„
 

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 „
 
A credit rating assesses the credit worthiness of an
individual, corporation, or even a country. It tells a lender or
investor the probability of the subject being able to pay back
a loan.
Credit ratings are calculated from financial history and
current assets and liabilities. The ratings are expressed in
code numbers which can be easily comprehended by the lay
investors.
A poor credit rating indicates a high risk of defaulting
on a loan, and thus leads to high interest rates.
Credit rating, as exists in India, is done for a specific
security and not for a company as a whole.
A debt rating is not one time evaluation of credit risk,
which can be regarded as valid for the entire life of the
security.
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„
 
è It is necessary in view of the growing number of cases
of defaults in payment of interest and repayment of
principal sum borrowed by way of fixed deposits, issue
of debentures or preference shares or commercial
papers.
è aintenance of investors¶ confidence, since defaults
shatter the confidence of investors in corporate
instruments.
è
rotect the interest of investors who can not into merits
of the debt instruments of a company.
è otivate savers to invest in industry and trade.
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„

„
 
The main objective is to ¢
 ¢ 
 

 

 
 
to investors for taking a decision regarding riskè
return trade off, but it also 
¢
  ¢ ¢  in the
following ways;
‡ Improves a healthy discipline on borrowers,
‡ Lends greater credence to financial and other representations,
‡ Facilitates formulation of public guidelines on institutional
investment,
‡ Helps merchant bankers, brokers, regulatory authorities, etc.,
in discharging their functions related to debt issues,
‡ Encourages greater information disclosure, better accounting
standards, and improved financial information (helps in
investors protection),
‡ ay reduce interest costs for highly rated companies,
‡ Acts as a marketing tool
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 „

„
 
„

A uperior information
A Low cost information
A
asis for proper risk, return & Trade off
A Healthy discipline on corporate borrowers
A Formulation of public policy guidelines on Institutional
investment

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„
 

 

A afeguards against bankruptcy
A ecognition of risk
A Credibility of the issuer
A Easy understandability (ratings) of the investment proposal
A avings of resources (time and money)
A Independence of investment and quick investment decision
A Choice of investments
A ood bye to thumb rules
A
enefits of rating surveillance
A Low cost information

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„
 


  „
¢ 
A Low cost of borrowing
A ider audience for borrowing (Increase the investor population)
A ating as a marketing tool
A elf discipline by companies (Encourages financial Discipline)
A eduction of cost in public issues (attract investors with least efforts)
A otivation for growth
A ources of additional certification
A Forewarns (caution) risk
A erchant bankers job made easy
A Foreign collaborations made easy

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„
 



    
   
A aves time, money, energy, and manpower in convincing
their clients about investments.
A Less effort in studying company¶s credit position to convince
their clients.
A Easy to select profitable investment security
A Helps to improve business

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 „
 
„

|. Credit ating Information ervices Limited (CI IL)
2. Investment Information and Credit ating Agency of
India (ICA)
3. Credit Analysis and research (CAE)
4. Duff
helps Credit ating
vt. Ltd. (DC India)
and
5. Onicra Credit ating Agency of India Limited: Is an
established player in the individual credit assessment
and scoring services space in the Indian market.

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 „      
 
  „ 
The first credit agency floated on January |, |

, jointly started by ICICI
and UTI with an equity capital of s. 4 crores, as public Ltd company.
„¢ 
   
„ 
    
   
ICICI |5
UIT |5
Asian Development
ank |5
LIC of India 05
IC & its ubsidiaries 05

I 05
HDFC 05
Nationalized
anks A
OI,
O
, UCO, Canara bank, Central
ank of India, Allahabad |

bank, IO
, Vysya
ank, and
ank of adura

Foreign
anksA C
ank,
anque Indoè uez, itsui bank,
ank of Tokyo, Hongkong |

ank, Citi
ank, rindlays
ank, Deutsche
ank, Ociete eneral
anque, Nationale de

aris.

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 „      
 
  
„ 
‡ The first credit agency floated on January |, |

, jointly
started by ICICI and UTI with an equity capital of s. 4 crores,
as public Ltd company.
‡ CI IL is India's leading rating agency, and is the fourth
largest in the world.
‡ ith over a 60% share of the Indian atings market, CI IL
atings is the agency of choice for issuers and investors.
‡ CI IL atings is a full service rating agency that offers a
comprehensive range of rating services. CI IL atings
provides the most reliable opinions on risk by combining its
understanding of risk and the science of building risk
frameworks, with a contextual understanding of business.

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 „      
 
  
„ 


 
 „   The principal objective of CI IL is to rate

the debt obligations of Indian companies. Its rating guides the
investors about the risk of timely payment of interest and
principal on a particular debt instrument.
„     „
   CI IL's rating process and rating
committee are designed to ensure that all assigned ratings are
based on the highest standards of independence and analytical
rigor.
The rating committee comprises members who have the professional
competence to meaningfully assess the credit analysis that
underlies the rating, and have no interest in the entity being rated.
A team of analysts carries out the credit analysis.

