History Of Credit Rating In India
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HISTORY OF CREDIT RATING IN INDIA FIRST
EMERGED IN 1940s FOLLOWING THE FINANCIAL CRISIS OF 1937 IN NEW YORK. THE STANDARDS &POOR WAS FORMED IN 1941. IN 1970s A NUMBER OF CREDIT RATING COMPANIES STARTED OPERATIONALL OVER THE WORLD.
CREDIT RATING IN INDIA
THE CONCEPT CAME IN INDIA IN 1987 WITH THE SETTING UP OF CRISIL. AS THE SCOPE OF CREDIT RATING WIDENED ICRA & CARE WAS SET UP IN 1991 & 1993 RESPECTIVELY. THE FIRST PRIVATE SECTOR CREDIT RATING INSTITUTION WAS DUFFS & PHELPS CREDIT RATING INDIA PVT.LTD FORMED IN 1995(AFTER ANOTHER MERGER WITH DCR IT’S KNOWN AS FITCH INDIA LTD).
DEFINITION OF CREDIT RATING
“CREDIT RATING IS AN UNBIASED,OBJECTIVE AND
INDEPENDENT OPINION AS TO AN ISSUER’S CAPASITY TO MEET FINANCIAL OBLIGATIONS.”-CRISIL “CREDIT RATING IS A SIMPLE AND EASY TO UNDERSTAND SYMBOLIC INDICATOR OF THE OPINION OF A CREDIT RATING AGENCY ABOUT THE RISK INVOLVED IN A BORROWING PROGRAMME OF AN ISSUER WITH REFERENCE TO THE CAPABILITY OF THE ISSUER TO REPAY THE DEBT AS PER TREMS OF ISSUE.THIS IS NEITHER A GENERAL PURPOSE EVALUATION OF THE COMPANY NOR A RECOMMENDATION TO BUY, HOLD OR SELL A DEBT INSTRUMENT.” -ICRA
NEED FOR CREDIT RATING 1.
2.
3. 4.
5.
THE INCREASING ROLE OF MONEY & CAPITAL MARKET CONSEQUENT TO DISINMTERMEDIATION. INCREASED SECURITISATION OF BORROWING AND LENDING CONSEQUENT TO DISINMTERMEDIATION. GLOBALISATION OF CREDIT MARKET. WITHDRAWAL OF GOVERNMENT SAFETY NETS & THE TREND TOWARDS PRIVATISATION. GROWTH OF CONFIDENCE IN THE EFFICIENCY OF OPEN MARKET MECHANISM.
IMPORTANCE OF CREDIT RATING 1.
CREDIT RATING & INVESTOR.
3.
CREDIT RATING & THE ISSUER.
5.
CREDIT RATING & THE INTERMEDIARIES.
7.
CREDIT RATING & THE REGULATORY BODIES.
RATING METHODOLOGY THE RISK FACTOR. 2. EXAMINING THE INCONSISTENCIES. 3. STREES ON FUNDAMENTALS. a) INDUSTRY OUTLOOK b)MANAGEMENT QUALITY c)ACCOUNTING PRACTICES d)FINANCIAL POSITION SHORT TERM LIQUIDITY f)RATIO ANALYSIS 4.STRUCTURAL FACTORS 5.GLOBAL CHANGES 1.
RATING PROCESS:INDIAN SCENARIO 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.
INITIAL CONTACT MEETING COMPANY EXECUTIVES MEETING THE MANAGEMENT ASSIGNMENT TO ANALYST TEAM PREPARATION OF RATING PROFILE. PRESENTATION BEFORE THE COMMITTEE RATING DECISION NOTIFICATION OF RATING ISSUE’S REPRESENTATION REVIEW BY RATING COMMITTEE
FACTORS CONSIDERED
MANUFACTURING-INDUSTRY RISK,MARKET POSITION,OPERATING EFFICIENCY,LEGAL POSITION,ACCOUNTING QUALITY,EARNINGS PROTECTION,CASH FLOW,FINANCIAL FLEXIBILITY. FINANCIAL-LIQUIDITY MANAGEMENT,ASSET QUALITY,PROFITABILITY,FINANCIAL POSITION,INTEREST&TAX SENSIVITY, REAL ESTATE INDIAN STATES BANKS
DIVERSIFICATION OF BUSINESS
INSURANCE COMPANIES HEALTH CARE INSTITUTION CORPORATE GOVERNANCE RATING CONSULTANTS RATING EDUCATIONAL INSTITUTIONS RATING ADVISORY SERVISES TO STATE GOVT.
