Ajit Credit Rating Final

CREDIT RATING IN INDIA
UNIVERSITY OF MUMBAI
PROJECT ON
“CREDIT RATING IN INDIA”
SUBMITTED
IN PARTIAL FULFILLMENT OF THE REQUIREMENTS
FOR THE AWARD OF THE DEGREE OF
BACHELOR OF MANAGEMENT
AJIT YADAV
PROJECT GUIDE
PROF. POOJA SHIRSEKAR
BACHELOR OF MANAGEMENT STUDIES
SEMESTER-VI
(2018-19)
A.E KALSEKAR COLLEGE OF COMMERCE AND MANAGEMENT,
NAWAYAT NAGAR, NALLASOPARA (WEST)-401203
A.E KALSEKAR COLLEGE 1

DECLARATION
I, the undersigned, MR. JUNAID MANSURI, a student of A.E KALSEKAR College of Arts &
Commerce, NALLASOPARA (West) T.Y.B.M.S. SEMESTER – VI hereby declare that the
work embodied in this project work titled “ STUDY ON CREDIT RATING IN INDIA“,
forms my own contribution to the research work carried out under the guidance of Prof. POOJA
SHIRSEKAR a result of my own research work and has not been previously submitted to any
other University for any other Degree/Diploma to this or any other University.
Wherever reference has been made to previous works of others, it has been clearly indicated as
such and included in the bibliography.
I, hereby further declare that all information of this document has been obtained and presented in
accordance with academic rules and ethical conduct.
Signature of the student

(AJEET YADAV)

SHURPARAKA EDUCATIONAL & MEDICAL TRUST’S

M. B. HARRIS COLLEGE OF ARTS &
A. E.KALSEKAR COLLEGE OF COMMERCE & MANAGEMENT .
(Affiliated to the University of Mumbai)
CERTIFICATE
We hereby certify that Mr./ Miss ________________________ __________ of

S.E.M. Trust’s M.B. Harris College of Arts & A. E. Kalsekar College of Commerce &
Management studying in T.Y.B.M.S. has completed project on ________________ in the
academic year 2018-19. The information submitted in the project is true & original to the best
of our knowledge.
_____________ _____________
Project Guide Principal
Internal Examiner: ________
External Examiner: __________ College Seal

ACKNOWLEDGEMENT
I am thankful to A. E. Kaleskar college of Management for giving me an opportunity to pursue Studies of

Business Management.
I would also like to thank my guide and my perpetual source of inspiration Prof. POOJA SHIRESKAR miss for
her valuable mentoring and inputs. Her constant support and invaluable advice has always guided me towards the
right direction. She helped me to know various phenomenon’s related to the research practices which further gave
an impetus to channelize my study in an appropriate way. I sincerely thank her for his treasured guidance without
which this dissertation would have never been possible.
I am also grateful to library miss for helping me with his valuable guidance in constructing software programs for
my dissertation.
I won't miss this opportunity to give credit to the sources both primary & secondary for adding valuable inputs to
my dissertation. I also thank the administrative staff, the library staff & the computer lab staff of A.E. Kalsekar
College, College of Management for providing reference material required in my research work.
Lastly, I express my deep sense of gratitude to the almighty, my family, friends & colleagues who have directly
and indirectly helped me in this dissertation


Table of Contents
SR.NO TOPIC PAGE NO.
1. EXCECUTIVE SUMMARY 7
2. INTRODUCTION 8
3. EVOLUTION 11
4. TYPES OF RATING 13
5. BENEFITS OF CREDIT RATING 15
6. BENEFITS TO INVESTORS 16
7. BENEFITS OF RATING TO THE COMPANY 18
8. BENEFITS TO BROKERS 19
AND FINANCIAL INTERMEDIARIES
9. CREDIT RATING AGENCY 20
10. CREDIT RATING IN INDIA 23
11. ICRA 35
12. ONICRA 44
13. MOODYS INVESTOR SERVICE 52
14. INTERNATIONAL SCALE RATING 61
15. IPO 69
16. CONCLUSION 73
17. BIBLIOGRAPHY 74

EXECUTIVE SUMMARY
The project entitled “Credit Rating” gives you an insight to the most important concept in any
industry, be it service oriented or a manufacturing firm i.e. working capital.
Credit rating is a qualified assessment and formal evaluation of company’s credit history and
capability of repaying obligations. It measures the default probability of the borrower, and its
ability to repay fully and timely its financial debt obligations.
The main purpose of credit rating is to provide investors with comparable information on credit
risk based on standard rating scale, regardless of specifics of companies, separate sector of the
economy and country as a whole.
Credit rating has proven itself to be effective instrument of risk assessment in countries with
advanced economy since it demonstrates transparency of an enterprise. Credit rating reflects
financial, sectoral, operational, legal and organizational sides of companies, which characterize
ability and willingness duly and in full amount to repay obligations.
In world practice, credit rating can be assigned to sovereign governments, regional and local
executive bodies, corporations, financial organizations and etc.
Different Types of Credit Rating are explained in this project. Functions of Credit Rating are
highlighted.
Various advantages and limitation to Credit Rating are highlighted.
This project has also covered the Rating Process, Rating Symbols for short term debentures n
long term bonds, Rating Methodology, of various rating agencies like CRISIL, ICRA, SMERA,
ONICRA, CARE and International Rating Agency.
IPO Grading has also been included in this project.

INTRODUCTION
Definition
CREDIT RATING
The evaluation of a people or businesses' ability and past performance in paying debts. A credit
rating is generally established by a credit bureau and used by merchants, suppliers, and bankers
to determine whether a loan should be granted or credit extended.
“A rating is an opinion on the future ability and legal obligation of the issuer to make timely
payments of principal and interest on a specific fixed income security. The rating measures
the probability that the issuer will default on the security over its life, which depending on the
instrument may be a matter of days to 30 years or more. In addition, long term ratings
incorporate an assessment of the expected monetary loss should a default occur."
"Credit ratings help investors by providing an easily recognizable, simple tool that couples a
possibly unknown issuer with an informative and meaningful symbol of credit quality."
Standard and Poor’s
Ratings, usually expressed in alphabetical or alphanumeric symbols, are a simple and easily
understood tool enabling the investor to differentiate between debt instruments based on their
underlying credit quality. The credit rating is thus a symbolic indicator of the current opinion
of the relative capability of the issuer to service its debt obligation in a timely fashion, with
specific reference to the instrument being rated. It is focused on communicating to the
investors, the relative ranking of the default loss probability for a given fixed income
investment, in comparison with other rated instruments.

In fact, the rating is an opinion on the future ability and legal obligation of the issuer to make
timely payments of principal and interest on a specific fixed income security. The rating
measures the probability that the issuer will default on the security over its life, which
depending on the instrument may be a matter of days to 30 years or more. In addition, long-
term rating incorporates an assessment of the expected monetary loss should a default occur.
Credit rating helps investors by providing an easily recognizable, simple tool that couples a
possible unknown issuer with an informative and meaningful symbol of credit quality. Credit
rating can be defined as an expression, through use of symbols, of the opinion about credit
quality of the issuer of security/instrument. Credit rating does not amount to any
recommendation to purchase, sell or hold that security. It is concerned with an act of
assigning values by estimating worth or reputation of solvency, and honesty to repose trust in
a person's ability and intention to repay.
The ratings assigned are generally regarded in the investment community as an objective
evaluation of the probability that a borrower will default on a given security issue. Default
occurs whenever a security issuer is late in making one or more payments that it is legally
obligated to make. In the case of a bond, when any interest or principal payment falls due and
is not made on time, the bond is legally in default. While many defaulted bonds ultimately
resume the payment of principal and interest, others never do, and the issuing company winds
up in bankruptcy proceedings. In most instances, holders of bonds issued by a bankrupt
company receive only a part amount on his investments, invested, once the company's assets
are sold at auction. Thus, the investor who holds title to bankrupt bonds typically loses both
principal and interest. It is no wonder, then, that security ratings are so closely followed by
investors. In fact, many investors accept the ratings assigned by credit agencies as a substitute
for their own investigation of a security's investment quality.

