Submitted To:

Submitted To: Dr. Shweta Anand

Submitted By: Arun Kumar Arya Priyavarat Sunil Bansal Vijendra Singh Vivek Khantwal Group no-12

Comparative Analysis of Credit Rating Agencies & Credit Rating of India & USA Parameters used in analysis……… 1. 2. 3. 4. 5.

Location covered Services Offer Instrument Rated Process Rating Scale

Topics Covered…… • Introduction • Credit Rating Agencies Overview •Indian Agencies • CRISIL • CARE • ICRA • ONICRA • USA Agencies •A.M. Best •Fitch Ratings •S & P • Moody’s • Comparative Analysis •Interpretations •Conclusion •Some Common Questions

• Introduction • Credit Rating Agencies Overview •Indian Agencies • CRISIL (Credit rating information services of India ltd.) • CARE (Credit Analysis & Research Ltd.) • ICRA (Investment and Credit Rating Agency of India Limited) • ONICRA • USA Agencies

•A.M. Best •Fitch Ratings •S & P • Moody’s • Comparative Analysis •Interpretations •Conclusion •Some Common Questions

Introduction Crediting Rating is essential to the every market but it is very to the financial market. In India credit rating is new concept than USA. But it is growing with the pace & now we have world class agencies like CRISIL, CARE etc. In our project, we have done a comparative analysis of crediting rating between INDIA & USA. We compared it respect of credit rating agencies and some certain parameters. Considerations of our project are… •India vs. USA •Four top CRA from each country •Compared on the basis five parameter •Source of Information--- Secondary ( Internet) •Descriptive in nature

• Introduction • Credit Rating & Agencies Overview •Indian Agencies • CRISIL • CARE • ICRA • ONICRA • USA Agencies •A.M. Best •Fitch Ratings •S&P • Moody’s • Comparative Analysis •Interpretations •Conclusion •Some Common Questions

Credit Rating & Agencies Overview Crediting Rating: Credit rating is an opinion expressed by an independent professional organization after making a detailed study of all relevant factors. Such an opinion will be of great assistance to investors in making investment decision. It also helps the issuers of debt instrument and other instruments to price their issues correctly and to reach out to new investors. Credit Rating Agencies: Credit Rating Agencies(CRA) are independent entities ( Like a company), which provide the rating service to various client and securities. Most of the case issuers of any securities pay charge of the service of CRA.

• Introduction • Credit Rating & Agencies Overview •Indian Agencies • CRISIL • CARE • ICRA • ONICRA • USA Agencies • A.M. Best •Fitch Ratings •S & P • Moody’s • Comparative Analysis •Interpretations •Conclusion •Some Common Questions

Indian Agencies In Indian context, the rating is done at the instance of the issuer, which pays rating fees for this service. If it is unsatisfied with rating , it is at liberty not to disclose the rating given to it(It is not apply on IPO). Indian CRA mostly limited to the India. There are following agencies in India.. 1.CRISIL:- Oldest agency promote by ICICI. S&P has stake in CRISIL 2.ICRA:- Promoted by IFCI. Moody’s has stake in ICRA 3.CARE:- Promoted by IDBI 4.ONICRA 5.Duff and Phelps:- Co promoted by Duff and Phelps

• Introduction • Credit Rating & Agencies Overview •Indian Agencies • CRISIL • CARE • ICRA • ONICRA • USA Agencies •A.M. Best •Fitch Ratings •S & P • Moody’s • Comparative Analysis •Interpretations •Conclusion •Some Common Questions

CRISIL

1. CRISIL is India's leading rating agency, and is the leading in the world. With over a 70% share of the Indian Ratings market, CRISIL Ratings is the agency for issuers and investors. CRISIL Ratings is a full service rating agency that offers a comprehensive range of rating services. 2. CRISIL has rated over 15,045 debt instruments worth Rs.26.27 trillion (over USD 507.596 billion)* issued by over 6,878 debt issuers, including manufacturing companies, banks, financial institutions (FIs), state governments and municipal corporations. CRISIL Ratings also offers technical know-how overseas. 3. It will offer rating and other services in 19 countries. 4. It has provided assistance and training for setting up ratings agencies in Malaysia (RAM) and Israel and in the Caribbean

