Credit Rating

Credit Rating

By

Sameer(71) Institute of Public Enterprise

Credit Rating Credit rating is the opinion of rating agency on the relative ability and willingness of title issuer of debt instrument to meet the debt service obligation as & when thy arise

Factors Considered • Security issuers ability to service its debt • Volume & composition of outstanding debt • Stability of future cash flows & earning capacity of company • Interest coverage ratio • Ratio of current assets to current liability

Factors Considered… • Value of assets pledged as collateral security • Market position of the company product • Operational efficiency • Track record of promoters , director & expertise of staff

Credit Rating Process

Benefits of Credit Rating • Easy to raise resource • Reduce cost of borrowing • Reduce cost of public issues • Rating builds up image • Rating facilitates growth • Recognition to unknown companies

Instruments Rated • Equity shares issued by a company • Preference shares issued by a company • Bond/debenture issued by corporate or government • Fixed deposits raised • Borrower who have borrowed money • Assets backed securities

Other Instruments Rated • Country rating • Rating of real estate builders & developers • Chit funds • Rating of states • Rating of banks • Rating for equity

Credit Rating Agencies - India •

Credit Rating Information Services Of India Ltd (CRISIL) – Mumbai

•

Investment Information and Credit Rating Agency of India (ICRA) - New Delhi

•

Credit Analysis and Research Ltd (CARE) – Mumbai

•

Duff and Phelps Credit Rating India Pvt. Ltd. (DCR India) – Mumbai

•

ONICRA Credit Rating Agency of India Ltd - New Delhi

•

Small and Medium Enterprises Rating Agency Limited (SMERA)

Credit Rating Agencies – Abroad • AM Best – USA • Standard and Poor – USA • Fitch Group – USA • Moody’s Investor Service - USA • Capital Intelligence – Cyprus • Rus Rating – Russia

Rating Symbols - For Debentures » AAA

: Highest safety

» AA

: High safety

» A

: Adequate safety

» BBB

: Moderate safety

» BB

: Inadequate safety

» B

: High risk

» C

: Substantial risk

» D

: Default

Fixed Deposits » FAAA: Highest safety » FAA : High safety » FA

: Adequate safety

» FB

: Inadequate safety

» FC

: High risk

» FD

: Default

Short Term Instruments » P1

: Highest safety

» P2

: High safety

» P3

: Adequate safety

» P4

: Inadequate safety

» P5

: Default

Credit Assessment »1

: Very Strong

» 2,3,4

: Strong Capacity

» 5,6,7

: Adequate Capacity

» 8,9,10

: Inadequate Capacity

» 11,12,13

: Poor Capacity

» 14

: Default

Thank You