CREDIT RATING

Credit Ratings

• An assessment of the credit worthiness of a borrower.

• It can be assigned to any entity that seeks to borrow money – an individual, corporation, state or provincial authority, or sovereign government.

• Based on the soundness of Financial Statements of the borrower and the lending and borrowing done by it in the past.

Credit Rating Agency

• Credit rating agency, also called a ratings service, is a company that assigns credit ratings.

• Each agency applies its own methodology in measuring creditworthiness and uses a specific rating scale to publish its ratings opinions

• The credit rating has an inverse relationship with the possibility of debt default.

Corporate Credit Rating ScaleCCR AAA - Highest degree of strength with regard to honoring debt obligations.

CCR AA - High degree of strength with regard to honoring debt obligations.

CCR A - Adequate degree of strength with regard to honoring debt obligations.

CCR BBB - Moderate degree of strength with regard to honoring debt obligations.

CCR BB - Inadequate degree of strength with regard to honoring debt obligations.

CCR B - High Risk and greater susceptibility with regard to honoring debt obligations.

CCR C - Substantial Risk with regard to honoring debt obligations.

CCR D - the entity is in Default of some or all of its debt obligations.

CCR SD - the entity has Selectively Defaulted on a specific issue or class of debt obligations, but will continue to meet its payment obligations on other issues or classes of debt obligations.

Benefit of Credit Rating

To the investors

Helps in Investment Decision : Credit rating gives an idea to the

investors about the credibility of the issuer company, and the risk factor attached

to a particular instrument.

Saves Investor's Time and Effort : Credit ratings enable an investor to save his

time and effort in analyzing the financial strength of an issuer company.

Choice of Financial Instruments : Credit rating enables an investor to select a

particular instrument from different alternatives available. This choice depends

upon the safety or risk of the instrument.

Assurance of Safety : High credit rating gives assurance to the investors about

the safety of the instrument and minimum risk of bankruptcy.

Benefit of Credit Rating

To the company

Improves Corporate Image : Credit rating helps to improve the corporate

image of a company. High credit rating creates confidence and trust in the

minds of the investors about the company.

Wider Audience for Borrowing : A company with high rating for its

instruments can get a wider audience for borrowing. It can approach financial

institutions, banks, investing companies.

Helps in Growth and Expansion : Credit rating enables a company to grow

and expand. This is because better credit rating will enable a company to get

finance easily for growth and expansion

ICRA

•ICRA Limited (ICRA) is an Indian independent and professional investment information and credit rating agency

•Second largest Indian rating company in term of customer base

•Headquarters-Gurgaon, India

•Currently Naresh Takkar, CEO

• Founded1991

• Originally named Investment Information and Credit Rating Agency of India Limited (IICRA India)

• Company changed its name to ICRA Limited, and went public on 13 April 2007, with a listing on the Bombay Stock Exchange and the National Stock Exchange

ICRA Rating Scale

• Long-Term rating Scale All Bonds, NCDs, and other debt instruments (excluding Public Deposits) with original maturity exceeding one year.

• ICRA’s Medium-Term Rating Scale (only for Public Deposits)

• Short-Term Rating Scale All instruments with original maturity within one year.

CRISIL.• CRISIL is a global analytical company providing ratings, research, and risk and policy

advisory services.

• On January 29 1987: CRISIL, India's first credit rating agency, is incorporated, promoted by the erstwhile ICICI Ltd, along with UTI and other financial institutions.

• Mr. N Vaghul and Mr. Pradip Shah are CRISIL's first Chairman and Managing Director, respectively.

• CRISIL's majority shareholder is Standard and Poor's (S&P). Standard & Poor's, a part of McGraw Hill Financial (formerly The McGraw-Hill Companies) (NYSE:MHFI), is the world's foremost provider of credit ratings.

• In India the customers base range from small enterprises to the largest corporations and financial institutions, outside India their customers base includes the world’s largest banks and leading corporations. They also work with governments and policy-makers in India and other emerging markets in the infrastructure domain.

Types of rating done by CRISIL.

• Credit Ratings List

• Bank Loan Ratings (Basel II) List

• SME Ratings List

• NSIC Ratings List

• Real Estate Ratings List

• Other Ratings List

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