1. CREDIT RATING AGENCIES

2. Topics - - Functions - Promotion of credit rating agencies
Introduction
- Functions
- Promotion of credit rating agencies
- Top credit rating agencies
- Crisil : introduction, process, instruments, benefits
Role of Crisil
- Icra: introduction, objectives, process, rating scale
3 Code of conduct
- General obligations
- Importance
- Drawbacks and recommendations

3. Credit Rating Agencies
Credit rating: A credit rating is an evaluation of the credit worthiness of a debtor , especially a business (company) or a government.
This evaluation is made by a credit rating agency.
These are expressed in alphabetical or numerical symbols.
Credit Rating Agencies:  A company that assigns credit ratings, which rate a debtor's ability to pay back debt by making timely interest payments and the likelihood of default.
The agencies have Brought revolutionary changes in Indian capital market by introducing various innovations.
Areas of operations: Consultancy,
Research,
Providing advices.

4. Functions Of Credit Rating Agency
Provides unbiased opinion
Provides reliable information
Provides information at minimal cost
Promotes self discipline among corporate borrowers
Provides base for investment decisions
Who can promote a credit rating agency-
Any person belonging to-
Public financial institution
Scheduled commercial bank
Foreign bank operating in India with approval of RBI
Foreign credit rating agencies under Indian law (5 years experience)
Company or body corporate, having continuous net worth of minimum 100 crore (previous five years).

5. Indian Credit Rating Industry
1. CARE
ltd.
CRISIL ltd.
ICRA ltd.
2. ONICRA credit rating agency
4. India Rating
And Research Pvt. Ltd.
3. SMERA

6. CARE- (Credit Analysis And Research Ltd)
Second largest credit rating agencies
Eminent and experienced professionals.
Established : Mumbai in 1993.
Care ratings cover : rating segments such as banks, sub-sovereigns and Ipo gradings.
Regional offices : Ahmedabad, Bangalore, Chennai, Hyderabad, Jaipur, Kolkata, New Delhi, Pune.

7. ONICRA- Onida Individual Credit Rating Agency of India
Established : Haryana (1993).
Leading credit and performance rating agencies.
Provides ratings for : Risk assessment and analytical solutions to –
individuals, msmes and corporate.
3. SMERA- SME Rating Agency of India Ltd.
Founded in : 2005 by  Small Industries Development Bank Of India (SIDBI)
Set up for : Micro, small and medium enterprises (MSME).
Ratings are integral part of the risk assessment process within the lending and investing community.
Instruments rated : IPO, NCDS, commercial papers, bonds, security receipts, fixed deposits etc.

8. 4. India Rating And Research Pvt. Ltd
4. India Rating And Research Pvt. Ltd. - (formerly FITCH Ratings India Pvt.Ltd)
Established in : 1913 in NEWYORK
Subsidiary : of a Fitch group . It is among the top credit rating agencies in India
Provides services to : corporate issuers, financial institutions
(Banks and insurance companies).
Offices located at : Mumbai, Delhi, Chennai, Bangalore, Hyderabad and Kolkata.
Recognized by : The Securities And Exchange Board Of India,
The Reserve Bank Of India and
National Housing Bank.

9. CRISIL CRISIL or Credit Rating Information Services Of India Limited
- global analytical company
- largest and leading credit rating agency in India
(share greater than 80%)
- offers services in manufacturing service and financial sectors
- majority shareholder is standard and poor's(S&P)
- incorporated on january29, 1987 and started operations from
january1, 1988
- is promoted by ICICI ltd along with UTI and
other financial institutions

10. INTRODUCED VARIOUS INNOVATIONS :
Launching of CRISILCARD service in 1990
Launching of the CRISIL 500 Equity Index, in partnership with National Stock Exchange of India Ltd (NSEIL)
Setting up of India Index Services Ltd (IISL) in 1998
Launching of the CRISIL Composite Performance Ranking (CRISIL CPR) in 2000
Setting up of its subsidiary, Global Data Services of India Ltd in 2001

11. Setting up of the Centre for Economic Research (to apply economic principles to live business situations) and CRISIL Market in the year 2002
Launching of Small and Medium Enterprise (SME) in the year 2005
Launching of Complexity Levels in the year 2008.
Launching of Real Estate Star Ratings in 2010 and
In 2014, CRISIL rated India’s first Commercial Mortgage Backed Securities and introduced Fund Management Capability Ratings for the mutual fund.

