addition to above factors at serial
number 4 and 5.
 CRISILS RATING SYMBOLS FOR LONG TERM
INSTRUMENTS

Investment Grade Ratings:

AAA
(Triple A) Highest Safety

Instruments rated 'AAA' are judged to offer the highest degree of safety with regard to timely
payment of financial obligations. Any adverse changes in circumstances are most unlikely to
affect the payments on the instrument

AA
(Double A) High Safety

Instruments rated 'AA' are judged to offer a high degree of safety with regard to timely
payment of financial obligations. They differ only marginally in safety from `AAA' issues.

A
Adequate Safety

Instruments rated 'A' are judged to offer an adequate degree of safety with regard to timely
payment of financial obligations. However, changes in circumstances can adversely affect
such issues more than those in the higher rating categories

BBB
(Triple B) Moderate Safety

Instruments rated 'BBB' are judged to offer a moderate safety with regard to timely payment of
financial obligations for the present; however, changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal than for instruments in higher rating
categories.
Speculative Grade Ratings:

BB
(Double B) Inadequate Safety

Instruments rated 'BB' are judged to carry inadequate safety with regard to timely payment of
financial obligations; they are less likely to default in the immediate future than other speculative
grade instruments, but an adverse change in circumstances could lead to inadequate capacity to
make payment on financial obligations.

B
High Risk

Instruments rated 'B' are judged to have greater likelihood of default; while currently financial
obligations are met, adverse business or economic conditions would lead to lack of ability or
willingness to pay interest or principal.

C
Substantial Risk

Instruments rated 'C' are judged to have factors present that make them vulnerable to default;
timely payment of financial obligations is possible only if favourable circumstances continue.

D
Default

Instruments rated 'D' are in default or are expected to default on scheduled payment dates. Such
instruments are extremely speculative and returns from these instruments may be realized only
on reorganization or liquidation.

NM
Not Meaningful

Instruments rated 'N.M' have factors present in them, which render the rating outstanding
meaningless. These include reorganisation or liquidation of the issuer, the obligation is under
dispute in a court of law or before a statutory authority etc.
RATING SYMBOL FOR SHORT TERM INSTRUMENT

P-1 -This rating indicates that the degree of safety regarding timely payment on the instrument is
very strong.

P-2 -This rating indicates that the degree of safety regarding timely payment on the instrument is
strong; however, the relative degree of safety is lower than that for instruments rated 'P-1'.

P-3 - This rating indicates that the degree of safety regarding timely payment on the instrument
is adequate; however, the instrument is more vulnerable to the adverse effects of changing
circumstances than an instrument rated in the two higher categories.

P-4 - This rating indicates that the degree of safety regarding timely payment on the instrument
is minimal and it is likely to be adversely affected by short-term adversity or less favourable
conditions.

P-5 - This rating indicates that the instrument is expected to be in default on maturity or is in
default.

NM - Instruments rated 'N.M' have factors present in them, which render the rating outstanding
meaningless. These include reorganization or liquidation of the issuer, the obligation is under
dispute in a court of law or before a statutory authority etc.
Not Meaningful
 ICRA

ICRA Limited (an Associate of Moody's Investors Service) was incorporated in 1991 as an
independent and professional company. ICRA is a leading provider of investment information
and credit rating services in India. ICRAs major shareholders include Moody's Investors Service
and leading Indian financial institutions and banks. With the growth and globalization of the
Indian capital markets leading to an exponential surge in demand for professional credit risk
analysis, ICRA has been proactive in widening its service offerings, executing assignments
including credit ratings, equity grading, specialized performance grading and mandated studies
spanning diverse industrial sectors. In addition to being a leading credit rating agency with
expertise in virtually every sector of the Indian economy, ICRA has broad-based its services for
the corporate and financial sectors, both in India and overseas, and currently offers its services
under the following banners:

ICRA Limited (an Associate of Moody's Investors Service) was incorporated in 1991 as an
independent and professional company. ICRA is a leading provider of investment information
and credit rating services in India. ICRAs major shareholders include Moody's Investors Service
and leading Indian financial institutions and banks. With the growth and globalization of the
Indian capital markets leading to an exponential surge in demand for professional credit risk
analysis, ICRA has been proactive in widening its service offerings, executing assignments
including credit ratings, equity grading, specialized performance grading and mandated studies
spanning diverse industrial sectors. In addition to being a leading credit rating agency with
expertise in virtually every sector of the Indian economy, ICRA has broad-based its services for
the corporate and financial sectors, both in India and overseas, and currently offers its services
under the following banners:

Rating Services Information, Grading and Research Services Advisory Services Economic
Research Outsourcing
ICRA'S Rating Process

The Rating Process Follows:

Rating Process

Rating is an interactive process with a prospective approach. It involves series of steps. The
main points are described as below:

(A)Rating Request
Ratings in India are initiated by a formal request (or mandate) from the prospective issuer .
This mandate spells out the terms of the rating assignment. Important issues that are covered
include, binding the credit rating agency to maintain confidentiality, the right to the issuer to
accept or not to accept the rating and binds the issuer to provide information required by the
credit rating agency for rating and subsequent surveillance.