Credit Rating Function
1) Credit rating plays an important role in developed and developing capital markets
throughout the world.
2) The use of ratings fosters growth in local and international markets, and streamlines their
functioning.
3) Capital markets currently include bonds and other bond-like instruments guaranteeing a
fixed income amounting to an aggregate total of over $80 trillion.
4) Ratings serve a wide array of players in the capital market.
5) The service is designed first and foremost to provide reliable ratings to fulfill the needs of
investors interested in obtaining a reliable, independent estimate of a company’s credit risk,
of issuers and borrowers seeking flexible sources of financing on the capital market and
brokering entities enjoying this service namely: savers, governments, economists, the
financial media and other observers.
Clients for Credit Rating
Clients comprise manufacturing companies, non-banking finance companies, nationalized and

private banks, financial institutions, public sector units, utilities, real estate developers, state
governments, municipal corporations, stock brokers and others.

EVOLUTION OF CREDIT RATING AGENCIES
The origins of credit rating can be traced to the 1840's. Following the financial crisis of 1837,
Louis Tappan established the first mercantile credit agency in New York in 1841. The agency
rated the ability of merchants to pay their financial obligations. Robert Dun subsequently
acquired it and its first rating guide was published in 1859. John Bradstreet set up another
similar agency in 1849, which published a rating book in 1857. These two agencies were
merged together to form Dun and Bradstreet in 1933, which became the owner of Moody's
Investors Service in 1962.
The history of Moody's itself goes back about 100 years. John Moody (1868 - 1958) was a
self-taught reformer who had a strong entrepreneurial drive and a firm belief about the needs
of the investment community - as well as considerable journalistic talent. Relying on his
assessment of the market’s needs, John Moody and Company published Moody’s Manual of
Industrial and Miscellaneous Securities in 1900, the company’s founding year. The manual
provided information and statistics on stocks and bonds of financial institutions, government
agencies, manufacturing, mining, utilities, and food companies. Within two months, the
publication had sold out. By 1903, circulation had exploded, and Moody’s Manual was
known from coast to coast.
When the stock market crashed in 1907, Moody’s company did not have adequate capital to
survive, and he was forced to sell his manual business. Moody returned to the financial
market in 1909 with a new idea. Instead of simply collecting information on the property,
capitalization, and management of companies, he now offered investors an analysis of
security values. His company would publish a book that analyzed the railroads and their
outstanding securities. It offered concise conclusions about their relative investment quality.
He expressed his conclusions using letter-rating symbols adopted from the mercantile and
credit rating system that had been used by the credit-reporting firms since the late 1800s.

Moody had now entered the business of analyzing the stocks and bonds of America’s
railroads, and with this endeavor, he became the first to rate public market securities. In 1909,
Moody’s Analyses of Railroad Investments described for readers the analytic principles that
Moody used to assess a railroad’s operations, management, and finance. The new manual
quickly found a place in investors’ hands. In 1913, he expanded his base of analyzed
companies, launching his evaluation of industrial companies and utilities. By that time, the
"Moody's ratings" had become a factor in the bond market. On July 1, 1914, Moody's
Investors Service was incorporated. That same year, Moody began expanding rating coverage
to bonds issued by US cities and other municipalities.
Further expansion of the credit rating industry took place in 1916, when the Poor's Publishing
Company published its first rating followed by the Standard Statistics Company in 1922, and
Fitch Publishing Company in 1924. The Standard Statistics Company merged in 1941 to form
Standard and Poor's, which was subsequently taken, over by McGraw Hill in 1966. For
almost 50 years, since the setting up of Fitch Publishing in 1924, there were no major new
entrants in the field of credit rating and then in the 1970s, a number of credit rating agencies
commenced operations all over the world. These included the Canadian Bond Rating Service
(1972), Thomson Bankwatch (1974), Japanese Bond Rating Institute (1975), McCarthy
Crisani and Maffei (1975 acquired by Duff and Phelps in 1991), Dominican Bond Rating
Service (1997), IBCA Limited (1978), and Duff and Phelps Credit Rating Company (1980).
There are credit rating agencies in operation in many other countries such as Malaysia,
Philippines, Mexico, Indonesia, Pakistan, Cyprus, Korea, Thailand and Australia.
In India, the Credit Rating and Information Services of India Ltd. (CRISIL) was set up as the
first rating agency in 1987, followed by ICRA Ltd. (formerly known as Investment
Information and Credit Rating Agency of India Limited) in 1991, and Credit Analysis and
Research Ltd. (CARE) in 1994. The ownership pattern of all the three agencies is
institutional. Duff and Phelps has tied up with two Indian NBFCs to set up Duff and Phelps
Credit Rating India (P) Limited in 1996.

TYPES OF RATING
Following are the different kinds of rating:
(1) Bond/Debenture Rating
Rating the debentures/ bonds issued by corporates, government etc. is called debenture
or bond rating.
(2) Equity Rating
Rating of equity shares issued by a company is called equity rating.
(3) Preference Share Rating
Rating of preference share issued by a company is called preference share rating.
(4) Commercial Paper Rating
Commercial papers are instruments used for short-term borrowing. Commercial

papers are issued by manufacturing companies, finance companies, banks and
financial institutions and rating of these instruments is called commercial paper rating.
(5) Fixed Deposits Rating
Fixed deposits programmes are medium term unsecured borrowings. Rating of such
programmes is called as fixed deposits rating.

(6) Borrowers Rating
Rating of borrowers is referred as borrower rating.
(7) Individuals Rating
Rating of individuals is called as individual's credit rating.
(8) Structured Obligation Rating
Structured obligations are also debt obligations and are different from debenture or
bond or fixed deposit programmes and commercial papers. Structured obligation is
generally asset-backed security. Credit rating agencies assessed the risk associated
with the transaction with the main trust on cash flows emerging from the asset would
be sufficient to meet committed payments, to the investors in worst case scenario.
(9) Sovereign Rating
Is a rating of a country, which is being considered whenever a loan is to be extended,

or some major investment is envisaged in a country.

BENEFITS OF CREDIT RATING`
For different classes of persons different benefits accrue from the use of rated instruments.
The benefits directly accruing to investors through rated instruments are:
(A) BENEFITS TO INVESTORS
Investors are benefited in many ways if the corporate security in which they intend to invest
their saving has been rated. Some of the benefits are:
(1) Safeguards Against Bankruptcy
Credit rating of an instrument done by a credit rating agency gives an idea to the investors
about the degree of financial strength of the issuing company, which enables him to decide
about the investment. A highly rated instrument of a company gives an assurance to the
investors of the safety of that instrument and a minimum risk of bankruptcy.
(2) Recognition Of Risk
Credit rating provides investors with rating symbols that carry information in easily
recognizable manner for the benefit of investors to perceive the risk involved in the
investment. It becomes easier for the investors by looking at the symbol to understand the
worth of the issuing company. The rating symbol gives them the idea about the risk involved
or the expected advantages from the investment.
(3) Credibility Of Issuer
Rating gives a clue about the credibility of the issuing company. The rating agency is quite
independent of the issuer company and has no business connections or any relationship with it

or its Board of Directors, etc. Absence of business links between the rater and the rated firm
establishes ground for credibility and attract investors.
(4) Easy Understandability Of Investment Proposal
An investor needs no analytical knowledge on his part and can understand the rating symbol.
The investor can take quick decisions about the investment to be made in any particular rated
security of a company.
(5) Saving Of Resources
Investors rely upon credit rating. This relieves investors from the hassle of acquiring
knowledge about the fundamentals of a company, its actual strength, financial standing,
management details, etc. The quality of credit rating done by professional experts of the credit
rating agency repose confidence in him to rely upon the rating for taking investment
decisions.
(6) Independence Of Investment Decisions
For making investment decisions, investors have to seek advice of financial intermediaries,
the stockbrokers, merchant bankers, the portfolio managers etc. about the good investment
proposal. For rated instruments, investors need not depend upon the advice of these financial
intermediaries as the rating symbol assigned to a particular instrument suggests the credit
worthiness of the instrument and indicates the degree of risk involved in it.
(7) Choice Of Investments
Several alternative credit rating instruments are available at a particular point of time for
investing in the capital market and the investors can make choice depending upon their own
risk profile and diversification plan.

