Delawar Barekzai

Objectives of the
Seminar
 How credit rating system helps Investors
 Should the credit rating system be
mandatory
 How businesses are affected from
wrong credit ratings.
 ?What is Credit Rating
 A credit rating is an evaluation of a potential
borrower's ability to repay debt.

 It estimates the credit worthiness of an

individual, corporation, or even a country.

 Credit score affects a person’s ability to borrow

money through financial institutions such as banks.
Personal credit rating
The factors which may influence a person's
credit rating are;
 Ability to pay a loan
 Interest
 Amount of credit used
 Saving patterns
 Spending patterns
 Debt
Corporate credit ratings
 The credit rating of a corporation is a
financial indicator to potential investors
of debt securities such as bonds.

 The Standard & Poor's rating scale is as

follows, from excellent to poor: AAA, AA, A,
BBB, BB, B, CCC, CC, C, D.
Credit Rating in India
 FAAA (F-Triple A) Highest Safety
 FAA (F-Double A) High Safety
 FA Adequate Safety
Speculative Grades;
 FB Inadequate Safety
 FC High Risk
 FD Default
Credit Agencies
 These agencies help, evaluate and report
on the risk involved with various
investment alternative.

 Rating agencies have recently begun to

aggressively downgrade large amounts
of mortgage-backed debt.
…‍Cont
 Public credit rating agencies are considered
more trustworthy;
EX:
Credit Rating Information Services of India Limited (CRISIL)
Investment Information and Credit Rating Agency of India (ICRA)
Credit Analysis & Research Limited (CARE)

 Private credit rating agencies sometime give

wrong rating.
Instruments for rating
 Equity shares
 Preference shares
 Debentures
 Commercial papers
 Fixed Deposits , etc.

Other ratings:
Country rating, Rating or real estate builders &
developers, chit funds, Banks, etc.
Pros & Cons of Credit
Ratings
Pros
 People with good credit are at an
advantage because their credit files will
only enhance their ability to borrow.

 Lenders have the advantage of being

able to reward or punish people with
their reports.
Cont…
 It
helps to evaluate on the risk involved
with various investment alternative.

 It helps the issuers of the debt

instrument to price their issue correctly
and to reach out to new investors.
Cont…
 Easy to raise funds

 Freedom on decision
Cons

 Sometimes incorrect credit information is

reported, or a consumer's identity is stolen.

 Wrong credit rating will affect the business

and foreign people invested in our country.
Entries such as lawsuits, bankruptcies on a credit file are
among the most serious.
Cont…
 Non disclosure of significant information

 Static study

 Rating is not certificate of soundness

Effects of wrong credit
ratings
 Wrong credit rating will cause credit crunch.

 Many banks are closed due to credit crunch.

 Many lenders have been hit hard, because the crunch has resulted
in increased difficulties in:
Getting finance on the wholesale money market
Increased cost costs relating to inter bank lending
Conclusion
A credit rating is a useful tool for both
investor & entities looking for investors.

 An investment grade rating can put a

security, company or country on the
global radar.

 Itshows the worthiness of money from

foreign investors.
Group Stand
 Ourgroup support that the credit rating
helps the investors a lot and should be
mandatory for all financial institutes.
Suggestions
 The credit rating should be done accurately in
order to avoid credit crunch in the market.

 Financial institution should take care while

giving loans to the borrowers, so that they issue
appropriate information to them.