(B)Rating Team
The team usually comprises two members. The composition of the team is based on the
expertise and skills required for evaluating the business of the issuer.

(C)Information Requirements
Issuers are provided a list of information requirements and the broad framework for
discussions. These requirements are derived from the experience of the issuers business and
broadly conform to all the aspects, which have a bearing on the rating. These factors have
been discussed in detail under rating framework.

(D)Secondary Information
The credit rating agency also draws on the secondary sources of information including its own
research division. The credit rating agency also has a panel of industry experts who provide
guidance on specific issues to the rating team. The secondary sources generally provide data
and trends including policies about the industry.
(E)Management Meetings And Plant Visits
Rating involves assessment of number of qualitative factors with a view to estimate the future
earnings of the issuer. This requires intensive interactions with the issuers management
specifically relating to plans, outlook, and competitive position and funding policies.

Plan visits facilitate understanding of the production process, assess the state of equipment
and main facilities , evaluate the quality of technical personnel and form an opinion on the
key variables that influence level , quality and cost of production. These visits also help in
assessing the progress of projects under implementation.

(F)Preview Meeting :
After completing the analysis, the findings are discussed at length in the internal committee ,
comprising senior analysts of the credit rating agency. All the issues having a bearing on the
rating are identified. At this stage, an opinion on the rating is also formed.

(F)Rating Committee Meeting

This is the final authority for assigning ratings. A brief presentation about the issuers business
and the management is made by the rating team. All the issues identified during discussions in
the internal committee are discussed. The rating committee also considers the
recommendation of the internal committee for the rating. Finally , a rating is assigned and all
the issues, which influence the rating, are clearly spelt out.

(G)Rating Communication
The assigned rating along with the key issues is communicated to the issuers top
management for acceptance. The ratings, which are not accepted, are either rejected or
reviewed. The rejected ratings are not disclosed and complete confidentiality is maintained.
(H)Rating Reviews
If the rating is not acceptable to the issuer , he has a right to appeal for a review of the rating .
These reviews are usually taken up only if the issuer provides fresh inputs on the issues that
were considered for assigning the rating . Issuer's response is presented to the Rating
Committee. If the inputs are convincing, the Committee can revise the initial rating decision.

(I)Surveillance
It is obligatory on the part of the credit rating agency to monitor the accepted ratings over the
tenure of the rated instrument. As has been mentioned earlier, the issuer is bound by the
mandate letter to provide information to the credit rating agency. The ratings are generally
reviewed every year, unless the circumstances of the case warrant an early review. In a
surveillance review, the initial rating could be retained or revised (upgrade or downgrade).
The various factors that are evaluated in assigning the ratings have been explained under
rating framework.
Rating Scale of ICRA

Long Term Including Debentures Bonds, Preference Shares

LAAA: Highest Safety:

It indicates fundamentally strong position. Risk factors are negligible. There may be
circumstances adversely affecting the degree of safety but such circumstances, as may
visualized, are not likely to affect the timely payment of principal and interest as per times.

LAA+,LAA, LAA- : High Safety:

Risk factors are modest and may vary slightly. The protective factors are strong and the
prospect of timely payment of principal and interest as per terms and interest under adverse
circumstances, as may be visualized, differs from LAAA only marginally.

LA+,LA, LA- :Adequate Safety:

The risk factors are more variable and grater in periods of economic stress. The protective
factors any averse change in circumstances, as may be visualized, may alter the fundamental
strength and effect the timely payment of principal and interest as per terms.

LBBB+, LBBB, LBBB- Moderate Safety:

Considerable variability in risk factors, the protective factors are below average. Adverse
changes in business/economic circumstances are likely to affect the timely payment of
principal and interest as per terms.

LBB+, LBB, LBB-Inadequate Safety:

The timely payment of interest and principal are more likely to be affected by present or
prospective changes in business/economic circumstances. The protective factors fluctuate in
case of changes in economy/business conditions.
LBB+, LB, LB- Risk Prone:
Risk factors indicate that obligation may not be met when due. The protective factors are
narrow. Adverse changes in economic/business conditions could result in
inability/unwillingness to service debts on time as per terms.

LC+,LC,LC- Substantially Risk:

There are inherent elements of risk and timely servicing of debts/obligations could be possible
only in case of continued existence of favorable circumstances.

LD Default. Extremely Speculative:

Either already in default in payment of interest and/or principal as per terms or expected to
default. Recovery is likely only on liquidation or reorganization.
Medium Term - including Certificates of Deposits and Fixed Deposits
Programmes

MAAA: Highest Safety

The prospect of timely servicing of interest and principal as per terms is the best.

MAA+, MAA, MAA- High Safety

The prospect of timely servicing of interest and principal as per terms is high, but not as high
as in MAAA rating.

MA+, MA, MA-: Adequate Safety

The prospect of timely serving interest and principal is adequate. However, debt servicing
may be affected by adverse changes in the business/economic conditions.