• Introduction • Credit Rating & Agencies Overview •Indian Agencies • CRISIL • CARE • ICRA • ONICRA • USA Agencies •A.M. Best •Fitch Ratings •S & P • Moody’s • Comparative Analysis •Interpretations •Conclusion •Some Common Questions

CARE 1. Credit Analysis & Research Ltd. (CARE Ratings) is a full service rating company that offers a wide range of rating and grading services across sectors. CARE has an unparallel depth of expertise. CARE Ratings methodologies are in line with the best international practices. 2. CARE Ratings has completed over 6256 rating assignments having aggregate value of about Rs.18,248 bn (as at June 30, 2009), since its inception in April 1993. CARE is recognized by Securities and Exchange Board of India (Sebi), Government of India (GoI) and Reserve Bank of India (RBI) etc. 3. CARE was promoted by major Banks/FIs (financial institutions) in India. The three largest shareholders of CARE are IDBI Bank, Canara Bank and State Bank of India.

• Introduction • Credit Rating & Agencies Overview •Indian Agencies • CRISIL • CARE • ICRA • ONICRA • USA Agencies •A.M. Best •Fitch Ratings •S & P • Moody’s • Comparative Analysis •Interpretations •Conclusion •Some Common Questions

ICRA 1. ICRA Limited (formerly Investment Information and Credit Rating Agency of India Limited) was set up in 1991 by leading financial/investment institutions, commercial banks and financial services companies as an independent and professional Investment Information and Credit Rating Agency. 2. The international Credit Rating Agency Moody’s Investors Service is ICRA’s largest shareholder. Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited Company, with its shares listed on the Bombay Stock Exchange and the National Stock Exchange. 3. Rate to Manufacturing companies, Banks and financial institutions, Infrastructure sector companies, Service companies, Municipal and other local bodies, State governments, Non-banking finance companies and Small and medium sector entities

• Introduction • Credit Rating & Agencies Overview •Indian Agencies • CRISIL • CARE • ICRA • ONICRA • USA Agencies •A.M. Best •Fitch Ratings •S & P • Moody’s • Comparative Analysis • Interpretations • Conclusion • Some Common Questions

ONICRA 1. Onicra Credit Rating Agency is a path breaking innovative organization that analyzes data and provides individual rating solutions that enable the lender or service provider to take a valued judgment on financial and other transactions. 2. Onicra facilitates over 200,000 transactions per day through a single window clearance on a national basis in the telecom, banking, insurance, health, education and automobile sector. 3. We deliver services from a national network of 150 operation centers. Our integrated network also comprises of 4000 FOS (Fleet on Street) personnel located at various strategic locations nationwide. Our presence in 400 locations coupled with multilingual capabilities lends us a competitive advantage to manage complex processes in multiple geographic regions.

• Introduction • Credit Rating & Agencies Overview •Indian Agencies • CRISIL • CARE • ICRA • ONICRA • USA Agencies •A.M. Best •Fitch Ratings •S & P • Moody’s • Comparative Analysis •Interpretations •Conclusion •Some Common Questions

USA Agencies

In USA context, there is number of company which provide crediting rating. They have reach in whole world. They have covered about 90% market in the world. In our study we have consider following CRA’s….. 1.MOODY’s 2.A.M. Best 3.S&P 4.Fitch

• Introduction • Credit Rating & Agencies Overview •Indian Agencies • CRISIL • CARE • ICRA • ONICRA • USA Agencies

•A.M. Best •Fitch Ratings •S & P • Moody’s • Comparative Analysis •Interpretations •Conclusion •Some Common Questions

A.M. Best 1. A.M. Best Company is a global full-service credit rating agency dedicated to serving the financial and health-care service industries. It began assigning credit ratings in 1906 2. Best's Credit Ratings are independent opinions regarding the creditworthiness of an issuer or debt obligation 3. Best's Credit Ratings are based on a comprehensive quantitative and qualitative evaluation of a company's balance sheet strength, operating performance and business profile, or, where appropriate, the specific nature and details of a debt security.

