Rating Agencies

Origin & History

Originated in U.S
Henry Vanuum Poor started publishing
financial statistics in 1860
More importance was given from 1909.
In India CRISIL was set-up as first institution
for Credit Rating Services in 1987.
ICRA was started in 1991
CARE was started in 1993

Rating Agencies registered with SEBI

CRISIL - Credit Rating Information Services of India Limited
Fitch Ratings India Private Ltd.
ICRA - Investment Information & Credit Rating Agency.
Credit Analysis & Research Ltd. (CARE)
Brickwork Ratings India Private Limited
SME Rating Agency of India Ltd. (SMERA)

Meaning
Credit rating is done for debt instruments such
as debentures, fixed deposits, commercial
papers, bonds, etc.
Credit rating is an unbiased and independent
opinion as to issuers capacity to meet
financial obligations. It doesnt constitute a
recommendation to buy/sell or hold a
particular debt instrument By CRISIL

Types of Credit Rating

Sovereign Rating : Assess the country Credit
risk and is used as a point of reference for
country borrowings from WB, IMF, etc.
Entity Rating : Risk rating of Corporate
entities.
Instrument Rating : Rating of the bond issued
by different corporations and municipalities.

Functions of Credit Rating

Superior Information
Low Cost Information
Basis for Risk-Return Trade-off
Healthy discipline for corporate borrowers
Formulation of public policy guidelines on
investment

Credit Ratings
Methodology

Business
Risk Profile
Analysis

Financial
Risk Profile
Analysis

Validation of Company
Position
Trends
Quality of Earnings
& Analytical adjustments
Peer Group Comparisons

Profitability
/ Peer Group
Comparisons

Competitive Factors
Market position
Keys to Success
Size
Diversification
Management

Country
Risk

Industry
Factors

Business
Risk

Company
Position

Political
Economic
Industry Specific factors
Foreign exchange

Industry Trends
Industry Structure
Market Size
Growth Potential
Competition
Changing Technology

Operating sources & uses

Of liquidity
Debt Characteristics
Bank credit facilities

Liquidity /
Short-term
Factors

Focus on debt
service capability
Analytical distinctions with
profitability
Cash flow measures /
ratios

Accounting

Accounting Regime
Reporting & Disclosure
Analytical adjustments

Governance
Risk

Financial
Risk

Cash Flow
Adequacy

Ownership
Board of directors
Management practices
Financial Strategy
Risk Tolerance
Accounting Practices
Internal controls

CRISIL
Credit Rating Information Services of India
(CRISIL Ltd.). This is the first rating agency in
India. It was set-up in 1987 jointly by the
erstwhile ICICI Ltd. and UTI. Other
shareholders include: Asian Development
Bank (ADB), LIC, State Bank of India, and
HDFC, etc.

Credit Ratings - Long Term Scale

CRISIL AAA
(Highest Safety)

Instruments with this rating are considered to have the highest degree of
safety regarding timely servicing of financial obligations. Such
instruments carry lowest credit risk.

CRISIL AA
(High Safety)

Instruments with this rating are considered to have high degree of safety
regarding timely servicing of financial obligations. Such instruments carry
very low credit risk.

CRISIL A
(Adequate Safety)

Instruments with this rating are considered to have adequate degree of

safety regarding timely servicing of financial obligations. Such
instruments carry low credit risk.

CRISIL BBB
(Moderate Safety)

Instruments with this rating are considered to have moderate degree of

safety regarding timely servicing of financial obligations. Such
instruments carry moderate credit risk.

CRISIL BB
(Moderate Risk)

Instruments with this rating are considered to have moderate risk of

default regarding timely servicing of financial obligations.

CRISIL B
(High Risk)

Instruments with this rating are considered to have high risk of default
regarding timely servicing of financial obligations.

CRISIL C
(Very High Risk)

Instruments with this rating are considered to have very high risk of
default regarding timely servicing of financial obligations.