MB+, MB, MB-: Inadequate Safety

The timely payment of interest and principal are more likely to be affected by future
uncertainties.

Mc+, Mc, Mc- Risk Prone

Susceptibility to default high. Adverse changes in the business/economic conditions could
result in inability/unwillingness to service debts on time as per terms.

Md Default
Either already in default or expected to default.
Short Term - including Commercial Papers

Al+, A1 Highest Safety

The prospect of timely payment of debt/obligation is the best.

A2+, A1 High Safety

The relative safety is marginally lower than A1

A3+, A3 Adequate Safety

The prospect of timely payment of interest and installment is adequate, but any adverse
changes in business/economic conditions may affect the fundamental strength.

A4+, A4 Risk Prone

The degree of safety is low. Likely to default in case of adverse changes in business/economic
conditions.

A5 Default

Either already in default or expected to default. Inadequate capacity.

Short-Term Ratings

ICRA assigns short-term ratings with symbols from A1 through to A5 to debt instruments with
original maturity up to one year. ICRAs short-term ratings measure the probability of default on
the rated debt securities over their entire tenure. A suffix of + may be attached to the rating
symbols of A1 through to A4 to indicate the relative position of the issuer within the rating
category. While the short-term rating of A1 indicates that the rated debt issuance has the highest
credit quality, A5 indicates that the rated debt is either in default or is expected to default on its
repayment obligations.

ICRA assigns short-term ratings to instruments such as commercial paper, certificates of deposit,
short-term debentures, and other money market related instruments maturing within one year
from the date of issuance.
Linkage Between Long-Term And Short-Term Ratings

Although ICRA ratings are specific to the rated instruments, the short-term ratings in general
have a linkage with the assigned or implicit long-term ratings of the issuers concerned.

Besides the fact that short-term instruments like commercial paper are usually on-going
programmes, thus warranting a longer-term rating view, in ICRAs opinion, refinancing risk or an
issuers access to other sources of funding, is also largely influenced by the issuers longer-term
credit profile.

Thus, apart from focusing on short-term factors like near-term business risk drivers and liquidity
position of the issuers, ICRA also factors in an issuers long-term credit profile while assigning
short-term ratings to debt instruments issued by it. The following table presents a broad guidance
to the linkage between ICRAs short-term and long-term ratings.

ONICRA
CREDIT
RATING AGENCY OF INDIA

ONICRA CREDIT RATING AGENCY OF INDIA Ltd. is recognised as the pioneers of the
concept of individual Credit rating in India. After being the first to introduce the concept, Onicra
has been continuously conducting in-depth research into all aspects of the behaviour of credit
seekers and has developed a comprehensive rating system for various types of credit extensions.
Onicra provides a platform to credit seekers and granters build long lasting relationship.

Credit Rating

With the advance of credit, the principal has an increased level of exposure in the market. So, a
mandatory check is done to assess the credentials of the individual in question before extending a
loan or advance. We assess the financial visibility and look into all related aspects. We have an
in-house developed credit rating module which is customized to suit various customer
requirements.

Associate Rating

We provide an objective assessment of existing and potential associates of our clients, with
reference to infrastructure, resources, adherence to defined system and processes and
commitment to their customers. This evaluation helps our clients understand the value their
associates bring to their business relationships.

Employment Background Screening

This service provides our clients with authenticated and validated data on employees which
includes but is not limited to the Physical Address, qualification both educational and
professional, criminal record check and other pertinent information.

SSI/SME Rating

We help Small Scale Industries that are looking for loans and financial assistance to get assessed
on their credit worthiness, financial viability and performance. This helps their cause to get
unbiased analysis in a funding situation.
 CARE

Credit Analysis & Research Ltd. (CARE), incorporated in April 1993, is a credit rating,
information and advisory services company promoted by Industrial Development Bank of India
(IDBI), Canara Bank, Unit Trust of India (UTI) and other leading banks and financial services
companies. In all CARE has 14 shareholders.

CARE assigned its first rating in November 1993, and up to March 31, 2006, had completed
3175 rating assignments for an aggregate value of about Rs 5231 billion. CARE's ratings are
recognized by the Government of India and all regulatory authorities including the Reserve Bank
of India (RBI), and the Securities and Exchange Board of India (SEBI). CARE has been granted
registration by SEBI under the Securities & Exchange Board of India (Credit Rating Agencies)
Regulations, 1999.

The rating coverage has extended beyond industrial companies, to include public utilities,
financial institutions, infrastructure projects, special purpose vehicles, state governments and
municipal bodies. CARE's clients include some of the largest private sector manufacturing and
financial services companies as well financial institutions of India. CARE is well equipped to
rate all types of debt instruments like Commercial Paper, Fixed Deposit, Bonds, Debentures and
Structured Obligations.

