Introduction to Credit Rating

 A credit rating assesses the credit worthiness

of an individual, corporation, or even a
country. Credit ratings are calculated from
financial history and current assets and
liabilities.
 A credit rating tells a lender or investor the
probability of the subject being able to pay
back a loan.
 A poor credit rating indicates a high risk of
defaulting on a loan, and thus leads to high
interest rates.
Introduction to Credit Rating
 An assessment of the credit worthiness of individuals
and corporations. It is based upon the history of
borrowing and repayment, as well as the availability
of assets and extent of liabilities.

 Credit is important since individuals and corporations

with poor credit will have difficulty finding financing,
and will most likely have to pay more due to the risk
of default.
Introduction to Credit Rating
 Moodys’: “Ratings are designed
exclusively for the purpose of grading
bonds according to their investments
qualities”.

 Australian Ratings: ‘A corporate credit

rating provides lenders with a simple
system of gradation by which the relative
capacities of companies to make timely
repayment of interest and principal on a
particular type of debt can be noted’.
Introduction to Credit Rating

 Credit rating is an assessment of the capacity

of the issuer of debt security by an
independent agency, to pay interest and repay
principal as per the terms of issue of debt.
 The ratings are expressed in code numbers
which can be easily comprehended by the lay
investors.
 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.
 A credit rating does not create fiduciary
Functions of Credit Rating Agencies

 Superior information
 Low cost information
 Basis for proper risk, return &
Trade off
 Healthy discipline on corporate
borrowers
 Formulation of public policy
guidelines on Institutional
investment
Benefits of Credit Rating
 Low cost information
 Quick investment decision
 Independent investment
decision
 Investor protection
Benefits to rated companies
 Sources of additional certification
 Increase the investor population
 Forewarns risk
 Encourages financial Discipline
 Merchant bankers job made easy
 Foreign collaborations made easy
 Benefits the industry as a whole
 Low cost of borrowing
 Rating as a marketing tool
Credit Rating Agencies in India
 Credit Rating Information Services
Limited (CRISIL)
 Investment Information and Credit
Rating Agency of India (ICRA)
 Credit Analysis and research
(CARE)
 Duff Phelps Credit Rating Pvt. Ltd.
(DCR India)
Credit Rating Information Services
Ltd.
The first credit agency floated on January 1, 1988.
It was jointly started by ICICI and UTI with an equity
capital of 4 crores.
CRISIL is India's leading rating agency, and is the
fourth largest in the world.

With over a 60% share of the Indian Ratings market,

CRISIL Ratings is the agency of choice for issuers and
investors.
CRISIL Ratings is a full service rating agency that offers a
comprehensive range of rating services. CRISIL Ratings
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.
Credit Rating Information Services
Ltd.
 The principal objective of CRISIL 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.

 CRISIL'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
Credit Rating Information Services
Ltd.
A detailed flow chart of CRISIL's rating process is as
under:
Credit Rating Symbols
Debenture Rating Symbols
High Investment Grades:
AAA(triple A): Highest Safety
AA (double A): High Safety
Investment Grades:
A: Adequate Safety
BBB (triple B): Moderate Safety
Speculative Grades:
BB: Inadequate Safety B: High Risk
C: Substantial Risk D: Default
Investment Information and Credit
Rating Agency of India (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.
 ICRA’s major shareholders include Moody's
Investors Service and leading Indian financial
institutions and banks.
 With the growth and globalisation 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 gradings,
specialised performance gradings and
Investment Information and Credit
Rating Agency of India (IICRA)

 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 Reasearch Services
 Advisory Services
 Economic Research  Outsourcing
Investment Information and Credit
Rating Agency of India (IICRA)

 IICRA was set up by Industrial Finance

Corporation of India on 16th January 1991.

 It is a public limited company with an

authorized share capital of 10 crores.

 The initial paid up capital of Rs. 3.50

crores was subscribed by IFC, UTI, LIC,
GIC SBI and others.
Investment Information and Credit
Rating Agency of India (IICRA)

Long term Debentures Bonds and

Preference shares-Rating Symbols
LAAA: Highest Safety
LAA: High Safety
LA: Adequate Safety
LBBB: Moderate Safety
LBB: Inadequate Safety
LB: Risk prone
LC: Substantial Risk
LD: Default, Extremely speculative
Credit Analysis and Research Limited
(CARE)
 The CARE was promoted in 1993 jointly
with investment companies, banks and
finance companies.

 Services offered by CARE are

Credit rating
Information Service
Equity Research etc
Credit Analysis and Research Limited
(CARE)
Long term debt instruments-Rating
Symbols
CARE AAA: Highest Safety
CARE AA: High Safety
CARE A: Adequate Safety
CARE BB: Inadequate Safety
CARE B: High Risk
For medium term debt instruments
CARE AAA: Highest Safety
CARE AA: High Safety
CARE A: Adequate Safety
CARE BB: Inadequate Safety
CARE C: High Risk