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 „      
 
  

 „ 

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Our service offerings are underlined by analytical rigour. e blend inè
depth conceptual understanding A the science of building analytical
frameworks A with the art of evaluation.
CI IL combines an extensive knowledge base, understanding of the
dynamics of business and the market place, expertise, judgment and
experience to offer worldèclass solutions to clients.
Our
olicy level assignments in the area of Infrastructure Advisory are but
one example of this.
  ¢  
e pride on being nonèpartisan and unbiased.
Our culture fosters objectivity and neutrality of views and opinions.
Independence and objectivity are ingrained in our processes and call for
a participatory approach, individual thinking and transparency for
arriving at logical conclusions.
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 „      
 
  
_    
„ 

Our credibility in the market place is the result of unimpeachable integrity, honesty
and transparency in our work and dealings.
Our people are characterised by a strong sense of fairness and ethics. CI IL seeks
to become the benchmark on integrity by adopting the best professional
practices regarding client confidentiality, integrity of analysis and lack of bias
p 
 

Our dedicated Centres of Excellence provide thought leadership. The core teams
lead the way by developing and sharing insights from the extensive corpus
available, building innovative analytical frameworks and developing new
methodologies and products in line with requirements of the market place.
 „
   e are committed to«
etting standards for integrity, analytical rigour and best practices in the
marketplace
Consistently providing value to constituents through analytically relevant and
reliable opinions and solutions
Upholding independent evaluation processes and a nonèpartisan, unbiased and
fearless approach to functioning

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 „  
„


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 „  

     


High Investment rades:
AAA (triple A): Highest afety
AA (double A): High afety
Investment rades:
A: Adequate afety



(triple
): oderate afety
peculative rades:


: Inadequate afety

: High isk
C: ubstantial isk
D: Default

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 „  

¢
    


A FAAA (triple A): Highest afety
A FAA (double A): High afety
A FA: Adequate afety
A F
: Inadequate afety
A FC: High isk
A FD: Default
  

     
A
è|: Timely payment very strong
A
è2: trong
A
è3: Adequate afety
A
è4: inimal
A
è5: Expected to be in default on maturity or is in default

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„ 
mey factors considered for rating are:
|.
usiness Analysis,
2. Financial Analysis,
3. anagement evaluation,
4. egulatory and competitive environment, and
5. Fundamental analysis.
Factors listed above at serial numbers |, 2, and 3 are
evaluated for manufacturing companies, while 4 and 5
factors are used to evaluate finance companies apart
from the |, 2 and 3 factors.
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„ 

    
 A Industry risk, market position and
operating efficiency of the company, legal position.
   
 
 A Accounting quality, earnings
position, adequacy of cash flows, and financial flexibility.
_  

 
A oals, philosophy, strategies,
ability to overcome adverse situations, managerial talents
and succession plans, commitment, consistency and
credibility.
p 

   „
¢  

 è
   
 
 A Liquidity management, assets
quality, profitability and financial position, interest and
tax sensitivity.
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 „     
 
 „ 
ICA was set up by IFCI on |6th January | |.
ICA Limited is an Associate of oody's Investors
ervice and an independent and professional company.
It is a public limited company with an authorized share
capital of s.|0 crores, s. 5 crores is paid up.
ICA¶s major shareholders IFCI (26%), and the balance by
UTI, LIC, IC,
N
, Central
ank of India,
ank of

aroda, UCO
ank and banks (
I)

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„

„ 
To access the credit instrument and award it a grade
consonant to the risk associated with such instrument.
è To assist investors in making well informed investment
decision
è To assist issuers in raising funds from a wider investors
base
è To enable banks, investment bankers and brokers in
placing debt with investors by providing them with a
marketing tool
è To provide regulators with a market driven system to
encourage the healthy growth of the capital markets in a
disciplined manner without costing an additional burden
on the
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overnment for this purpose. 
   !" #
A Create awareness of the rating concept and benefits
among issuers, investors, regulators, and financial
institutions.
è in the credibility, confidence and trust of the
constituents by demonstrating that its methodology is
transparent and its ratings are independent and consistent.
è Aggressively focus on business development whitish
would result in a significant increase in the volume of
rating assignments and spur the ovt. into introducing an
exclusively marketèdriven interest rate structure.