CARE's Information and Advisory services group prepares credit reports on specific requests
from banks or business partners, conducts sector studies and provides advisory services in the
areas of financial restructuring, valuation and credit appraisal systems. CARE was retained by
the Disinvestment Commission, Government of India, for assistance in equity valuation of a
number of state owned companies and for suggesting divestment strategies for these companies.
CARE'S Rating Process

The process involves:

(i) Client gives request for rating and submits information and details schedules;

(ii) CARE assigns rating team and team analyses the information;

(iii) The team interacts with the clients, undertakes site visits;

(iv) The client interacts with the Team respond to queries raised and provides any additional
data necessary for the analyses;

(v) The team analyses the data submitted by the Client and put up to Internal Committee of
CARE for previews analyses;

(vi) Rating Committee of CARE awards rating to the Client;

(vii) Client may ask for review of the rating assigned and furnish additional information for
the purpose. Client has the option not to accept the final rating in which case CARE will not
publish the rating or monitor it; and, finally,
(viii) If the rating is accepted by the client, CARE gives it for notification and a periodic
surveillance is undertaken by CARE.
RATING SYMBOLS OF CARE

A. Long-Term And Medium Term Instrument

CARE AAA (FD)/(CD)/(SO)

Instruments carrying this rating are considered to be of the best quality, carrying negligible
investment risk. Debt service payments are protected by stable cash flows with good margin.
While the underlying assumptions may change, such changes as can be visualized are most
unlikely to impair the strong position of such instruments.

CARE AA (FD)/(CD)/(SO)

Instruments carrying this rating are judged to be of high quality by all standards. They are
also classified as high investment grade. They are rated lower than CARE AAA securities
because of somewhat lower margins of protection. Changes in assumptions may have a
greater impact on the long-term risks may be somewhat larger. Overall, the difference with
CARE AAA rated securities is marginal.

CARE A (FD)/(CD)/(SO)

Instruments with this rating are considered upper medium grade instruments and have many
favorable investment attributes. Safety for principal and interest are considered adequate.
Assumptions that do not materialize may have a greater impact as compared to the
instruments rated higher.

CARE BBB (FD)/(CD)/(SO)

Such instruments are considered to be of investment grade. They indicate sufficient safety for
payment of interest and principal, at the time of rating. However, adverse changes in
assumptions are more likely to weaken the debt servicing capability compared to the higher
rated instruments.
CARE BB (FD)/(CD)/(SO)

Such instruments are considered to be speculative, with inadequate protection for interest and
principal payments.

CARE B (FD)/(CD)/(SO)

Instruments with such rating are generally classified susceptible to default. While interest and
principal payments are being met, adverse changes in business conditions are likely to lead to
default.

CARE C (FD)/(CD)/(SO)

Such instruments carry high investment risk with likelihood of default in the payment of
interest and principal.

CARE D (FD)/(CD)/(SO)

Such instruments are of the lowest category. They either are in default or are likely to be in
default soon.
B. Short-Term Instruments

Instruments with maturities of one year or less are classified in this category. These include:
CP - Commercial Paper and ICD - Inter-Corporate Deposits

PR-1
Instruments would have superior capacity for repayment of short-term promissory obligation.
Issuers of such PR-instruments will normally be characterized by leading market position in
established industries, high rates of return on funds employed etc.

PR-2
Instruments would have strong capacity for repayment of short-term promissory obligations.
Issuers would have most of the characteristics as for those with PR1 instruments but to a
lesser degree.

PR-3

Instruments have an adequate capacity for repayment of short-term promissory obligations.

The effect of industry characteristics and market composition may be more pronounced.
Variability in earning and profitability may result in change in the level of debt protection.

PR-4
Instruments have minimal degree of safety regarding timely payment of short-term
promissory obligations and safety is likely to be adversely affected by short-term adversity or
less favourable conditions.

PR-5
The instrument is in default or is likely to be in default on maturity.

SME Rating Agency of India Limited (SMERA) is a joint initiative by SIDBI

(http://www.sidbi.in/), Dun & Bradstreet Information Services India Private Limited (D&B)
(http://www.dnb.co.in/), Credit Information Bureau (India) Limited (CIBIL)
(http://www.cibil.com/) and several leading banks in the country. SMERA is the country's first
rating agency that focuses primarily on the Indian SME segment.
SMERA's primary objective is to provide ratings that are comprehensive, transparent and
reliable. This would facilitate greater and easier flow of credit from the banking sector to SMEs.

Rating Process Simplified -

Based on receipt of application form, applicable rating fees and documents from the
SME, SMERA will begin its process of evaluation.

A Questionnaire, seeking information on financial and qualitative factors, would be sent

to the SME and would need to be filled by an authorised representative of the SME.

A SMERA correspondent will contact the SME to collect a duly filled questionnaire to
facilitate the rating process.

The correspondent would also conduct a site visit as part of the evaluation process.

SMERA shall complete the evaluation exercise and provide SMERA rating within 15
business days of receipt of all documents from the SME.
 MOODYS INVESTORS SERVICE

Today, Moody's Investor Service rates thousands of issues of corporate and municipal bonds,
commercial paper, short-term municipal notes, and preferred stock. These security ratings are
reported in Moody's Bond Record, which is published monthly. In addition to assigning issue
ratings, Moody's also notes for its subscribers the essential terms on each security issue; dates
when interest, principal or dividend payments are due; call provisions (if any); registration
status; bid and asked price quotations; yield to maturity; tax status; coverage; and amount of
securities outstanding.