12. Credit rating process of CRISIL
ISSUER
CRISIL
Request for Rating
Rating team assigned. Team collects Information, conducts preliminary analysis
Signs rating agreement
Provides information and rating fees
Management interactions
With the rating terms
Team conducts site visits
And performs analysis
Analysis presented to rating committee
Accepts the rating
Or Appeal
Rating assigned and communicated to issuer
Rating disseminated and carried in
All ratings kept under continuous surveillance
throughout validity

13. CRISIL’s Credit Rating Scales
These are categorized into following types :
Long Term Scale
Short Term Scale
Long Term Structured Finance Scale
Short Term Structured Finance Scale
Fixed Deposit Scale
Corporate Credit Scale
Rating scale for Long Term Instruments
CRISIL AAA
CRISIL AA
CRISIL A
CRISIL BBB
CRISIL BB
CRISIL B
CRISIL C
CRISIL D
Rating Scale for Short Term Instruments
CRISIL A1
CRISIL A2
CRISIL A3
CRISIL A4
CRISIL D

14. (C) Rating scale for Long Term Structured Finance Instruments
CRISIL AAA (SO)
CRISIL AA (SO)
CRISIL A (SO)
CRISIL BBB (SO)
CRISIL BB (SO)
CRISIL B (SO)
CRISIL C (SO)
CRISIL D (SO)
Rating Scale for Short Term Structured Finance Instruments
CRISIL A1 (SO)
CRISIL A2 (SO)
CRISIL A3 (SO)
CRISIL A4 (SO)
CRISIL D (SO)
(E) Rating Scale for Fixed Deposits
FAAA
FAA FA FB FC FD NM
(F) Corporate Credit Rating Scale
CCR AAA
CCR AA
CCR A
CCR BBB
CCR BB
CCR B
CCR C
CCR D
CCR SD

15. Benefits of CRISIL To MSME (ministry of small and medium enterprises)-
Availability of cheaper and faster credit
Banks give preference to CRISIL reports over other agencies
Govt agencies use it as additional document
Rating services at discounted rates to individuals of these institutions
Financial institutions offer interest rate benefits to high rated entities
To banks-
Internal appraisal process reduced
Customers of bank enjoy concession in rating fee with MOU in place
CRISIL reports will help credit managers at branch in making
internal credit proposal and for taking financing decisions

16. ROLE OF CRISIL CRISIL RATING SERVICES ADVISORY SERVICES
RESEARCH SERVICES
ECONOMY RESEARCH
INDUSTRY RESEARCH
COMPANY REPORTS
CRISIL RISK SOLUTIONS

17. ICRA
ICRA Limited was set up in 1991 by financial institution , commercial banks and financial companies.
it is an independent and professional investment information and credit rating agency.
The international credit rating agency MOODY`S investor services is ICRA’s largest shareholder.

18. OBJECTIVES
Guidance
Transparency
Improve efficiency

19. ICRA’S RATING PROCESS Issuer requests for a rating
Issuer signs rating agreement and pays the rating fee
Issuer provides information
Analysts process the information and meet the management/bankers/auditor
Rating report prepared by analysts
Rating committee assigns rating
Communication of rating to the issuer
Decision of the issuer

20. ICRA’S RATING SCALES LONG TERM RATING SCALE MEDIUM TERM RATING SCALE
SHORT TERM RATING SCALE
LONG TERM STRUCTURED INSTRUMENTS

21. A. DEBT INSTRUMENT RATING
LONG TERM RATING SCALE- It includes all bonds, NCDs and other debt instruments with original maturity exceeding one year.
[ICRA]AAA - Highest degree of safety
[ICRA]AA - High degree of safety
[ICRA]A Adequate degree of safety
[ICRA]BBB - Moderate degree of safety
[ICRA]BB Moderate risk of default
[ICRA]B High risk of default
[ICRA]C Very high risk of default
[ICRA]D Default or expected to be in default soon

22. 2. ICRA’S MEDIUM TERM RATING SCALE (ONLY FOR PUBLIC DEPOSITS)
MAAA - Highest credit quality rating
MAA - High credit quality rating
MA Adequate credit quality rating
MB Inadequate credit quality rating
MC Risk prone credit quality
MD Lowest credit quality rating