(8) Benefits Of Rating Surveillance
Investors get the benefit of the credit rating agency's on-going surveillance of the rating and
rated instruments of different companies. The credit rating agency downgrades the rating of
any instrument if subsequently the company's financial strength declines or any event takes
place, which necessitates consequent dissemination of information on its position to the
investors.
(9) Other Advantages
The investor can quickly understand the credit instrument and weigh the ratings with
advantages from instruments; and make quick decisions to invest or sell or buy securities to
take advantages of market conditions; or, perceiving of default risk by the company.

(B) BENEFITS OF RATING TO THE COMPANY
Company which had its credit instrument or security rated by a credit rating agency is
benefited in many ways as summarized below:
(1) Lower Cost Of Borrowing
A company with highly rated instrument has the opportunity to reduce the cost of borrowing
from the public by quoting lesser interest on fixed deposits or debentures or bonds as the
investors with low risk preference would come forward to invest in safe securities though
yielding marginally lower rate of return.
(2) Wider Audience For Borrowing
A company with a highly rated instrument can approach the investors extensively for the
resource mobilization using the press media. Investors in different strata of the society could
be attracted by higher rated instrument, as the investors understand the degree of certainty
about timely payment of interest and principal on a debt instrument with better rating.
(3) Rating As Marketing Tool
Companies with rated instruments improve their own image and avail of the rating as a
marketing tool to create better image in dealing with its customers feel confident in the utility
products manufactured by the companies carrying higher rating for their credit instruments.
(4) Reduction Of Cost In Public Issues
A company with higher rated instrument is able to attract the investors and with least efforts
can raise funds. Thus, the rated company can economize and minimize cost of public issues

by controlling expenses on media coverage, conferences and other publicity stunts and
gimmicks. Rating facilitates best pricing and timing of issues.
(5) Motivation For Growth
Rating provides motivation to the company for growth as the promoters feel confident in
their own efforts and are encouraged to undertake expansion of their operations or new
projects. With better image created though higher credit rating the company can mobilize
funds from public and instructions or banks from self-assessment of its own status, which is
subject to self-discipline and self-improvement, it can perceive and avoid sickness.
(6) Unknown Issuer
Credit rating provides recognition to a relatively unknown issuer while entering into the
market through wider investor base who rely on rating grade rather than on 'name
recognition'.
(C) BENEFITS TO BROKERS AND FINANCIAL INTERMEDIARIES
Rating is a useful tool for merchant bankers and other capital market intermediaries in the
process of planning, pricing, underwriting and placement of issues. The intermediaries, like
brokers and dealers in securities, could use rating as an input for their monitoring of risk
exposures. The merchant bankers are also using credit ratings for pre-packing of issues by
way of securitisation/ structured obligations. Highly rated instruments put the brokers at an
advantage to make less efforts in studying the company's credit position to convince their
clients to select an investment proposal. This enables brokers and other financial
intermediaries to save time, energy, costs and manpower in convincing their clients about
investment in any particular instrument.

CREDIT RATING AGENCY
A credit rating agency (CRA) is a company that assigns credit ratings for issuers of certain types
of debt obligations. In most cases, these issuers are companies, cities, non-profit organizations,
or national governments issuing debt-like securities that can be traded on a secondary market. A
credit rating measures credit worthiness, the ability to pay back a loan, and affects the interest
rate applied to loans. (A company that issues credit scores for individual credit-worthiness is
generally called a credit bureau or consumer credit reporting agency.)
Interest rates are not the same for everyone, but instead are based on risk-based pricing, a form
of price discrimination based on the different expected costs of different borrowers, as set out in
their credit rating. There exist more than 100 rating agencies worldwide.
USES OF RATINGS BY CREDIT RATING AGENCIES
Credit ratings are used by investors, issuers, investment banks, broker-dealers, and by
governments. For investors, credit rating agencies increase the range of investment alternatives
and provide independent, easy-to-use measurements of relative credit risk; this generally
increases the efficiency of the market, lowering costs for both borrowers and lenders. This in
turn increases the total supply of risk capital in the economy, leading to stronger growth. It also
opens the capital markets to categories of borrower who might otherwise be shut out altogether:
small governments, startup companies, hospitals and universities.

FUNCTIONS OF A CREDIT RATING AGENCY
Credit rating serves the following functions:
(1) Provides Superior Information:
It provides superior information on credit risk for three reasons:
(i) It is an independent rating agency, and is likely to provide an unbiased opinion; unlike
brokers, financial intermediaries and underwriters who have a vested interest in the issue,
(ii) Due to professional and highly trained staff, their ability to assess risk is better, and
finally,
(iii) The rating firm has access to a lot of information, which may not be publicly available.
(2) Low Cost Information
A rating firm gathers, analyses, interprets and summarizes complex information in a simple
and readily understood formal manner. It is highly welcome by most investors who find it
prohibitively expensive and simply impossible to do such credit evaluation of their own
(3) Basis For A Proper Risk And Return
If an instrument is rated by a credit rating agency, then such instrument enjoys higher
confidence from investors. Investors have some idea as to what is the risk that he/she is likely
to take, if investment is done in that security.

(4) Healthy Discipline On Corporate Borrowers
Higher credit rating to any credit investment tends to enhance the corporate image and
visibility and hence it induces a healthy discipline on corporates.
(5) Greater Credence To Financial And Other Representation
When a credit rating agency rates a security, its own reputation is at stake.
Therefore, it seeks high quality financial and other information. As the issue complies with
the demands of the credit rating agency on a continuing basis, its financial and other
representations acquire greater credibility.
(6) Formation Of Public Policy
Public policy guidelines on what kinds of securities are eligible for inclusions in different
kinds of institutional portfolios can be developed with greater confidence if debt securities are
rated professionally.

In the Indian context, the scope of credit rating is limited generally to debt, commercial paper,
fixed deposits, mutual funds and of late IPO’s as well. Therefore, it is the instrument, which is
rated, and not the company. In other words, credit quality is not general evaluation of issuing
organization, i.e. if debt of company XYZ is rated AAA and debt of company ABC is rated
BBB, then it does not mean firm XYZ is better than firm ABC. However, the issuer company
gets strength and credibility with the grade of rating awarded to the credit instrument it
intends to issue to the public to raise funds. Rating, in a way, reflects the issuer's strength and
soundness of operations and management. It expresses a view on its prospective composite
performance and the organizational behaviour based on the study of past results.
Further, the rating will differ for different instruments to be issued by the same company,
within the same time span. For example, credit rating for a debenture issue will differ from
that of a commercial paper or certificate of deposit for the same company because the nature
of obligation is different in each case. Credit rating has been made mandatory for issuance of
the following instruments
(1) As per the regulations of Securities and Exchange Board of India (SEBI) public issue of
debentures and bonds convertible/ redeemable beyond a period of 18 months need credit
rating.
(2) As per the guidelines of Reserve Bank Of India (RBI), one of the conditions for issuance
of Commercial Paper in India is that the issue must have a rating not below the P2 grade from
CRISIL/A2 grade from ICRA/PR2 from CARE.

(3) As per the guidelines of Reserve Bank of India (RBI), Non

Banking Finance Companies (NBFCs) having net owned funds of more than Rs.2 core must
get their fixed deposit programmes rated. The minimum rating required by the NBFCs to be
eligible to raise fixed deposits are FA (-) from CRISIL/ MA (-) from ICRA/BBB from CARE.
Similar regulations have been introduced by National Housing Bank (NHB) for housing
finance companies also
(4) As per the regulations of the Ministry of Petroleum, the parallel marketers of Liquefied
Petroleum Gas (LPG) and Superior Kerosene Oil (SKO) in India are also subjected to
mandatory rating. The three rating agencies have a common approach for such rating and the
dealers are categorized into four grades between 1 to 4 indicating good, satisfactory, low risk
and high risk
(5) There is a proposal for making the rating of fixed deposit programmes of limited
companies, other than NBFCs also mandatory, by amendment of the companies Act 1956.
CRAs registered with SEBI.
Name of the CRA Year of commencement