Moody's Corporate Bond Ratings

The credit ratings assigned by Moody's to corporate bonds are listed below with the
definitions of each rating category:

AAA
Bonds, which are rated Aaa, are judged to be of the best quality. They carry the smallest
degree of investment risk and are generally referred to as "gilt edge". Interest payments are
protected by a large or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be visualized are most
likely to impair the fundamentally strong position of such issues.

AA
Bonds, which are rated Aa, are judged to be of high quality by all standards. Together with the
AAA group they comprise what are generally known as high-grade bonds. They are rated
lower than the best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater amplitude or there may be
other elements present which make the long-term risks appear somewhat larger than in Aaa
securities.

A
Bonds, which are rated A, possess many favourable investment attributes and are to be
considered as upper medium-grade obligations. Factors giving security to principal and
interest are considered adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future.

BAA
Bonds, which are rated Baa, are considered as medium-grade obligations, i.e., they are neither
highly protected nor poorly secured. Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and, in fact, have speculative characteristics as well.

BA
Bonds, which are rated Ba, are judged to have speculative elements; their future cannot be
considered as well assured. Often the protection of interest and principal payments may be
moderate and thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.

B
Bonds, which are rated B generally, lack characteristics of a desirable investment. Assurance
of interest and principal payments or of maintenance of other terms of the contract over any
long period of time may be small.
CAA
Bonds, which are rated Caa, are of poor standing. Such issues may be in default and there
may be present elements of danger with respect to principal or interests.

CA
Bonds, which are rated Ca, represent obligations, which are speculative in some degree. Such
issues are often in default or have other marked shortcomings.

C
Bonds, which are rated C, are the lowest rated class of bonds and issues so rated are to be
regarded as having extremely poor prospects of ever attaining any real investment standing.

Moody's Commercial Paper RatingS

Promissory notes sold in the open market by large corporations and having an original
maturity of nine months or less are known as commercial paper. Moody's assigns those
commercial notes it is willing to rate to one of three quality categories:

Prime-1 (or P-l) - Highest quality

Prime-2 (or P-2) - Higher quality

Prime-3 (or P-3) -High quality
Moody's Ratings of Short-Term Municipal Notes

Short-term securities issued by states, cities, counties, and other local governments are rated
by Moody's as to their investment quality. For these short-term issues Moody's uses the rating
symbol MIG, meaning Moody's Investment Grade. As shown below, only four rating
categories are used and speculative issues or those for which adequate information is not
available are not rated. The rating categories are as follows:

MIG I
Loans bearing this designation are of the best quality, enjoying strong protection from
established cash flows of funds for their servicing or from established and broad-based access
to the market for refinancing, or both.

MIG2
Loans bearing this designation are of high quality, with margins of protection ample though
not so large as in the preceding group.

MIG3
Loans bearing this designation are of favourable quality, with all security elements accounted
for but lacking the undeniable strength of the preceding grades. Market access for refinancing,
in particular, is likely to be less well established.

MIG4

Loans bearing this designation are of adequate quality, carrying specific risk but having
protection commonly regarded as required of an investment security and not distinctly or
predominantly
International Scale Ratings

International foreign currency ratings effectively benchmark credit quality off US Government
risk, and measure the ability of an organization to service foreign currency obligations. In this
regard, typically no organization or debt issue in a country can be rated higher than the country's
sovereign risk rating on the basis that, regardless of a company's stand-alone strength, the
government can block any organization within its jurisdiction from obtaining/disbursing
foreign currency. Exceptions can arise in the case of structured finance transactions (if there is an
opportunity to pierce the sovereign cap, e.g. by trapping foreign currency offshore).

National Scale Ratings

The domestic local currency ratings assigned by GCR are tiered against an assumed best
possible (usually central government) rating of AAA' in each country and, therefore, do not
incorporate the sovereign risks of a country. Such ratings are designed to give an indication of
the relative risks only within a specific country and are not comparable across different countries.
Accordingly, a Zimbabwe Dollar rating accorded to a Zimbabwean organisation is not
comparable to a South African Rand rating accorded to a South African organization.

The rating methodologies and rating scales utilized in the accordance of both types of ratings are
very similar, but the key difference is that one scale measures the probability of default on
FOREIGN CURRENCY obligations (taking into account all sovereign risk and currency
conversion considerations), while the other measures the probability of default on LOCAL
CURRENCY obligations. It stands to reason that, particularly in emerging markets such as
Africa, there is a far higher probability of default with regards to the former.
Short Term Debt Rating Scale:

GCR's Rating Symbols and Definitions Summary

A short term debt rating rates an organisation's general unsecured creditworthiness over the short
term (i.e. over a 12 month period). Such a rating provides an indication of the probability of
default on any unsecured short term debt obligations, including commercial paper, bank
borrowings, BA's and NCD's.