• Introduction • Credit Rating & Agencies Overview •Indian Agencies • CRISIL • CARE • ICRA • ONICRA • USA Agencies •A.M. Best •Fitch Ratings •S & P • Moody’s • Comparative Analysis •Interpretations •Conclusion •Some Common Questions

Fitch Ratings 1. Fitch Ratings is a global rating agency committed to providing the world’s credit markets with independent and prospective credit opinions, research, and data 2. Fitch Ratings is headquartered in New York and London and is part of the Fitch Group. In addition to Fitch Ratings, the Fitch Group also includes Fitch Solutions, a distribution channel for Fitch Ratings products and a provider of data, analytics, and related services 3. The Fitch Group also includes Algorithmic, a world leading provider of enterprise risk management solutions

• Introduction • Credit Rating & Agencies Overview •Indian Agencies • CRISIL • CARE • ICRA • ONICRA • USA Agencies •A.M. Best •Fitch Ratings •S & P • Moody’s • Comparative Analysis •Interpretations •Conclusion •Some Common Questions

S&P 1. Standard & Poor’s is a global leader in credit ratings and credit risk analysis; ratings objectivity and intellectual rigor are our paramount objectives 2. Standard & Poor’s analytical teams concentrate on corporate finance, financial institutions, insurance companies, states and municipalities, sovereign governments and the continued evolution of structured finance 3. They have credit ratings outstanding on approximately US$32 trillion of debt in more than 100 countries. At the core of these activities are Standard & Poor’s highly regarded credit analysts located in major financial centers around the world

• Introduction • Credit Rating & Agencies Overview •Indian Agencies • CRISIL • CARE • ICRA • ONICRA • USA Agencies •A.M. Best •Fitch Ratings •S & P • Moody’s •Comparative Analysis •Interpretations •Conclusion •Some Common Questions

Moody’s 1. Moody's Investors Service is among the world’s most respected and widely utilized sources for credit ratings, research and risk analysis 2. Moody’s commitment and expertise contribute to stable, transparent and integrated financial markets, protecting the integrity of credit 3. Moody's maintains offices in most of the world’s major financial centers and employs approximately 3,000 people worldwide, including more than 1,000 analysts. The firm also has expanded into developing markets through joint ventures or affiliation agreements with local rating agencies.

• Introduction • Credit Rating & Agencies Overview •Indian Agencies • CRISIL • CARE • ICRA • ONICRA • USA Agencies •A.M. Best •Fitch Ratings •S & P •Moody’s • Comparative Analysis •Interpretations •Conclusion •Some Common Questions

Comparative Analysis INDIA

(rated)

Parameter:- Rating USA (rated)

Credit Rating of Debt Instruments Debt ( Long & short Term), Issuers (Commercial Paper , Fixed Deposits, Bonds and Debentures , Redeemable Preference Shares ,US Municipal Ratings, Corporate Family Loans ,Certificate of Deposits, StructuredRatings, Probability of Default Ratings , Loss Obligations ) Given Default Assessments, Covenant Quality Assessments, Speculative Grade Liquidity Issuer Rating ,IPO Grading , Recovery Ratings,Ratings, Bank Deposit Ratings , US Bank Other Fund Credit Quality Rating, Rating of CapitalSenior Obligation Ratings , Bank Financial Protection Schemes , Claims Paying AbilityStrength Ratings, Insurance Financial Strength Rating of Insurance Companies, CorporateRatings, Money Market and Bond Fund Ratings, Governance Ratings ,SME Rating, InfrastructureNational Scale Ratings Ratings ,Sub-sovereign Ratings ,Microfinance Institution (MFI) Grading ,Grading of theCountry Ceiling for Bonds and Other Foreign Construction Entities, Grading of courses offeredCurrency Obligations , Country Ceiling for by Maritime Training Institutes (MTIs) ,Rating ofForeign Currency Bank Deposits, Country Parallel Marketers of LPG and Kerosene, RatingCeiling for Bonds and Other Local Currency of Collective Investment Schemes, SSI Rating,Obligations, Local Currency Deposit Ceiling Rating of Urban Local Bodies/Multiple Bonds , Rating of Urban Local Bodies