of Operations
CRISIL 1988
ICRA 1991
CARE 1993
Fitch India 1996
Brickworks 2008

CRISIL
Credit Rating Information Services Of India Limited (CRISIL) has been promoted by
Industrial Credit and Investment Corporation of India Ltd. (ICICI) and Unit Trust of India
Ltd. (UTI) as a public limited company with its headquarters at Mumbai. CRISIL,
incorporated in 1987, pioneered the concept of credit rating in India and developed the
methodology for rating of debt in the context of India's financial, monetary and regulatory
system. It was the first rating agency to rate Commercial Paper Programme in 1989, debt
instruments of financial institutions and banks in 1992 and asset-backed securities in 1992.
The main objective of CRISIL has been to rate debt obligation of Indian companies. Its rating
provides a guide to the investors as to the risk of timely payment of interest and principal on a
particular debt instrument. Its rating creates awareness of the concept of credit rating amongst
corporations, merchant bankers, brokers, regulatory authorities, and helps in creating
environment that facilitates the debt rating.
CRISIL provides rating and risk assessment services to manufacturing companies, banks,
non-banking financial companies, financial institutions, housing finance companies,
municipal bodies and companies in the infrastructure sector.
CRISIL's comprehensive offerings include ratings for long-term instruments such as
debentures/bonds and preference shares, structured obligations (including asset-backed
securities) and fixed deposits; it also rates short-term instruments such as commercial paper
programmes and short-term deposits. As part of bank loan ratings, CRISIL also rates credit
facilities extended to borrowers by banks. In addition, CRISIL undertakes credit assessments

of various entities including state governments. CRISIL also assigns financial strength ratings
to insurance companies.

CRISIL through the years has continued to innovate and play the role of a pioneer in the
development of the Indian debt market. CRISIL has pioneered the rating of subsidiaries and
joint ventures of multinationals in India and has rated several multinational entities, both start-
up entities as well as players with a well established track record in India. Over the years,
CRISIL has also developed several structured ratings for multinational entities based on
Guarantees from the parent as well as Standby Letter of Credit arrangements from bankers.
The rating agency has also developed a methodology for credit enhancement of corporate
borrowing programmes through the use of partial guarantees. In essence, CRISIL is uniquely
placed in its experience in understanding the extent of credit enhancement arising out of such
structures.
CRISIL's Rating Process
CRISIL'S Ratings Processes In As Given Below:
(1) Request Of The Company

The rating process beings at the request of a company desirous of having its issue obligations
under proposed instrument rated by CRISIL.
(2) Assignment To Analytical Team

On receipt of the above request, CRISIL assigns the job to an analytical team that will be
responsible for carrying out the rating assignment.
(3) Obtaining And Processing Of Data

The analytical team, which generally contains two experts, obtains requisite information from
the client company and analyses the same. To obtain clarification and better understanding of
the client's operations, the team meets and interacts with company's executives.

(4) Findings Presentation
The findings of the team completion of investigation process are presented to Rating
committee (which comprises some directors not connected with any CRISIL shareholder)
which then decides on the rating.
(5) Communication Of Decision
The decision of the Rating committee is communicated to the client company with remarks
that the company, if it so likes, may present some additional information for reconsideration
of rating grade assigned to the instrument. In case the company has nothing to produce as
additional fact, the rating grade is formally confirmed to the company by CRISIL.
(6) Monitoring Of Change Of Rating
Once the company has decides to use the rating, CRISIL is obliged to monitor the rating, over
the life of the instrument. Depending upon new information, or developments concerning the
company, CRISIL may change the rating. Any change, so effected, is made public by
CRISIL.

CRISIL'S Rating Methodology
CRISIL analyses five factors while assessing the instrument. These five factors are as follows:
(1) Business Analysis
All the relevant information concerning the business is covered under the following sub-
heads.
(a) Industry Risk
CRISIL evaluates the industry risk by taking into consideration various factors like nature and
basis of competition, key success factors, demand and supply position, structure of industry,
government policies etc. Industry strength is evaluated within the economy considering
factors like inflation, energy requirements and availability, international competitive situation
and socio-political scenario; demand projection growth stages and maturity of markets; cost
structure of industry in domestic and international scenario; or, the government policies
toward industry. Industry risk analysis may set an upper limit on rating.
(b) Market Position Of The Company Within The Industry
Market position of the company within the industry is evaluated form different angles, i.e.„
market share and stability of market share; competitive advantage through marketing and
distribution strength and weakness; marketing/support service infrastructure; diversity of
products and customers base; research and development and its linkage to product
obsolescence; quality important programme; as finally, the long term sales contract, strong
marketing position of the company within the industry attracts better grade rating.

(c) Operating Efficiency
Operating efficiency of the company is assessed vis-à-vis competitors' comparison. For

instance, the pricing or cost advantage; availability, cost, quality of raw material; availability
of labour and labour relations; integration of manufacturing operations and cost effectiveness
of plant and equipments; level of capital employed and productivity; energy cost; or finally,
the compliance to pollution control requirement on taken into consideration.
(d) Legal Position
Legal position of issue of debt instrument is assessed by letter of offer; terms of debenture
trust deed, trustees and their responsibilities; system of timely payment of interest and
principal; or protection of forgery and fraud. Thus, business covers all relevant aspects as
related to business operations of the client company to assess the creditworthiness of the
company.
(2) Financial Analysis
Under financial analysis, all relevant aspects connected with the business and financial
position of the company is assessed in the following four important segments. Firstly the
accounting finally is seen as qualifications of auditors; focus on determining extent to which
performance is overstated; method of income recognition; depreciation policies and inventory
calculations; Under Valued/Over Valuing of assets; or off balance sheet liabilities.
Secondly, the Earning Potential return to long term earning potential under varying conditions
is assessed. Key consideration is: Profitability ratios; pretax coverage ratios; earnings on
assets/capital employed; source of future earnings; or ability to finance growth internally.
Thirdly, the adequacy of the Cash Flows is appraised in relation to debt and fixed and
working capital requirements of the company. Main focus of analysis is on variability of
future cash flows; capital spending flexibility; cash flows to fixed and working capital

requirements; or Working Capital management. Fourthly, the Financial Flexibility is assessed

through financial plans in times of stress and their reliability; ability to attract capital; capital
spending flexibility; asset redeployment potential; or the debt service schedule.
(3) Management Evaluation
The track record of management is evaluated by observing:
 the goals and philosophies;

 strategies and ability to overcome adverse situations;
 judgment of management performance based on past operating and financial results;
 planning and control systems;
 conservatism or aggressiveness with reference to financial risk;
 depths of managerial, talents and succession plans;
 shareholding pattern and constitution/ of Board of Directors;
 relationship with shareholders;
 or mergers and acquisition considerations.
(4) Regulatory And Competitive Environment
CRISIL evaluates structure and regulatory framework of the financial system in which it
works. Trends in regulation/ deregulation and their impact on the company are evaluated.

(5) Fundamental Analysis
It covers aspects on liquidity management; assets quality; profitability and financial position;
and interest and tax sensitively. Liquidity management includes aspects on capital structure,
matching of assets and liabilities; or policy on liquid asset in relation to financing
commitments and maturing deposits. Asset Quality includes aspects concerning quality of
company's credit risk management, system for monitoring credit, sector risk, exposure of
individual borrowers, or management of problem credits. Profitability and Financial Position
includes aspects on historic profits, spreads on fund deployment, revenues on non fund-based
services, and accretion to reserves. Interest or Tax Sensitivity includes aspects dealing with
exposure to interest rate changes, revenues on non-fund based activities, and accretion to
reserves.
Factors listed above at serial number 1,2,3, are evaluated for manufacturing companies but for
finance companies, emphasis is laid in addition to above factors at serial number 4 and 5.

CRISIL’S RATING SYMBOLS FOR LONG TERM

INSTRUMENTS
Investment Grade Ratings:
AAA
(Triple A) Highest Safety
Instruments rated 'AAA' are judged to offer the highest degree of safety with regard to timely
payment of financial obligations. Any adverse changes in circumstances are most unlikely to
affect the payments on the instrument
AA
(Double A) High Safety
Instruments rated 'AA' are judged to offer a high degree of safety with regard to timely
payment of financial obligations. They differ only marginally in safety from `AAA' issues.
A
Adequate Safety
Instruments rated 'A' are judged to offer an adequate degree of safety with regard to timely
payment of financial obligations. However, changes in circumstances can adversely affect
such issues more than those in the higher rating categories

BBB
(Triple B) Moderate Safety
Instruments rated 'BBB' are judged to offer a moderate safety with regard to timely payment of
financial obligations for the present; however, changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal than for instruments in higher rating
categories.
Speculative Grade Ratings:
BB
(Double B) Inadequate Safety
Instruments rated 'BB' are judged to carry inadequate safety with regard to timely payment of
financial obligations; they are less likely to default in the immediate future than other speculative
grade instruments, but an adverse change in circumstances could lead to inadequate capacity to
make payment on financial obligations.
B
High Risk
Instruments rated 'B' are judged to have greater likelihood of default; while currently financial
obligations are met, adverse business or economic conditions would lead to lack of ability or
willingness to pay interest or principal.
C
Substantial Risk
Instruments rated 'C' are judged to have factors present that make them vulnerable to default;
timely payment of financial obligations is possible only if favourable circumstances continue.