High Grade

Highest certainty of timely payment. Short-term liquidity, including internal operating

A1+ factors and/or access to alternative sources of funds is outstanding, and safety is just
below that of risk-free treasury bills.

Very high certainty of timely payment. Liquidity factors are excellent and supported by
A1
good fundamental protection factors. Risk factors are minor.

High certainty of timely payment. Liquidity factors are strong and supported by good
A1-
fundamental protection factors. Risk factors are very small.
Good Grade

Good certainty of timely payment. Liquidity factors and company fundamentals are
A2 sound. Although ongoing funding needs may enlarge total financing requirements, access
to capital markets is good. Risk factors are small.

Satisfactory Grade

Satisfactory liquidity and other protection factors qualify issues as to investment grade.
A3
However, risk factors are larger and subject to more variation.

Non-Investment Grade

Speculative investment characteristics. Liquidity is not sufficient to insure against

B disruption in debt service. Operating factors and market access may be subject to a high
degree of variation.

Default

C Issuer failed to meet scheduled principal or interest payments.

Long Term Debt Rating Scale:

GCR's Rating Symbols and Definitions Summary

A long term debt rating rates the probability of default on specific long term debt instruments
over the life of the issue. It is possible that different issues by a single issuer could be accorded
different ratings, depending on the underlying characteristics of each issue (e.g. is it a senior or a
subordinated debt instrument, is it secured or unsecured and, if secured, what is the nature of the
security).

Investment Grade

AAA Highest credit quality. The risk factors are negligible, being only slightly more than
for risk free government bonds.

AA+ Very high credit quality. Protection factors are very strong. Adverse changes in
AA business, economic or financial conditions would increase investment risk although
AA- not significantly.

A+ High credit quality. Protection factors are good. However, risk factors are more
A variable and greater in periods of economic stress.
A-

BBB+ Adequate protection factors and considered sufficient for prudent investment.
BBB However, there is considerable variability in risk during economic cycles.
BBB-

Non - Investment Grade

BB+ Below investment grade but capacity for timely repayment exists. Present or
BB prospective financial protection factors fluctuate according to industry conditions or
BB- company fortunes. Overall quality may move up or down frequently within this
category.
B+ Below investment grade and possessing risk that obligations will not be met when due.
B Financial protection factors will fluctuate widely according to economic cycles,
B- industry conditions and/or company fortunes.

CCC Well below investment grade securities. Considerable uncertainty exists as to timely
payment of principal or interest. Protection factors are narrow and risk can be
substantial with unfavourable economic/industry conditions, and/or with unfavourable
company developments.

DD Defaulted debt obligations. Issuer failed to meet scheduled principal and/or Interest
payments.

GCR's Rating Symbols and Definitions Summary

Such ratings are exclusively accorded to insurance/reinsurance companies and rate the
probability of timeously honouring policyholder obligations over the medium term (i.e. over the
next 2 to 3 years)

AAA Highest claims paying ability. The risk factors are negligible.

AA+ Very high claims paying ability. Protection factors are strong. Risk is modest, but may
AA vary slightly over time due to economic and/or underwriting conditions.
AA-

A+ High claims paying ability. Protection factors are above average although there is an
A expectation of variability in risk over time due to economic and/or underwriting
A- conditions.
BBB+ Adequate claims paying ability. Protection factors are adequate although there is
BBB considerable variability in risk over time due to economic and/or underwriting
BBB- conditions.

BB+ Moderate claims paying ability. The ability of these organizations to discharge
BB obligations is considered moderate and thereby not well safeguarded in the event of
BB- adverse future changes in economic and/or underwriting conditions.

B+ Possessing substantial risk that policyholder and contract-holder obligations will not
B be paid when due. Judged to be speculative to a high degree.
B-

CCC Company has been, or is likely to be, placed under an order of the court.

IPO GRADING

IPO grading (initial public offering grading) is a service aimed at facilitating the assessment
of equity issues offered to public. The grade assigned to any individual issue represents a
relative assessment of the 'fundamentals' of that issue in relation to the universe of other listed
equity securities in India. Such grading is assigned on a five-point point scale with a higher
score indicating stronger fundamentals.

IPO Grading Is Different From An Investment Recommendation

Investment recommendations are expressed as 'buy', 'hold' or 'sell' and are based on a security
specific comparison of its assessed 'fundamentals factors' (business prospects, financial position
etc.) and 'market factors' (liquidity, demand supply etc.) to its price.

On the other hand, IPO grading is expressed on a five-point scale and is a relative comparison of
the assessed fundamentals of the graded issue to other listed equity securities in India.

As the IPO grading does not take cognizance of the price of the security, it is not an investment
recommendation. Rather, it is one of the inputs to the investor to aiding in the decision making
process.

All other things remaining equal, a security with stronger fundamentals would command a higher
market price.

How Long Would The Assigned Grade Be Valid?