23. 3. ICRA’S SHORT TERM RATING SCALE
[ICRA]A1 - Very strong degree of safety
[ICRA]A2 - Strong degree of safety
[ICRA]A3 - Moderate degree of safety
[ICRA]A4 - Minimal degree of safety
[ICRA]D - Default

24. B. ISSUER RATING ICRA’S ISSUER RATING SCALE- LONG TERM
IrAAA - Highest credit rating
IrAA - High credit rating
IrA Adequate credit rating
IrBBB - Moderate credit rating
IrBB Inadequate credit rating
IrB Risk prone credit rating
IrC Lowest credit rating
IrD Default

25. 2. ISSUER RATING SCALE IrA1 - Very strong credit rating
IrA2 - Strong credit rating
IrA3 - Moderate credit rating
IrA4 - Low credit rating
IrD Default

26. C. STRUCTURED FINANCE RATING
LONG TERM STRUCTURED FINANCE INSTRUMENTS
[ICRA]AAA(SO) – Highest degree of safety
[ICRA]AA(SO) - High degree of safety
[ICRA]A(SO) Adequate degree of safety
[ICRA]BBB(SO) - Moderate degree of safety
[ICRA]BB(SO) Moderate degree of default
[ICRA]B(SO) High risk of default
[ICRA]C(SO) Very likelihood of default
[ICRA]D(SO) Default

27. 2. SHORT TERM STRUCTURED FINANCE INSTRUMENTS
[ICRA]A1(SO) - Very strong degree of safety
[ICRA]A2(SO) – Strong degree of safety
[ICRA]A3(SO) – Moderate degree of safety
[ICRA]A4(SO) – Minimal degree of safety
[ICRA]D(SO) - Default

28. D. MUTUAL FUND CREDIT RISK RATING
ICRA’S LONG TERM DEBT FUND CREDIT RISK RATING SCALE
[ICRA]AAAmfs – Highest degree of safety
[ICRA]AAmfs - High degree of safety
[ICRA]Amfs Adequate degree of safety
[ICRA]BBBmfs - Moderate degree of safety
[ICRA]BBmfs Moderate risk of default
[ICRA]Bmfs High risk of default
[ICRA]Cmfs High risk of default

29. 2. ICRA’S SHORT TERM DEBT FUND CREDIT RISK RATING SCALE
[ICRA]A1mfs – Very strong degree of safety
[ICRA]A2mfs - Strong degree of safety
[ICRA]A3mfs - Moderate degree of safety
[ICRA]A4mfs - Minimal degree of safety

30. RATING FOR CLAIM PAYING ABILITY OF INSURANCE COMPANIES
Iaaa- Highest claims for paying ability
Iaa - High claims paying ability
Ia Adequate claims paying ability
Ibbb- Moderate claims paying ability
Ibb- Inadequate claims paying ability
Ib- Weak claims paying ability
Ic- Lowest claims paying ability

31. CREDIT RATING AGENCIES AND CODE OF CONDUCT
SEBI (Credit Rating Agencies ) Regulations were issued in 1990 and then amended in 2003.
Following are some of the regulations:
A credit rating agency shall-
make all efforts to protect the interest of investors.
observe high standards of integrity, dignity and fairness.
fulfill its obligations in prompt, ethical and professional manner.

32. disclose its rating methodology to clients, users and public.
have in place a rating process that reflects consistent and international rating standards.
keep track of all important changes relating to client company.
not indulge in any unfair competition nor shall it wean away the clients of any other rating agency on assurance of higher rating.
not make any untrue statement, suppress any material fact or make any misrepresentation.

33. OTHER GENERAL OBLIGATIONS
Agreement with the client
Monitoring of Rating
Review of Rating
Internal procedures to be Framed
Disclosure of Rating Definitions and Rationale
Maintenance of Books of Accounts Records, etc.
Confidentiality
Rating process

34. IMPORTANCE OF CREDIT RATING AGENCIES
Disseminate information regarding rating free of cost to the interested investors on their websites as well as in print.
Investors are free to contact these agencies and seek more information, if required.

35. DRAWBACKS OF CREDIT RATING
No common website
Conflict of interest
Compensation paid to
analyst is not revealed
Different rating symbols
No standard process of analysis
High level of subjectivity

36. RECOMMENDATIONS
SEBI’s recommendations in regard to the credit rating agencies are:
Operational Audits
Cross-verification of analysis
Standardized Rating symbols
Awareness among general public
Constitute different appeals committee