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 „     
 
 „ 
è ith the growth and globalisation of the Indian capital markets
leading to an exponential surge in demand for professional credit
risk analysis, ICA has been proactive in widening its service
offerings, executing assignments including credit ratings, equity
gradings, specialised performance gradings and mandated studies
spanning diverse industrial sectors.
è In addition to being a leading credit rating agency with expertise in
virtually every sector of the Indian economy, ICA has broadè
based its services for the corporate and financial sectors, both in
India and overseas, and currently offers its services under the
following banners:
A ating ervices Information.
A rading and esearch ervices.
A Advisory ervices.
A Economic esearch Outsourcing.
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 „     
 
 „ 

Long term Debentures,
onds and
reference sharesèating
ymbols
LAAA : Highest afety
LAA : High afety
LA : Adequate afety
L


: oderate afety
L

: Inadequate afety
L
: isk prone
LC : ubstantial isk
LD : Default, Extremely speculative

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 „     
 
 „ 

   
  ¢
    


AAA: Highest afety AA: High afety
A : Adequate afety
: Inadequate afety
C : isk prone D : Default

   
 „
Aè|: Highest afety Aè2: High afety
Aè3: Adequate afety Aè4: isk prone
Aè5: Default

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„ 
The rating methodology comprises the study of industry as
well as the company¶s OT analysis.
è arketing strategies,
è Competitive edge,
è Level of technological development,
è Operational efficiency,
è Competence and effectiveness of management,
è HD policies and practices,
è Hedging of risks,
è Cash flow trends and potential,
è Liquidity,
è Financial flexibility,
è Asset quality and past record of servicing debts and obligations, and
è overnment policies and status affecting the industry.

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 „   
    
„

‡ Incorporated in April | 3, is a credit rating, information and
advisory services company promoted,
‡
y Industrial Development
ank of India (ID
I), Canara

ank, Unit Trust of India (UTI) and other leading banks and
financial services companies. In all CAE has |4
shareholders. Canara
ank, UTI, Credit Capital Venture Fund (I)
Ltd, undaram Finance Ltd, The Federal
ank Ltd, The Vysya

ank, First Leasing Company of India, ITC Classic Finance Ltd,
motak ahindra Finance Ltd, IF
Leasing and Finance Ltd,
malimati Investment Company Ltd, The Investment Corporation of
India Ltd, Varuna Investments Ltd, and 20the Century Finance
Corporation Ltd.

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 „   
    „


ervices offered by CAE are

|. Credit rating
2. Information services
3. Equity research, and
4. Advisory services

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 „

 
  
‡ „  ¢
  CAE offers credit reports on companies based on
published information and CAE's inèhouse data base. These
confidential credit reports are useful to entities considering financing
options, joint ventures, acquisitions and collaborations with Indian
companies.
‡ 
   CAE from time to time conducts studies on select
sectors of the Indian economy, particularly those which were largely
government controlled and funded till recently, but have been thrown
open for private investment. tudies on the Indian
ower ector,
Fertilizer Industry and unicipal Finances have been completed. CAE
has also prepared reports on twelve of the larger states of the Indian
Union, which account for the bulk of foreign direct investment into
India. CAE also regularly prepares reports on important segments of
the Indian economy. These reports are used by industry participants,
financial intermediaries and also by analysts in CAE for their rating
reports.
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 „


‡ 
 
   è For financing its infrastructure,
India is increasingly relying on private sector participation.
CAE uses the expertise gained in evaluating the credit risk of
projects in areas such as roads, ports, power and telecom to
advise investors and banks about the regulatory framework, the
specific project risks and the ways of risk mitigation. CAE has
helped independent power producers in India understand the
functioning of the principal power purchasers, the tate
Electricity
oards and evaluate options for mitigating purchaser
risk. CAE has also worked closely with project sponsors to
structure their debt securities based on estimates of cash flows.

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 „


‡   
      The business risk faced by Indian companies
increased following the liberalisation of Indian economy in | |. To
compete in the changed environment, companies have had to reassess
their capital structures. CAE uses its knowledge about various industry
sectors to advise companies about the optimal capital structure and the
financial restructuring options.
‡ 
 
è CAE carries out enterprise valuations for company
managements, prospective and exisiting business partners or large
investors. The Disinvestment Commission, overnment of India, has
used CAE's services for valuing 20 state owned enterprises.
‡ „  ¢¢ 
   CAE helps banks and non banking
finance companies to set up or modify their credit appraisal systems.
‡      CAE's Advisory division also publishes a
monthly bulletin "debt market review" on the happenings in the debt
market and general development in the economy in the previous month.
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 „


„      
è CAE's Credit ating is an opinion on the relative ability and
willingness of an issuer to make timely payments on specific debt or
related obligations over the life of the instrument.
è CAE rates rupee denominated debt of Indian companies and Indian
subsidiaries of multinational companies.
è CAE undertakes credit rating of all types of debt and related
obligations (all types of medium and long term debt securities such as
debentures, bonds and convertible bonds and all types of short term debt
and deposit obligations such as commercial paper, interècorporate
deposits, fixed deposits and certificates of deposits).
è CAE also rates quasièdebt obligations such as the ability of insurance
companies to meet policyholders obligations.
è CAE's preference share ratings measure the relative ability of a
company to meet its dividend and redemption commitments.