CRISIL D
Default

Instruments with this rating are in default or are expected to be in

default soon.

Credit Ratings - Short Term Scale

CRISIL A1

Instruments with this rating are considered to have very

strong degree of safety regarding timely payment of
financial obligations. Such instruments carry lowest
credit risk.

CRISIL A2

Instruments with this rating are considered to have strong

degree of safety regarding timely payment of financial
obligations. Such instruments carry low credit risk.

CRISIL A3

Instruments with this rating are considered to have

moderate degree of safety regarding timely payment of
financial obligations. Such instruments carry higher credit
risk as compared to instruments rated in the two higher
categories.

CRISIL A4

Instruments with this rating are considered to have

minimal degree of safety regarding timely payment of
financial obligations. Such instruments carry very high
credit risk and are susceptible to default.

CRISIL D

Instruments with this rating are in default or expected to

be in default on maturity.

ICRA
Investment Information and Credit Rating
Agency of India Ltd.
(ICRA Ltd. This company was promoted by the
IFCI Ltd. to meet the requirements of the
companies based in the north India. Along
with IFCI, State Bank of India, Unit Trust of
India, PNB and LIC were other promoters of
the company)

ICRAs Long-Term Rating Scale

Long-Term rating Scale All Bonds, NCDs, and other debt instruments (excluding Public Deposits) with original maturity
exceeding one year.
[ICRA]AAA Instruments with this rating are considered to have the highest degree of safety regarding timely
servicing of financial obligations. Such instruments carry lowest credit risk.
[ICRA]AA Instruments with this rating are considered to have high degree of safety regarding timely servicing of
financial obligations. Such instruments carry very low credit risk.
[ICRA]A Instruments with this rating are considered to have adequate degree of safety regarding timely servicing of
financial obligations. Such instruments carry low credit risk.
[ICRA]BBB Instruments with this rating are considered to have moderate degree of safety regarding timely servicing
of financial obligations. Such instruments carry moderate credit risk.
[ICRA]BB Instruments with this rating are considered to have moderate risk of default regarding timely servicing of
financial obligations
[ICRA]B Instruments with this rating are considered to have high risk of default regarding timely servicing of
financial obligations.
[ICRA]C Instruments with this rating are considered to have very high risk of default regarding timely servicing of
financial obligations.
[ICRA]D Instruments with this rating are in default or are expected to be in default soon.

ICRAs Short-Term Rating Scale

Short-Term Rating Scale All instruments with original maturity within one year.
[ICRA]A1 Instruments with this rating are considered to have very strong degree of
safety regarding timely payment of financial obligations. Such instruments carry
lowest credit risk.
[ICRA]A2 Instruments with this rating are considered to have strong degree of
safety regarding timely payment of financial obligations. Such instruments carry
low credit risk.
[ICRA]A3 Instruments with this rating are considered to have moderate degree of
safety regarding timely payment of financial obligations. Such instruments carry
higher credit risk as compared to instruments rated in the two higher categories.
[ICRA]A4 Instruments with this rating are considered to have minimal degree of
safety regarding timely payment of financial obligations. Such instruments carry
very high credit risk and are susceptible to default.
[ICRA]D Instruments with this rating are in default or expected to be in default on
maturity.

CARE
Credit Analysis and Research (CARE) Ltd. is a
credit rating and information services
company.
(This company was promoted by the Industrial
Development Bank of India (IDBI) jointly with
investment institutions, banks and finance
companies. It commenced its credit rating
operations in October 1993.)

Other Credit Agencies

Duff and Phelps Credit Rating India Private
Ltd.,(DCR) an international credit rating
agency, providing credit rating services in India
in Joint-Venture with J.M.Financial and
Alliance Group
Onida Individual Credit Rating Agency Ltd.,
(ONICRA) sponsored by Onida Finance Ltd., does credit rating for individual borrowers.

Benefits to Investor

Benefits to Company

Demerits