EMERGED IN 1940s FOLLOWING THE FINANCIAL CRISIS OF 1937 IN NEW YORK. THE STANDARDS &POOR WAS FORMED IN 1941. IN 1970s A NUMBER OF CREDIT RATING COMPANIES STARTED OPERATIONALL OVER THE WORLD.
CREDIT RATING IN INDIA
THE CONCEPT CAME IN INDIA IN 1987 WITH THE SETTING UP OF CRISIL. AS THE SCOPE OF CREDIT RATING WIDENED ICRA & CARE WAS SET UP IN 1991 & 1993 RESPECTIVELY. THE FIRST PRIVATE SECTOR CREDIT RATING INSTITUTION WAS DUFFS & PHELPS CREDIT RATING INDIA PVT.LTD FORMED IN 1995(AFTER ANOTHER MERGER WITH DCR IT’S KNOWN AS FITCH INDIA LTD).
DEFINITION OF CREDIT RATING
“CREDIT RATING IS AN UNBIASED,OBJECTIVE AND
INDEPENDENT OPINION AS TO AN ISSUER’S CAPASITY TO MEET FINANCIAL OBLIGATIONS.”-CRISIL “CREDIT RATING IS A SIMPLE AND EASY TO UNDERSTAND SYMBOLIC INDICATOR OF THE OPINION OF A CREDIT RATING AGENCY ABOUT THE RISK INVOLVED IN A BORROWING PROGRAMME OF AN ISSUER WITH REFERENCE TO THE CAPABILITY OF THE ISSUER TO REPAY THE DEBT AS PER TREMS OF ISSUE.THIS IS NEITHER A GENERAL PURPOSE EVALUATION OF THE COMPANY NOR A RECOMMENDATION TO BUY, HOLD OR SELL A DEBT INSTRUMENT.” -ICRA
NEED FOR CREDIT RATING 1.
2.
3. 4.
5.
THE INCREASING ROLE OF MONEY & CAPITAL MARKET CONSEQUENT TO DISINMTERMEDIATION. INCREASED SECURITISATION OF BORROWING AND LENDING CONSEQUENT TO DISINMTERMEDIATION. GLOBALISATION OF CREDIT MARKET. WITHDRAWAL OF GOVERNMENT SAFETY NETS & THE TREND TOWARDS PRIVATISATION. GROWTH OF CONFIDENCE IN THE EFFICIENCY OF OPEN MARKET MECHANISM.
IMPORTANCE OF CREDIT RATING 1.
CREDIT RATING & INVESTOR.
3.
CREDIT RATING & THE ISSUER.
5.
CREDIT RATING & THE INTERMEDIARIES.
7.
CREDIT RATING & THE REGULATORY BODIES.
RATING METHODOLOGY THE RISK FACTOR. 2. EXAMINING THE INCONSISTENCIES. 3. STREES ON FUNDAMENTALS. a) INDUSTRY OUTLOOK b)MANAGEMENT QUALITY c)ACCOUNTING PRACTICES d)FINANCIAL POSITION SHORT TERM LIQUIDITY f)RATIO ANALYSIS 4.STRUCTURAL FACTORS 5.GLOBAL CHANGES 1.
RATING PROCESS:INDIAN SCENARIO 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.
INITIAL CONTACT MEETING COMPANY EXECUTIVES MEETING THE MANAGEMENT ASSIGNMENT TO ANALYST TEAM PREPARATION OF RATING PROFILE. PRESENTATION BEFORE THE COMMITTEE RATING DECISION NOTIFICATION OF RATING ISSUE’S REPRESENTATION REVIEW BY RATING COMMITTEE
FACTORS CONSIDERED
MANUFACTURING-INDUSTRY RISK,MARKET POSITION,OPERATING EFFICIENCY,LEGAL POSITION,ACCOUNTING QUALITY,EARNINGS PROTECTION,CASH FLOW,FINANCIAL FLEXIBILITY. FINANCIAL-LIQUIDITY MANAGEMENT,ASSET QUALITY,PROFITABILITY,FINANCIAL POSITION,INTEREST&TAX SENSIVITY, REAL ESTATE INDIAN STATES BANKS
DIVERSIFICATION OF BUSINESS
INSURANCE COMPANIES HEALTH CARE INSTITUTION CORPORATE GOVERNANCE RATING CONSULTANTS RATING EDUCATIONAL INSTITUTIONS RATING ADVISORY SERVISES TO STATE GOVT.
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