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 „   
    „

‡ Long term debt instrumentsèating ymbols
CAE AAA : Highest afety
CAE AA : High afety
CAE A : Adequate afety
CAE

: Inadequate afety
CAE
: High isk
‡ edium term debt instrumentsèating ymbols
CAE AAA : Highest afety
CAE AA : High afety
CAE A : Adequate afety
CAE

: Inadequate afety
CAE C : High isk

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 „


         



 |: uperior capacity

 2: trong capacity

 3: Adequate capacity

 4: inimal degree of safety

 5: Default or likely in default on maturity
.„   
   
CAE |: Excellent Debt anagement Capacity
CAE 2: Very good Debt anagement Capability
CAE 3: ood capability for Debt anagement
CAE 4:
arely satisfactory capability for debt management
CAE 5:
oor capability for debt management

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 „


_
           
  
è CAE's I
O grading is a service aimed at facilitating the assessment
of equity issues offered to public.
è CAE's I
O grading is an independent and professional opinion on
the fundamentals of the issuer.
è The grade assigned to any individual issue represents a relative
assessment of the 'fundamentals' of that issuer.
 
 
  ¢ ¢ 
è CAE¶s I
O grading would help the investors particularly the retail
investors better appreciate the meaning of the disclosures in the issue
document to the extent that they affect its fundamentals. I
O grading is
expected to be one of the inputs in the investor¶s decision making
process.
è oreover, such a service would be particularly useful for assessing the
offerings of companies accessing the equity markets for the first time
where there is no track record of their market performance. Issuers
would also benefit from CAE's I
O grading as it would help them in
benchmarking themselves in the market place.
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 „


_
       
  
 
   

‡ As I
O grading does not take cognizance of the price of the security,  

 
  






   
‡ They are not a comment on the offer price or the listed price of the
scrip.
‡ They do not imply that CAE performs an Audit function or forensic
exercise to detect fraud.

  

‡ CAE would assess the overall fundamentals of an I
O on a fiveèpoint
scale. Highest score to be assigned by CAE to any I
O would be 5
and the lowest score would be |.

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 „



  

„

 

 

CAE I
O rade 5 Evaluation
CAE I
O rade 4 trong fundamentals
CAE I
O rade 3 Average fundamentals
CAE I
O rade 2
elow average fundamentals
CAE I
O rade |
oor fundamentals

  

„
  „

equests for grading |. CAE's grading team commences assignment
ubmits offer document & other information 2. The grading team analyses the information.

Interacts with the grading team, responds to 3. The grading team interacts with clients, undertakes
queries raised and provides any site visits, and analyses data submitted by the client.
additional data
4. Internal committee previews analysis.
5. ADIN CO ITTEE awards grading to I
O
Accepts grading * 6. Notification in press
* „
 
 
       

 
 

 
¢ ¢

 
 

 
¢ 


¢    
  
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 „



   „    CAE would assess the fundamentals of an
issue based on the following factors:
w    A growth prospects of the industry, financial strength &
operating performance of the issuer
w
   è business fundamentals & prospects, management
quality, promoter evaluation, accounting policies, corporate
governance practices, project risk, and compliance and litigation
history.
CAE would consider a time horizon of around 3 years for its
assessment.

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„

CAE has prescribed a format for obtaining requisite information
required for rating the instruments. These are different formats
for manufacturing company, and for financial services
company.
The formats collects information relating to key factors business
analysis, financial analysis, management evaluation, regulatory
and competitive environment, and fundamental analysis.

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„ 
‡ In India there has been a absence of rating agency for individuals.
‡ ONICA has filled this gap and it is the India¶s first individual
credit rating system.
‡ It brings to India the internationally established concept of
providing credit rating of individuals, for the use of lending
institutions.
‡   
  
 ONICA credit rating systems is based on
the sophisticated software developed in collaboration with James
artin & Co, that has provided to ONICA the most
comprehensive methodology that addresses the needs of a mega
credit rating system
ONICA takes up credit rating for individuals customer at the
request of a lending firm/institution. In the process customer is
required to fill the form given by ONICA.
 
    It is beneficial to lenders because it saves time,
and helps in concentrating on core area of interest.
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|
  

„
 
‡
iased rating and misrepresentation,
‡ tatic study,
‡ Concealment of material information,
‡ No guarantee for soundness of the company,
‡ Human bias,
‡ eflection of temporary and adverse conditions,
‡
resent rating may change (down grade),
‡ Differences in rating of two agencies.

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