D
Default
Instruments rated 'D' are in default or are expected to default on scheduled payment dates. Such
instruments are extremely speculative and returns from these instruments may be realized only
on reorganisation or liquidation.
NM
Not Meaningful
Instruments rated 'N.M' have factors present in them, which render the rating outstanding
meaningless. These include reorganisation or liquidation of the issuer, the obligation is under
dispute in a court of law or before a statutory authority etc.

RATING SYMBOL FOR SHORT TERM INSTRUMENT
P-1 This rating indicates that the degree of safety regarding timely payment on the instrument is
very strong.
P-2 This rating indicates that the degree of safety regarding timely payment on the instrument is
strong; however, the relative degree of safety is lower than that for instruments rated 'P-1'.
P-3 - This rating indicates that the degree of safety regarding timely payment on the instrument
is adequate; however, the instrument is more vulnerable to the adverse effects of changing
circumstances than an instrument rated in the two higher categories.
P-4 - This rating indicates that the degree of safety regarding timely payment on the instrument
is minimal and it is likely to be adversely affected by short-term adversity or less favourable
conditions.
P-5 - This rating indicates that the instrument is expected to be in default on maturity or is in
default.
NM - Instruments rated 'N.M' have factors present in them, which render the rating outstanding
meaningless. These include reorganisation or liquidation of the issuer, the obligation is under
dispute in a court of law or before a statutory authority etc.
Not Meaningful

ICRA
ICRA Limited (an Associate of Moody's Investors Service) was incorporated in 1991 as an
independent and professional company. ICRA is a leading provider of investment information
and credit rating services in India. ICRA’s major shareholders include Moody's Investors Service
and leading Indian financial institutions and banks. With the growth and globalization of the
Indian capital markets leading to an exponential surge in demand for professional credit risk
analysis, ICRA has been proactive in widening its service offerings, executing assignments
including credit ratings, equity gradings, specialized performance grading and mandated studies
spanning diverse industrial sectors. In addition to being a leading credit rating agency with
expertise in virtually every sector of the Indian economy, ICRA has broad-based its services for
the corporate and financial sectors, both in India and overseas, and currently offers its services
under the following banners:
ICRA Limited (an Associate of Moody's Investors Service) was incorporated in 1991 as an
independent and professional company. ICRA is a leading provider of investment information
and credit rating services in India. ICRA’s major shareholders include Moody's Investors Service
and leading Indian financial institutions and banks. With the growth and globalisation of the
Indian capital markets leading to an exponential surge in demand for professional credit risk
analysis, ICRA has been proactive in widening its service offerings, executing assignments
including credit ratings, equity gradings, specialised performance gradings and mandated studies

spanning diverse industrial sectors. In addition to being a leading credit rating agency with
expertise in virtually every sector of the Indian economy, ICRA has broad-based its services for
the corporate and financial sectors, both in India and overseas, and currently offers its services
under the following banners:
Rating Services Information, Grading and Reasearch Services Advisory Services
Economic Research Outsourcing

ICRA'S Rating Process

The Rating Process Follows:
Rating Process
Rating is an interactive process with a prospective approach. It involves series of steps. The
main points are described as below:
(A) Rating Request
Ratings in India are initiated by a formal request (or mandate) from the prospective issuer .
This mandate spells out the terms of the rating assignment. Important issues that are covered
include, binding the credit rating agency to maintain confidentiality, the right to the issuer to
accept or not to accept the rating and binds the issuer to provide information required by the
credit rating agency for rating and subsequent surveillance.
(B) Rating Team
The team usually comprises two members. The composition of the team is based on the
expertise and skills required for evaluating the business of the issuer.
(C) Information Requirements
Issuers are provided a list of information requirements and the broad framework for
discussions. These requirements are derived from the experience of the issuers business and
broadly conform to all the aspects, which have a bearing on the rating. These factors have
been discussed in detail under rating framework.

(D) Secondary Information
The credit rating agency also draws on the secondary sources of information including its own
research division. The credit rating agency also has a panel of industry experts who provide
guidance on specific issues to the rating team. The secondary sources generally provide data
and trends including policies about the industry.
(E) Management Meetings And Plant Visits
Rating involves assessment of number of qualitative factors with a view to estimate the future
earnings of the issuer. This requires intensive interactions with the issuer’s management
specifically relating to plans, outlook, and competitive position and funding policies.
Plan visits facilitate understanding of the production process, assess the state of equipment
and main facilities , evaluate the quality of technical personnel and form an opinion on the
key variables that influence level , quality and cost of production. These visits also help in
assessing the progress of projects under implementation.
(F) Preview Meeting :
After completing the analysis , the findings are discussed at length in the internal committee ,
comprising senior analysts of the credit rating agency. All the issues having a bearing on the
rating are identified. At this stage, an opinion on the rating is also formed.

(G) Rating Committee Meeting
This is the final authority for assigning ratings. A brief presentation about the issuers business
and the management is made by the rating team. All the issues identified during discussions in
the internal committee are discussed. The rating committee also considers the
recommendation of the internal committee for the rating. Finally , a rating is assigned and all
the issues, which influence the rating, are clearly spelt out.
(H) Rating Communication
The assigned rating along with the key issues is communicated to the issuer’s top
management for acceptance. The ratings, which are not accepted, are either rejected or
reviewed. The rejected ratings are not disclosed and complete confidentiality is maintained.
(I) Rating Reviews
If the rating is not acceptable to the issuer , he has a right to appeal for a review of the rating .
These reviews are usually taken up only if the issuer provides fresh inputs on the issues that
were considered for assigning the rating . Issuer's response is presented to the Rating
Committee. If the inputs are convincing, the Committee can revise the initial rating decision.
(J) Surveillance
It is obligatory on the part of the credit rating agency to monitor the accepted ratings over the
tenure of the rated instrument. As has been mentioned earlier, the issuer is bound by the
mandate letter to provide information to the credit rating agency. The ratings are generally
reviewed every year, unless the circumstances of the case warrant an early review. In a
surveillance review, the initial rating could be retained or revised (upgrade or downgrade).
The various factors that are evaluated in assigning the ratings have been explained under
rating framework.

Rating Scale of ICRA
Long Term — Including Debentures Bonds, Preference Shares
LAAA: Highest Safety:
It indicates fundamentally strong position. Risk factors are negligible. There may be
circumstances adversely affecting the degree of safety but such circumstances, as may
visualized, are not likely to affect the timely payment of principal and interest as per times.
LAA+,LAA, LAA- : High Safety:
Risk factors are modest and may vary slightly. The protective factors are strong and the
prospect of timely payment of principal and interest as per terms and interest under adverse
circumstances, as may be visualized, differs from LAAA only marginally.
LA+,LA, LA- :Adequate Safety:
The risk factors are more variable and grater in periods of economic stress. The protective
factors any averse change in circumstances, as may be visualized, may alter the fundamental
strength and effect the timely payment of principal and interest as per terms.
LBBB+,LBBB,LBBB- Moderate Safety:
Considerable variability in risk factors. The protective factors are below average. Adverse
changes in business/economic circumstances, are likely to affect the timely payment of
principal and interest as per terms.

