Prepared By:

Chirag kanani
Nirav thanki

MEANING OF CREDIT RATING

A credit rating estimates the credit worthiness of an

individual corporation or even a country. It is an evaluation
made by credit bureaus of a borrower's overall credit history.
Credit rating are based on financial history and current assets
and liabilities.

Typically, a credit rating tells a lender or investor the

profitability of the subject being able to payback a loan.

Commercial credit risk is the largest and most elementary risk

faced by many banks and it is a major risk for many other
kinds of financial institutions and corporations as well.

DEFINITION OF CREDIT RATING

A Credit rating evaluates the credit worthiness of a debtors,

especially a business or a government. It is an evaluation
made by credit rating of the debtors ability to pay back the
dept and the likelihood of default.

Credit ratings are determined by credit rating agencies. The

credit ratings represents the credit rating agencys evaluation
of qualitative and quantitative information for a company or
government; including nonpublic information obtain by the
credit rating agencies analysts.

OBJECTIVES OF CREDIT RATING

The main objective is to provide superior and low cost info
to investors for taking a decision regarding risk return trade
off, but it also help to market participants in the following
ways:
1.

Improves a healthy discipline on borrowers,

2.

Lends greater credence to financial and other representations,

3.

Facilitates formulation of public guidelines on institutional investment,

4.

Encourages greater information disclosure, better accounting standards

and improve financial information helps in inventor protection,

5.

May reduce interest cost for highly rated companies,

6.

Acts as a marketing tool.

TYPES OF CREDIT RATING

Sovereign credit rating :A sovereign credit rating is the credit rating of a national
government. This credit rating indicates the risk level of investing
environment of a country and is used by investors looking to
invest abroad. It takes political risk into account.

Short term rating :A short term rating is a Probability factor of an individual

going into default within a year. In past institution investors
preferred to consider long term ratings but now a days, short term
ratings are commonly use.

TYPES OF CREDIT RATING

Corporate credit rating :The credit rating of a corporation is a financial

indicator to potential investors of dept securities such as bonds and
debentures . The standard & poors rating scale is as follows, from
excellent to poor : AAA, AA+, AA, AA-, A+, A, A-, BBB+, BBB,
BBB-, BB+, BB, BB-, B+, B, B-,CCC+, CCC, CCC-, CC, C, D.
Anything lower than BBB- rating is considered a a speculative or
junk bond.

1.
2.
3.
4.

AAA

: Highest quality; Extremely strong capacity to meet

financial obligation.
BBB
: Medium grade; but adverse condition or changing
circumstances are more.
CCC
: Poor quality; currently vulnerable and depended
upon favorable condition to meet commitments.
D
: Failed to pay one or more of its financial obligations.

BENEFITS OF CREDIT RATING

To the investors

I.

Helps in investment decision

II.

Benefits of ratting reviews

III.

Assurance of Safety

IV.

Choice of instruments

V.

Save investors time and affords

BENEFITS OF CREDIT RATING

To the company

I.

Lower cost of borrowing

II.

improves corporate image

III.

Good for non-popular company

IV.

Act as marketing tool

V.

Helps in growth and expansion.

DEMERITS OF CREDIT RATING

I.

Possibilities of biers exist

II.

Improper disclosure may happen

III.

Impact of changing environment

IV.

Down grading by rating agencies

V.

Difference in rating

TOP CREDIT RATING AGENCIES OF INDIA

ONICRA credit rating agency of india ltd.

Credit rating information services of india ltd. (CRISIL)

Investment information and credit rating agency of India

(ICRA)

Credit analysis and research (CARE)

Duff & phelts credit rating india Pvt. Ltd. (DCR India)

CREDIT RATING METHODOLOGY

Consist of 4 areas;
1. Business analysis :- Covers an analysis of industry risk,
market position in the country, operating efficiency of
company & legal position.
2. Financial analysis :- Analysis of accounting quality,
earnings protection, cash flow adequacy and financial
flexibility.
3. Management Evaluation :- Study of track record of
managements capacity to overcome adverse situation,
goals, philosophy and strategies.
4. Fundamental analysis :- Analysis of liquidity management,
assets quality, profitability and interest and tax sensitivity.

CREDIT RATING METHODOLOGY

Steps :

Information is collected and then analyzed by team of

professionals in an agency.
If necessary, meeting with top management suppliers and
dealers and a visit to the plant of proposed site are arranged
to collect additional data. This team of professionals submit
their recommendation to the rating committee.
Committee discuss this report and then assign ratings.
Rating assigned is then notified to the issuer and only on his
acceptance, rating is published.
Once the issuer decides to use and publish the rating, agency
has to continuously monitor it over the entire life of
instrument, called surveillance.

REGISTRATION

Credit rating agencies are regulated by SEBI.

Registration with SEBI is mandatory for carrying out the
rating business.
Registration fees of Rs. 25000 should be paid to SEBI.

Grant of certificate of registration

SEBI will grant to eligible applicants a certificate of

registration on the payment of a fee of Rs. 500000
subject to certain conditions.

ELIGIBILITY CRITERIA

Is set up and registered as a company.

Has specified rating activity as one of its main objective in
its memorandum of association .
Has a minimum net worth of Rs. 5 Crs.
Has adequate infrastructure
Promoters have professional competence, financial soundness
and a general reputation of fairness and integrity in business
transaction, to the satisfaction of SEBI.
Has employed person with adequate professional and other
relevant experience , as per SEBI directions.

SERVICES OFFERED BY CREDIT RATING

AGENCY
Various services offered by credit rating agencies like
ONICRA, CRISIL, ICRA, CARE, DCR india.

Credit rating services

Advisory services

Creditability first rating and evaluation services

Training services