Comparative Analysis

Parameter:- Rating scale Crisil's

Standard & Poor’s Symbol(Rating category) AAA AA

Description(with regard to the likelihood of meeting the debt obligations on time) Highest Safety High Safety

A

Adequate Safety

BBB

Moderate Safety

BB

Inadequate Safety

B

High Risk

C

Substantial Risk

D

Default

ICRA’s

Moody's

Aaa

Obligations rated Aaa are judged to be of the highest quality, with minimal credit risk

AAA

The highest-credit-quality rating assigned by ICRA. The rated instrument carries the lowest credit risk

Aa

Obligations rated Aa are judged to be of high quality and are subject to very low credit risk

AA

The high-credit-quality rating assigned by ICRA. The rated instrument carries low credit risk

A

Obligations rated A are considered upper-medium grade and are subject to low credit risk

A

The adequate-credit-quality rating assigned by ICRA. The rated instrument carries average credit risk

Baa

Obligations rated Baa are subject to moderate credit risk. They are considered mediumgrade and as such may possess certain speculative characteristics

BBB

The moderate-credit-quality rating assigned by ICRA. The rated instrument carries higher than average credit risk

Obligations rated Ba are judged to have speculative elements and are subject to substantial credit risk

BB

Obligations rated B are considered speculative and are subject to high credit risk

The inadequate-credit-quality rating assigned by ICRA. The rated instrument carries high credit risk

B

The risk-prone-credit-quality rating assigned by ICRA. . The rated instrument carries very high credit risk

C

The poor-credit-quality rating assigned by ICRA. The rated instrument has limited prospects of recovery

D

The lowest-credit-quality rating assigned by ICRA. The rated instrument has very low prospects of recovery

Ba B Caa Ca

C

Obligations rated Caa are judged to be of poor standing and are subject to very high credit risk. Obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest. Obligations rated C are the lowest rated class of bonds and are typically in default, with little prospect for recovery of principal or interest

Comparative Analysis INDIA

Market wise U.S.

CRISIL: Its providing the services in A.M. Best: Its providing the services 19 countries. Basically in Africa & in around 80 countries. Basically in Asia Asia pacific, Europe. Canada All Other Indian CRA’s working with in FITCH Rating: Working about in 150 India. countries. Normally in all continents S&P: Working in about more than 120 countries America, Europe , Asia &Africa Moody’s: About in 100 countries. America, Europe , Asia &Africa

Comparative Analysis S and P Rating Process

Parameter:- Process

A.M. Best Rating Process

Onicra Rating Process

• Introduction • Credit Rating & Agencies Overview •Indian Agencies • CRISIL • CARE • ICRA • ONICRA • USA Agencies •A.M. Best •Fitch Ratings •S & P • Moody’s • Comparative Analysis •Interpretations •Conclusion •Some Common Questions

Interpretations 1. India is somewhat following USA rating process 2. Indian CRA influence by USA, Because USA agencies have stake in Indian agencies 3. Indian agencies are not rating the countries as whole 4. Indian agencies have not reached in world market 5. Special product like LPG, Petrol pump are rated in India by agency not in USA 6. In USA rating scale is wide 7. The rating of instruments are higher in USA as compare to India 8. Issuers of IPO have to accept the rating of first assign agency in India, mean no choice to change

• Introduction • Credit Rating & Agencies Overview •Indian Agencies • CRISIL • CARE • ICRA • ONICRA • USA Agencies •A.M. Best •Fitch Ratings

•S & P • Moody’s • Comparative Analysis •Interpretations •Conclusion •Some Common Questions

Conclusion

• Introduction • Credit Rating & Agencies Overview •Indian Agencies • CRISIL • CARE • ICRA • ONICRA • USA Agencies •A.M. Best •Fitch Ratings

•S & P • Moody’s • Comparative Analysis •Interpretations •Conclusion •Some Common Questions

Some Common Questions

1.How does a credit rating agency differ from a credit bureau? 2.Is a credit rating a recommendation to invest in a debt instrument? 3.What is the difference between credit ratings and equity research? 4.How does a credit rating differ from an audit? 5.Is competition desirable in the credit rating industry? 6.What are investment and speculative grade ratings?