LBB+, LBB, LBB-Inadequate Safety:
The timely payment of interest and principal are more likely to be affected by present or
prospective changes in business/economic circumstances. The protective factors fluctuate in
case of changes in economy/business conditions.
LBB+, LB, LB- Risk Prone:
Risk factors indicate that obligation may not be met when due. The protective factors are
narrow. Adverse changes in economic/business conditions could result in
inability/unwillingness to service debts on time as per terms.
LC+,LC,LC- Substantially Risk:
There are inherent elements of risk and timely servicing of debts/obligations could be possible
only in case of continued existence of favourable circumstances.
LD Default. Extremely Speculative:
Either already in default in payment of interest and/or principal as per terms or expected to
default. Recovery is likely only on liquidation or reorganization.

Medium Term - including Certificates of Deposits and Fixed Deposits

Programmes
MAAA: Highest Safety

The prospect of timely servicing of interest and principal as per terms is the best.
MAA+, MAA, MAA- High Safety
The prospect of timely servicing of interest and principal as per terms is high, but not as high
as in MAAA rating.
MA+, MA, MA-: Adequate Safety
The prospect of timely serving interest and principal is adequate. However, debt servicing
may be affected by adverse changes in the business/economic conditions.
MB+, MB, MB-: Inadequate Safety
The timely payment of interest and principal are more likely to be affected by future
uncertainties.
Mc+, Mc, Mc- Risk Prone
Susceptibility to default high. Adverse changes in the business/economic conditions could

result in inability/unwillingness to service debts on time as per terms.
Md Default
Either already in default or expected to default.
Short Term - including Commercial Papers

Al+, A1 Highest Safety
The prospect of timely payment of debt/obligation is the best.
A2+, A1 High Safety
The relative safety is marginally lower than A1
A3+, A3 Adequate Safety
The prospect of timely payment of interest and installment is adequate, but any adverse
changes in business/economic conditions may affect the fundamental
strength.
A4+, A4 Risk Prone
The degree of safety is low. Likely to default in case of adverse changes in

business/economic conditions.
A5 Default
Either already in default or expected to default. Inadequate capacity.

Short-Term Ratings
ICRA assigns short-term ratings with symbols from A1 through to A5 to debt instruments with
original maturity up to one year. ICRA’s short-term ratings measure the probability of default on
the rated debt securities over their entire tenure. A suffix of “+” may be attached to the rating
symbols of A1 through to A4 to indicate the relative position of the issuer within the rating
category. While the short-term rating of A1 indicates that the rated debt issuance has the highest
credit quality, A5 indicates that the rated debt is either in default or is expected to default on its
repayment obligations.
ICRA assigns short-term ratings to instruments such as commercial paper, certificates of deposit,
short-term debentures, and other money market related instruments maturing within one year
from the date of issuance.

Linkage Between Long-Term And Short-Term Ratings
Although ICRA ratings are specific to the rated instruments, the short-term ratings in general
have a linkage with the assigned or implicit long-term ratings of the issuers concerned.
Besides the fact that short-term instruments like commercial paper are usually on-going
programmes, thus warranting a longer-term rating view, in ICRA’s opinion, refinancing risk or
an issuer’s access to other sources of funding, is also largely influenced by the issuer’s longer-
term credit profile.
Thus, apart from focusing on short-term factors like near-term business risk drivers and liquidity
position of the issuers, ICRA also factors in an issuer’s long-term credit profile while assigning
short-term ratings to debt instruments issued by it. The following table presents a broad guidance
to the linkage between ICRA’s short-term and long-term ratings.

ONICRA CREDIT RATING AGENCY OF INDIA
ONICRA CREDIT RATING AGENCY OF INDIA Ltd. is recognised as the pioneers of the
concept of individual Credit rating in India. After being the first to introduce the concept, Onicra
has been continuously conducting in-depth research into all aspects of the behaviour of credit
seekers and has developed a comprehensive rating system for various types of credit extensions.
Onicra provides a platform to credit seekers and granters build long lasting relationship.
Credit Rating
With the advance of credit, the principal has an increased level of exposure in the market. So, a
mandatory check is done to assess the credentials of the individual in question before extending a
loan or advance. We assess the financial visibility and look into all related aspects. We have an
in-house developed credit rating module which is customized to suit various customer
requirements.
Associate Rating
We provide an objective assessment of existing and potential associates of our clients, with
reference to infrastructure, resources, adherence to defined system and processes and
commitment to their customers. This evaluation helps our clients understand the value their
associates bring to their business relationships.

Employment Background Screening
This service provides our clients with authenticated and validated data on employee’s which
includes but is not limited to the Physical Address, qualification both educational and
professional, criminal record check and other pertinent information.
SSI/SME Rating
We help Small Scale Industries that are looking for loans and financial assistance to get assessed
on their credit worthiness, financial viability and performance. This helps their cause to get
unbiased analysis in a funding situation.

CARE
Credit Analysis & Research Ltd. (CARE), incorporated in April 1993, is a credit rating,
information and advisory services company promoted by Industrial Development Bank of India
(IDBI), Canara Bank, Unit Trust of India (UTI) and other leading banks and financial services
companies. In all CARE has 14 shareholders.
CARE assigned its first rating in November 1993, and up to March 31, 2006, had completed
3175 rating assignments for an aggregate value of about Rs 5231 billion. CARE's ratings are
recognized by the Government of India and all regulatory authorities including the Reserve Bank
of India (RBI), and the Securities and Exchange Board of India (SEBI). CARE has been granted
registration by SEBI under the Securities & Exchange Board of India (Credit Rating Agencies)
Regulations, 1999.
The rating coverage has extended beyond industrial companies, to include public utilities,
financial institutions, infrastructure projects, special purpose vehicles, state governments and
municipal bodies. CARE's clients include some of the largest private sector manufacturing and
financial services companies’ as well financial institutions of India. CARE is well equipped to
rate all types of debt instruments like Commercial Paper, Fixed Deposit, Bonds, Debentures and
Structured Obligations.
CARE's Information and Advisory services group prepares credit reports on specific requests
from banks or business partners, conducts sector studies and provides advisory services in the
areas of financial restructuring, valuation and credit appraisal systems. CARE was retained by
the Disinvestment Commission, Government of India, for assistance in equity valuation of a
number of state owned companies and for suggesting divestment strategies for these companies.

CARE'S Rating Process
The process involves:
(i) Client gives request for rating and submits information and details schedules;
(ii) CARE assigns rating team and team analyses the information;
(iii) The team interacts with the clients, undertakes site visits;
(iv) The client interacts with the Team respond to queries raised and provides any additional
data necessary for the analyses;
(v) The team analyses the data submitted by the Client and put up to Internal Committee of
CARE for previews analyses;
(vi) Rating Committee of CARE awards rating to the Client;
(vii) Client may ask for review of the rating assigned and furnish additional information for
the purpose. Client has the option not to accept the final rating in which case CARE will not
publish the rating or monitor it; and, finally,
(viii) If the rating is accepted by the client, CARE gives it for notification and a periodic
surveillance is undertaken by CARE.

RATING SYMBOLS OF CARE
A. Long-Term And Medium Term Instrument
CARE AAA (FD)/(CD)/(SO)
Instruments carrying this rating are considered to be of the best quality, carrying negligible
investment risk. Debt service payments are protected by stable cash flows with good margin.
While the underlying assumptions may change, such changes as can be visualized are most
unlikely to impair the strong position of such instruments.
CARE AA (FD)/(CD)/(SO)
Instruments carrying this rating are judged to be of high quality by all standards. They are
also classified as high investment grade. They are rated lower than CARE AAA securities
because of somewhat lower margins of protection. Changes in assumptions may have a
greater impact on the long-term risks may be somewhat larger. Overall, the difference with
CARE AAA rated securities is marginal.
CARE A (FD)/(CD)/(SO)
Instruments with this rating are considered upper medium grade instruments and have many
favourable investment attributes. Safety for principal and interest are considered adequate.
Assumptions that do not materialize may have a greater impact as compared to the
instruments rated higher.

CARE BBB (FD)/(CD)/(SO)
Such instruments are considered to be of investment grade. They indicate sufficient safety for
payment of interest and principal, at the time of rating. However, adverse changes in
assumptions are more likely to weaken the debt servicing capability compared to the higher
rated instruments.
CARE BB (FD)/(CD)/(SO)
Such instruments are considered to be speculative, with inadequate protection for interest and
principal payments.
CARE B (FD)/(CD)/(SO)
Instruments with such rating are generally classified susceptible to default. While interest and
principal payments are being met, adverse changes in business conditions are likely to lead to
default.
CARE C (FD)/(CD)/(SO)
Such instruments carry high investment risk with likelihood of default in the payment of
interest and principal.
CARE D (FD)/(CD)/(SO)
Such instruments are of the lowest category. They either are in default or are likely to be in
default soon.