The assigned grade would be a one time assessment done at the time of the IPO and meant to aid
investors who are interested in investing in the IPO. The grade will not have any ongoing
validity.

IPO grading is the grade assigned by a Credit Rating Agency registered with SEBI, to the initial
public offering (IPO) of equity shares or any other security which may be converted into or
exchanged with equity shares at a later date. The grade represents a relative assessment of the
fundamentals of that issue in relation to the other listed equity securities in India. It was started in
the year 2006.Such grading is generally assigned on a five-point point scale with a higher score
indicating stronger fundamentals and vice versa as below.
CREDIT RATING PROCESS FOR IPO:

IPO grade 1: Poor fundamentals

IPO grade 2: Below-average fundamentals

IPO grade 3: Average fundamentals

IPO grade 4: Above-average fundamentals

IPO grade 5: Strong fundamentals

IPO grading has been introduced as a process to make additional information available for the
investors in order to facilitate their assessment of equity issues offered through an IPO.

A company which has filed the draft offer document for its IPO with SEBI, on or after 1st May,
2007, is required to obtain a grade for the IPO from at least one Credit rating agencies.

IPO Grading is intended to provide the investor with an informed and objective opinion
expressed by a professional rating agency after analyzing factors like business and financial
prospects, management quality and corporate governance practices etc. However, irrespective of
the grade obtained by the issuer, the investor needs to make his/her own independent decision
regarding investing in any issue after studying the contents of the prospectus including risk
factors carefully.

IPO grades cannot be rejected irrespective of whether the issuer finds the grade given by the
rating agency acceptable or not, the grade has to be disclosed as required under the DIP
Guidelines. However the issuer has the option of opting for another grading by a different
agency. In such an event all grades obtained for the IPO will have to be disclosed in the offer
documents, advertisements etc.

Main features of SEBI decision

The important features of SEBI's decision on IPO grading are as follows:

The grading exercise will exclude the issue price from its scope;
 It will be carried out by recognized credit rating agencies;

The grading will be on a 5-point scale, the lowest grade to be indicated by 1 and the
highest by 5; and

The issuing company will be allowed to choose the rating agency for grading its IPO.

SEBI REGULATIONS: GENERAL OBLIGATIONS OF CREDIT RATING

AGENCIES

Code of Conduct
13. Every credit rating agency shall abide by the Code of Conduct contained in the Third
Schedule.

1. Agreement with the Client

Every Credit Rating Agency shall enter into Written Agreement which contains

i The rights and liabilities of each party

ii The fee to be charged by the credit rating agency
iii Agreement to a periodic review of the rating by the credit rating agency
iv Agreement of co-operation with the credit rating agency
v Credit rating agency shall disclose to the client the rating assigned to the
securities
vi Client shall agree to disclose the following documents
a. The rating assigned to the clients listed securities by any credit rating
agency during the last three years
b. Any rating given by any other credit rating agency, which has not been
accepted by the client

2. Monitoring of rating

1. Every credit rating agency shall carry out periodic reviews of all published ratings
during the lifetime of the securities.
2. If the client does not co - operate with the Credit Rating Agency so Credit Rating Agency
shall carry out the review on the basis of the best information available.
3. A credit rating agency shall not withdraw a rating so long as the obligations under the
security rated by it are outstanding

3. Internal procedures to be framed.

Every Credit Rating Agency shall frame appropriate procedures and systems in order to
prevent contravention of

(a) The Securities and Exchange Board of India (Insider Trading) Regulations, 1992;

(b) The Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair
Trade Practices relating to the Securities Market) Regulations, 1995; and
 (c) Other laws relevant to trading of securities.

4. Disclosure of Rating Definitions and Rationale

Every Credit Rating Agency:

1 Shall make public the definitions of the concerned rating, along with the symbol
2 Ratings do not constitute recommendations to buy, hold or sell any securities
3 Every credit rating agency shall make available to the general public information relating
to the rationale of the ratings, which shall cover an analysis of the various factors
justifying a favorable assessment, as well as factors constituting a risk.

5. Submission of Information to the Board

Information called by Board from a Credit Rating Agency for the purpose of regulations, Credit
Rating Agency shall furnish such information to the Board

a Within a period specific by the Board or,

b If no such period specified by the Board,
c If no such period is specified then within a reasonable time.

Every Credit Rating Agency shall, at the close of each accounting period, furnish to the Board
copies of its Balance Sheet and Profit and Loss account.

6. Compliance with circulars etc., issued by the Board

Every credit rating agency shall comply with such guidelines, directives, circulars and
Instructions as may be issued by the Board from time to time, on the subject of credit rating.

7. Appointment of Compliance Officer

1 Every Credit Rating Agency shall appoint Compliance Officer who shall be responsible
for monitoring rules and regulations and circulars issued by Board or the Central
Government.
2 The compliance officer shall immediately and independently report to the Board any
noncompliance observed by him.
8. Maintenance of Books of Accounts, records, etc.

