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Credit Rating The process of assigning a symbol with specific reference to the instrument being rated, that acts as an indicator of the current opinion.

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Presentation on theme: "Credit Rating The process of assigning a symbol with specific reference to the instrument being rated, that acts as an indicator of the current opinion."— Presentation transcript:

1 Credit Rating The process of assigning a symbol with specific reference to the instrument being rated, that acts as an indicator of the current opinion on relative capability on the issuer to service its debt obligation in a timely fashion.

2 Credit Rating Specificity: To a debt instruments Relativity: Rating based on the capability & willingness of the issuer of the instrument to service debt obligations. Guidance: To the investors/creditors Not a Recommendation: No recommendation to buy, hold or sell an instrument

3 Broad Parameters: Information supplied by the issuer & from other sources including personal interactions. No guarantee Quantitative & Qualitative Information

4 Credit Rating Process Contract Between Rater and Client Sending Expert Team to Clients Place Data Collection Data Analysis Discussion Credit Report Preparation Submission to Grading Committee Grade Communication to client

5 Credit Rating System – Growth Factors Every Time a rating is assigned, the agencys name, integrity and credibility are online and subject to inspection by the whole community Factors Like: Objectivity of opinions, Professionalism Relevant Expertise, Strict rules of confidentiality

6 Growth Factors Credibility and Independence Capital Market Mechanism Disclosure Requirements Credit Education Creation of Debt Market

7 International Rating agencies Moodys Investors Service (Moodys) Standard & Poors corporation (S&P) Duff and Phelps Credit Rating Co. (DCR) Japan Credit Rating Agency (JCR)

8 CRISIL Credit Rating and Information Services of India Ltd. Jointly promoted by ICICI, Nationalized and foreign banks, and Insurance Companies in Services Offered are : Rating, Information Services, infrastructure and consultancy.

9 ICRA Investment Information and Credit Rating Agency of India Ltd. Promoted in 1991 by IFCI & 21 other shareholders comprising nationalized banks. Services offered are: Rating Services, Advisory services and investment information services.

10 CARE Credit Analysis & Research Incorporated in 1992 with the combined efforts of IDBI, and several other banks & insurance companies.

11 Ratings ICRA: (Debentures, Bonds & Preference Shares) LAAA (highest safety), LAA+, LAA, LAA- (High safety), LA+,LA, LA-(Adequate safety), LBBB+, LBBB, LBBB-(Moderate Safety), LBB+, LBB, LBB-(Inadequate safety), LB+, LB, LB- (Risk Prone), LC+, LC, LC-(Substantial Risk), LD (Default extremely speculative)

12 Ratings by CRISIL AAA (Highest Safety) AA (High Safety) A (Adequate Safety) BBB (Moderate Safety) BB (Inadequate Safety) B (High Risk) C (Substantial Risk) D (Default)

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