B. Short-Term Instruments
Instruments with maturities of one year or less are classified in this category. These include:
CP - Commercial Paper and ICD - Inter-Corporate Deposits
PR-1
Instruments would have superior capacity for repayment of short-term promissory obligation.
Issuers of such PR-instruments will normally be characterized by leading market position in
established industries, high rates of return on funds employed etc.
PR-2
Instruments would have strong capacity for repayment of short-term promissory obligations.
Issuers would have most of the characteristics as for those with PR1 instruments but to a
lesser degree.
PR-3
Instruments have an adequate capacity for repayment of short-term promissory obligations.
The effect of industry characteristics and market composition may be more pronounced.
Variability in earning and profitability may result in change in the level of debt protection.
PR-4
Instruments have minimal degree of safety regarding timely payment of short-term
promissory obligations and safety is likely to be adversely affected by short-term adversity or
less favourable conditions.

PR-5
The instrument is in default or is likely to be in default on maturity.
SME Rating Agency of India Limited (SMERA) is a joint initiative by SIDBI

(http://www.sidbi.in/), Dun & Bradstreet Information Services India Private Limited (D&B)
(http://www.dnb.co.in/), Credit Information Bureau (India) Limited (CIBIL)
(http://www.cibil.com/) and several leading banks in the country. SMERA is the country's first
rating agency that focuses primarily on the Indian SME segment.
SMERA's primary objective is to provide ratings that are comprehensive, transparent and
reliable. This would facilitate greater and easier flow of credit from the banking sector to SMEs.
Rating Process Simplified -
 Based on receipt of application form, applicable rating fees and documents from the
SME, SMERA will begin its process of evaluation.
 A Questionnaire, seeking information on financial and qualitative factors, would be sent
to the SME and would need to be filled by an authorised representative of the SME.
 A SMERA correspondent will contact the SME to collect a duly filled questionnaire to
facilitate the rating process.
 The correspondent would also conduct a site visit as part of the evaluation process.
 SMERA shall complete the evaluation exercise and provide SMERA rating within 15
business days of receipt of all documents from the SME.


Moody's Investor Service
Today, Moody's Investor Service rates thousands of issues of corporate and municipal bonds,
commercial paper, short-term municipal notes, and preferred stock. These security ratings are
reported in Moody's Bond Record, which is published monthly. In addition to assigning issue
ratings, Moody's also notes for its subscribers the essential terms on each security issue; dates
when interest, principal or dividend payments are due; call provisions (if any); registration
status; bid and asked price quotations; yield to maturity; tax status; coverage; and amount of
securities outstanding.
Moody's Corporate Bond Ratings
The credit ratings assigned by Moody's to corporate bonds are listed below with the
definitions of each rating category:
AAA
Bonds, which are rated Aaa, are judged to be of the best quality. They carry the smallest
degree of investment risk and are generally referred to as "gilt edge". Interest payments are
protected by a large or by an exceptionally stable margin and principal is secure. While the

various protective elements are likely to change, such changes as can be visualized are most
likely to impair the fundamentally strong position of such issues.
AA
Bonds, which are rated Aa, are judged to be of high quality by all standards. Together with
the AAA group they comprise what are generally known as high-grade bonds. They are rated
lower than the best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater amplitude or there may be
other elements present which make the long-term risks appear somewhat larger than in Aaa
securities.
Bonds, which are rated A, possess many favourable investment attributes and are to be
considered as upper medium-grade obligations. Factors giving security to principal and
interest are considered adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future.
BAA
Bonds, which are rated Baa, are considered as medium-grade obligations, i.e., they are neither
highly protected nor poorly secured. Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and, in fact, have speculative characteristics as well.
BA
Bonds, which are rated Ba, are judged to have speculative elements; their future cannot be
considered as well assured. Often the protection of interest and principal payments may be

moderate and thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
Bonds, which are rated B generally, lack characteristics of a desirable investment. Assurance
of interest and principal payments or of maintenance of other terms of the contract over any
long period of time may be small.
CAA
Bonds, which are rated Caa, are of poor standing. Such issues may be in default and there
may be present elements of danger with respect to principal or interest.
CA
Bonds, which are rated Ca, represent obligations, which are speculative in some degree. Such
issues are often in default or have other marked shortcomings.
Bonds, which are rated C, are the lowest rated class of bonds and issues so rated are to be
regarded as having extremely poor prospects of ever attaining any real investment standing.
Moody's Commercial Paper Ratings
Promissory notes sold in the open market by large corporations and having an original
maturity of nine months or less are known as commercial paper. Moody's assigns those
commercial notes it is willing to rate to one of three quality categories:

Moody's Ratings of Short-Term Municipal Notes
Short-term securities issued by states, cities, counties, and other local governments are rated
by Moody's as to their investment quality. For these short-term issues Moody's uses the rating
symbol MIG, meaning Moody's Investment Grade. As shown below, only four rating
categories are used and speculative issues or those for which adequate information is not
available are not rated. The rating categories are as follows:
MIG I
Loans bearing this designation are of the best quality, enjoying strong protection from
established cash flows of funds for their servicing or from established and broad-based access
to the market for refinancing, or both.
MIG2
Loans bearing this designation are of high quality, with margins of protection ample though
not so large as in the preceding group.
MIG3
Loans bearing this designation are of favourable quality, with all security elements accounted
for but lacking the undeniable strength of the preceding grades. Market access for refinancing,
in particular, is likely to be less well established.
MIG4
Loans bearing this designation are of adequate quality, carrying specific risk but having
protection commonly regarded as required of an investment security and not distinctly or
predominantly

International Scale Ratings
International foreign currency ratings effectively benchmark credit quality off US Government
risk, and measure the ability of an organization to service foreign currency obligations. In this
regard, typically no organization or debt issue in a country can be rated higher than the country's
“sovereign risk rating” on the basis that, regardless of a company's stand-alone strength, the
government can “block” any organization within its jurisdiction from obtaining/disbursing
foreign currency. Exceptions can arise in the case of structured finance transactions (if there is an
opportunity to pierce the sovereign cap, e.g. by trapping foreign currency offshore).
National Scale Ratings
The domestic local currency ratings assigned by GCR are tiered against an assumed “best
possible” (usually central government) rating of ‘AAA' in each country and, therefore, do not
incorporate the sovereign risks of a country. Such ratings are designed to give an indication of
the relative risks only within a specific country and are not comparable across different
countries. Accordingly, a Zimbabwe Dollar rating accorded to a Zimbabwean organisation is not
comparable to a South African Rand rating accorded to a South African organisation.
The rating methodologies and rating scales utilised in the accordance of both types of ratings are
very similar, but the key difference is that one scale measures the probability of default on
FOREIGN CURRENCY obligations (taking into account all sovereign risk and currency
conversion considerations), while the other measures the probability of default on LOCAL
CURRENCY obligations. It stands to reason that, particularly in emerging markets such as
Africa, there is a far higher probability of default with regards to the former.

Short Term Debt Rating Scale:
GCR's Rating Symbols and Definitions Summary
A short term debt rating rates an organisation's general unsecured creditworthiness over the short
term (i.e. over a 12 month period). Such a rating provides an indication of the probability of
default on any unsecured short term debt obligations, including commercial paper, bank
borrowings, BA's and NCD's.
High Grade
Highest certainty of timely payment. Short-term liquidity, including internal operating

A1+ factors and/or access to alternative sources of funds is outstanding, and safety is just
below that of risk-free treasury bills.
Very high certainty of timely payment. Liquidity factors are excellent and supported by
A1
good fundamental protection factors. Risk factors are minor.
High certainty of timely payment. Liquidity factors are strong and supported by good
A1-
fundamental protection factors. Risk factors are very small.

