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corporations with poor credit will have difficulty finding financing, and will more likely have to pay more due to risk of default. which can be easily comprehended by lay investors.
Credit Rating Agency Company that assigns credit ratings for issuers of
instruments.
CRA s scope at present is not only limited to the rating
of debts but they are also undertaking financial analysis & assessment of financial products , individuals , 5/4/12
Credit Rating CRA play a key role in the infrastructure of the modern financial Agency system.
For investors, credit rating agencies increase the range of
investment alternatives and provide independent, easy-to-use measurements of relative credit risk; this generally increases the efficiency of the market, lowering costs for both borrowers & lenders.
This in turn increases the total supply of risk capital in the
economy, leading to stronger growth. It also opens the capital markets to categories of borrower who might otherwise be shut out altogether: small governments, start up companies, hospitals, and universities.
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Functions
Superior information Low cost information Basis for proper risk, return & Trade off Healthy discipline on corporate borrowers Formulation of public policy guidelines on
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Crisil
The first credit agency setup on January 1, 1988, jointly started by ICICI and UTI
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
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. news, analysed data , incisive insights & opinions &expert advice-to enable investors , issuers , policy makers de-risk their business & financial decision making , take informed investment decisions& develop workable solutions.
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ICRA
ICRA was set up by IFCI on 16th January 1991. It is a public limited company with an authorized share capital of Rs.10
PNB, Central Bank of India, Bank of Baroda, UCO Bank and banks (SBI) .
OBJECTIVE - to provide information & guidance to investors for
CARE
It was setup by IDBI in collaboration with some banks &
shares / F.D / CP / information services & equity research extensive study of the shares listed on major stock exchanges through EIL (economy,industry,company) analysis.
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RATING METHODOLOGY
Consists of four areas : -
an analysis of industry risk, market position in the country, operating efficiency of the company & legal position.
Contd.
Information is collected & then analyzed by a team of professionals in an agency. If necessary , meetings with top management suppliers & dealers & a visit to the plant or
proposed sites are arranged to collect additional data. This team of professionals submits their recommendations to the rating committee.
Rating assigned is then notified to the issuer & only on his acceptance , rating is published.
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Rating Symbols
High investment grades:
AAA & AA Highest safety A Adequate safety BBB moderate safety
Limitations
Institutions whose instruments were given highest rating didnt perform
well. For eg. CARE gave the highest rating to CRB capital, which failed, it created a panic among investors & credit agencies.
Frequent revision of grading creates confusion questioning credibility of the
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in the short term. The latest case is NCD issue of BPL which was downgraded by CRISIL from A to D. Investors who depends on these ratings is not given any warning by rating agencies to wind down his investment in time.
THANKYOU. .
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