Assignment On Credit Rating

INTRODUCTION TO CREDIT RATING:

CREDIT RATING: A FINANCIAL INSTRUMENT TO POTENTIAL INVESTORS OF DEBT SECURITIES

 A credit rating assesses the credit worthiness of an individual, corporation or even a country.

 Credit ratings are calculated from financial history i.e. it is based upon the history of borrowing and repayment, as well as the availability of assets and extent of liabilities.

 A credit rating tells a lender or investor the probability of the subject being able to pay back a loan.

GOOD CREDIT RATING:

 A good credit rating can be determined through a variety of factors. Your proven credit history , your current debt to income ratio, and your amount of bad debt (unsecured credit card debt, auto loans, etc) versus your amount of good debt (home loans).

 People with a good credit rating generally qualify for prime rates in loans, essentially the standard rate. People with an excellent credit rating can qualify for loans with a lower than prime interest rate.

POOR CREDIT RATING:

 A poor credit rating indicates a high risk of defaulting on a loan, and thus leads to high interest rates.

 Companies rated with poor credit ratings will have difficulty finding finance, and will most likely will have to pay more due to risk of default.

DIFFERENT TYPES OF CREDIT RATING:

Credit ratings are given by both international and national credit rating agencies. Some of the International credit rating agencies are:

* A.M. BEST

* STANDARD AND POORS

* FITCH RATINGS

* MOODY'S

We are required to understand the credit rating scale given by STANDARD AND POOR'S(S&P's).The S&P's rate their companies or country in the scale ranging from excellent to poor in an ascending order as follows:

SCALE GRADES GIVEN DEGREE OF SAFETY TO INVEST

AAA PRIME HIGHEST SAFETY

AA+

HIGH GRADE

HIGH SAFETY

AA

AA-

A+

UPPER MEDIUM GRADE

ADEQUATE SAFETY

A

A-

BBB+ LOWER MEDIUM GRADE

MODERATE SAFETY

BBB

BBB-

BB+

NON- INVESTMENT GRADE- SPECULATIVE

INADEQUATE SAFETY RISK

BB

BB-

B+

HIGHLY SPECULATIVE

HIGH RISK

B

B-

CCC+ SUBSTANTIAL RISKS

SUBSTANTIAL RISK

CCC EXTREMELY SPECULATIVE

CCC-

IN DEFAULT WITH LITTLE PROSPECT FOR RECOVERY

CC

C

D IN DEFAULT DEFAULT(DON'T INVEST)

CREDIT RATING AGENCIES IN INDIA:

 CRISIL -- Credit Rating Information Services Of India Limited

 ICRA --Investment Information and Credit Rating Agency Of India

 CARE -- Credit Analysis & Research Limited

 DCR INDIA -- Duff & Phelps Credit Rating India Private Ltd.

 ONICRA Credit Rating Agency of India Ltd.

Now let us understand the profile of these agencies and process of credit rating undertaken by each of these agencies.

CRISIL -- Credit Rating Information Services Of India Limited

* CRISIL is India's leading ratings agency and 4th largest in the world - that floated on January 1, 1988.

* Jointly started by ICICI and UTI with an equity capital of 4 crores.

* CRISIL 's ratings is the agency of choice for issuers and investors

* A global analytical company providing ratings, research, and risk and policy advisory services.

* The foremost provider of high-end research to the world's largest banks and leading corporations

* Defining trait is their ability to convert data and information into expert judgements and forecasts across a wide range of domains, with deep expertise and complete objectivity.

CRISIL'S PROCESS OF CREDIT RATING:

ICRA --Investment Information and Credit Rating Agency Of India

* ICRA LTD. Was set up on 16th january 1991 as an independent and professional company.

* It was set up by Industrial Finance Corporation of India.

* The initial paid up capital for the company was Rs. 3.50 crores which was subscribed by IFC, UTI,LIC, GIC, SBI & OTHERS.

* ICRA has broad - based its services for the corporate and financial sectors , both in India na d overseas, and currently offers services like:

I. Rating services Information

II. Grading and Research Services

III. Advisory Services

IV. Economic Research Outsourcing

CARE -- Credit Analysis & Research Limited

* Its inception happened in April 1993.

* CARE is recognised by Securities