Every credit rating agency shall keep and maintain, for a minimum periods of five years the
following books of accounts, records and documents, namely:

(a) Copy of its balance sheet, as on the end of each accounting period;

(b) A copy of its profit and loss account for each accounting period;

(c) A copy of the auditors report on its accounts for each accounting period.

(d) A copy of the agreement entered into, with each client;

(e) Information supplied by each of the clients;

(f) Correspondence with each client;

(g) Ratings assigned to various securities including up gradation and down gradation (if any) of
the ratings so assigned.

9. Steps on Auditors Report

Every credit rating agency shall, within two months from the date of the auditors report, take
steps to rectify the deficiencies if any, made out in the auditors report, in so far as they relate to
the activity of rating of securities

10. Confidentiality

Every credit rating agency shall treat, as confidential, information supplied to it by the client and
no credit rating agency shall disclose the same to any other person.
DISADVANTAGES OF CREDIT RATING

(1)Biased Rating And Misrepresentations

In the absence of quality rating, credit rating is a curse for the capital market industry, carrying
out detailed analysis of the company, should have no links with the company or the persons
interested in the company so that their reports impartial and judicious recommendations for
rating committee. The companies having lower grade rating do not advertise or use the rating
while raising funds from the public. In such cases, the investor cannot get information about the
riskiness of instrument and hence is at loss.
(2)Static Study

Rating is done on the present and the past historic data of the company and this is only a static
study. Prediction of the company's health through rating is momentary and anything can happen
after assignment of rating symbols to the company. Dependence for future results on the rating,
therefore defeats the very purpose of risk indicative ness of rating. Many changes take place in
economic environment, political situation, government policy framework, which directly affect
the working of a company.

(3)Concealment Of Material Information

Rating company might conceal material information from the investigating team of the credit
rating company. In such cases, quality of rating suffers and renders the rating unreliable.

(4)Rating Is No Guarantee For Soundness Of Company

Rating is done for a particular instrument to assess the credit risk but it should not be construed
as a certificate for the matching quality of the company or its management. Independent views
should be formed by the public using the rating symbol.

(5)Human Bias

Findings of the investigation team, at times, may suffer with human bias for unavoidable
personal weakness of the staff and might affect the rating.

(6)Reflection Of Temporary Adverse Conditions

Time factor affects rating. Sometimes, misleading conclusions are derived. For example,
company in a particular industry might be temporarily in adverse condition but it is given a low
rating. This adversely affects the company's interest

(7)Down Grade

Once a company has been rated and if it is not able to maintain its working results and
performance, credit rating agencies would review the grade and down grade the rating resulting
into impairing the image of the company.
(8)Difference In Rating Of Two Agencies

Rating done by the two different credit rating agencies for the same instrument of the same issuer
company in many cases would not be identical. Such differences are likely to occur because of
value judgment differences on qualitative aspects of the analysis in two different agencies.

(9)Conservative Rating

Default by an investment-grade firm is seen as the most costly error for the agency. In order to
preserve their reputation by avoiding the failure of any investment-grade firm, rating agencies
downgrade even "good" firms in response to higher global risk. The downgrades may look self-
fulfilling, but in fact, investors rationally ignore them, as they actually convey no information
about the relative quality of firms
CONCLUSION:
Thus we can say that Credit rating is a qualified assessment and formal evaluation of companys
credit history and capability of repaying obligations. Credit Rating is t the need of the time since
investors should be equipped with easy methods to make their investment decisions. If ratings
are assigned in a proper, systematic, transparent way, then it will be a boon for investors and will
go a long way in making the investment world a safe place. It measures the default probability
of the borrower, and its ability to repay fully and timely its financial debt obligations.

The main purpose of credit rating is to provide investors with comparable information on credit
risk based on standard rating scale, regardless of specifics of companies, separate sector of the
economy and country as a whole.

It is an undisputed fact that CRAs play a key role in financial markets by helping to reduce the
informative gap between lenders and investors, on one side, and issuers on the other side, about
the creditworthiness of companies (corporate risk) or countries (sovereign risk). An investment
grade rating can put a security, company or country on the global radar, attracting foreign money
and boosting a nation's economy. Indeed, for emerging market economies, the credit rating is the
key to showing their worthiness of money from foreign investors. Credit rating helps the market
regulators in promoting stability and efficiency in the securities market. Ratings make markets
more efficient and transparent.

Ratings are opinions on creditworthiness based on objective and subjective analysis. Rating
agencies play an important role in the world markets, they can best serve markets when they
operate independently, adopt and enforce internal guidelines to avoid conflict of interest, and
provide confidential information from issuers.

Credit rating has proven itself to be effective instrument of risk assessment in countries with
advanced economy since it demonstrates transparency of an enterprise. Credit rating reflects
financial, sectorial, operational, legal and organizational sides of companies, which characterize
ability and willingness duly and in full amount to repay obligations.
REFERENCES:
o www.crisil.com
o www.stretcher.com
o www.careratings.com
o www.onicra.com
o www.care.org
o www.careratings.com
o www.smera.in
o www.sebi.gov.in
o www.hindubusiness.com
o www.wikipedia.org