Good Grade
Good certainty of timely payment. Liquidity factors and company fundamentals are sound.
A2 Although ongoing funding needs may enlarge total financing requirements, access to
capital markets is good. Risk factors are small.
Satisfactory Grade
Satisfactory liquidity and other protection factors qualify issues as to investment grade.
A3
However, risk factors are larger and subject to more variation.
Non-Investment Grade
Speculative investment characteristics. Liquidity is not sufficient to insure against

B disruption in debt service. Operating factors and market access may be subject to a high
degree of variation.
Default
C Issuer failed to meet scheduled principal or interest payments.
Long Term Debt Rating Scale:
A long term debt rating rates the probability of default on specific long term debt instruments
over the life of the issue. It is possible that different issues by a single issuer could be accorded
different ratings, depending on the underlying characteristics of each issue (e.g. is it a senior or a
subordinated debt instrument, is it secured or unsecured and, if secured, what is the nature of the
security).

Investment Grade
AAA Highest credit quality. The risk factors are negligible, being only slightly more than for
risk free government bonds.
AA+ Very high credit quality. Protection factors are very strong. Adverse changes in
AA business, economic or financial conditions would increase investment risk although not
AA- significantly.
A+ High credit quality. Protection factors are good. However, risk factors are more variable
A and greater in periods of economic stress.
A-
BBB+ Adequate protection factors and considered sufficient for prudent investment. However,
BBB there is considerable variability in risk during economic cycles.
BBB-
Non - Investment Grade
BB+ Below investment grade but capacity for timely repayment exists. Present or prospective
BB financial protection factors fluctuate according to industry conditions or company
BB- fortunes. Overall quality may move up or down frequently within this category.
B+ Below investment grade and possessing risk that obligations will not be met when due.
B Financial protection factors will fluctuate widely according to economic cycles, industry
B- conditions and/or company fortunes.
CCC Well below investment grade securities. Considerable uncertainty exists as to timely
payment of principal or interest. Protection factors are narrow and risk can be substantial
with unfavourable economic/industry conditions, and/or with unfavourable company
developments.

DD Defaulted debt obligations. Issuer failed to meet scheduled principal and/or Interest
payments.
Such ratings are exclusively accorded to insurance/reinsurance companies and rate the
probability of timeously honouring policyholder obligations over the medium term (i.e. over the
next 2 to 3 years)
AAA Highest claims paying ability. The risk factors are negligible.
AA+ Very high claims paying ability. Protection factors are strong. Risk is modest, but may
AA vary slightly over time due to economic and/or underwriting conditions.
AA-
A+ High claims paying ability. Protection factors are above average although there is an
A expectation of variability in risk over time due to economic and/or underwriting
A- conditions.
BBB+ Adequate claims paying ability. Protection factors are adequate although there is
BBB considerable variability in risk over time due to economic and/or underwriting
BBB- conditions.
BB+ Moderate claims paying ability. The ability of these organisations to discharge
BB obligations is considered moderate and thereby not well safeguarded in the event of
BB- adverse future changes in economic and/or underwriting conditions.
B+ Possessing substantial risk that policyholder and contract-holder obligations will not be
B paid when due. Judged to be speculative to a high degree.
B-
CCC Company has been, or is likely to be, placed under an order of the court.

DISADVANTAGES OF CREDIT RATING
(1) Biased Rating And Misrepresentations
In the absence of quality rating, credit rating is a curse for the capital market industry,
carrying out detailed analysis of the company, should have no links with the company or the
persons interested in the company so that their reports impartial and judicious
recommendations for rating committee. The companies having lower grade rating do not
advertise or use the rating while raising funds from the public. In such cases, the investor
cannot get information about the riskiness of instrument and hence is at loss.
(2) Static Study
Rating is done on the present and the past historic data of the company and this is only a static
study. Prediction of the company's health through rating is momentary and anything can
happen after assignment of rating symbols to the company. Dependence for future results on
the rating, therefore defeats the very purpose of risk indicative ness of rating. Many changes
take place in economic environment, political situation, government policy framework, which
directly affect the working of a company.
(3) Concealment Of Material Information
Rating company might conceal material information from the investigating team of the credit
rating company. In such cases, quality of rating suffers and renders the rating unreliable.

(4) Rating Is No Guarantee For Soundness Of Company
Rating is done for a particular instrument to assess the credit risk but it should not be
construed as a certificate for the matching quality of the company or its management.
Independent views should be formed by the public using the rating symbol.
(5) Human Bias
Findings of the investigation team, at times, may suffer with human bias for unavoidable
personal weakness of the staff and might affect the rating.
(6) Reflection Of Temporary Adverse Conditions
Time factor affects rating. Sometimes, misleading conclusions are derived. For example,
company in a particular industry might be temporarily in adverse condition but it is given a
low rating. This adversely affects the company's interest
(7) Down Grade
Once a company has been rated and if it is not able to maintain its working results and
performance, credit rating agencies would review the grade and down grade the rating
resulting into impairing the image of the company.

(8) Difference In Rating Of Two Agencies
Rating done by the two different credit rating agencies for the same instrument of the same
issuer company in many cases would not be identical. Such differences are likely to occur
because of value judgment differences on qualitative aspects of the analysis in two different
agencies.
(9) Conservative Rating
Default by an investment-grade firm is seen as the most costly error for the agency. In order
to preserve their reputation by avoiding the failure of any investment-grade firm, rating
agencies downgrade even "good" firms in response to higher global risk. The downgrades
may look self-fulfilling, but in fact, investors rationally ignore them, as they actually convey
no information about the relative quality of firms

IPO GRADING
IPO grading (initial public offering grading) is a service aimed at facilitating the assessment
of equity issues offered to public. The grade assigned to any individual issue represents a
relative assessment of the 'fundamentals' of that issue in relation to the universe of other listed
equity securities in India. Such grading is assigned on a five-point point scale with a higher
score indicating stronger fundamentals.
IPO Grading Is Different From An Investment Recommendation
Investment recommendations are expressed as 'buy', 'hold' or 'sell' and are based on a security
specific comparison of its assessed 'fundamentals factors' (business prospects, financial position
etc.) and 'market factors' (liquidity, demand supply etc.) to its price.
On the other hand, IPO grading is expressed on a five-point scale and is a relative comparison of
the assessed fundamentals of the graded issue to other listed equity securities in India.
As the IPO grading does not take cognizance of the price of the security, it is not an investment
recommendation. Rather, it is one of the inputs to the investor to aiding in the decision making
process.
All other things remaining equal, a security with stronger fundamentals would command a higher
market price.
How Long Would The Assigned Grade Be Valid?
The assigned grade would be a one time assessment done at the time of the IPO and meant to aid
investors who are interested in investing in the IPO. The grade will not have any ongoing
validity.

Main features of SEBI decision
The important features of SEBI's decision on IPO grading are as follows:
 The grading exercise will exclude the issue price from its scope;
 It will be carried out by recognised credit rating agencies;
 The grading will be on a 5-point scale, the lowest grade to be indicated by 1 and the
highest by 5; and
 The issuing company will be allowed to choose the rating agency for grading its IPO.
CRISIL IPO Grading
CRISIL, the originator of this concept, has been at the forefront of developing the
IPO grading model into a usable form. The views and feedback of the regulator,
Market participants, investors and investor forums have been core inputs in the
development of this product. Therefore, CRISIL has a uniquely evolved
understanding of this globally revolutionary idea.
CRISIL believes that IPO grading provided by an independent agency would be free
from bias and add structure to the tools available at present for assessing the
Investment attractiveness of an equity security.
The IPO grading will be based on CRISIL’s proprietary framework that has been
developed to help investors arrive at their own judgment on factors that drive
Equities as an asset class.
The debt market has benefited immensely from the availability of such an assessment
in the form of credit rating - a representation of a relative assessment of the
fundamentals of the debt security i.e., likelihood of timely repayment of interest

and principal.
The IPO grading product of CRISIL, is a relative assessment of the fundamentals of
the equity security.
Investment decisions for IPO are at present based on voluminous and complex
disclosure documents, which pose a challenge to investors to arrive at informed
decisions. The focus, in these documents is meeting regulatory guidelines on disclosures.
Though seemingly there is a lot of information available on IPOs through free
research on websites, media and other sources, investors often look for structured,
consistent and unbiased analysis to aid their investment decisions.
Moreover, information available on new companies varies with the size of the issue,
the market conditions and the industry that the issuing company belongs to. CRISIL
IPO grading aims to bridge this gap and facilitate more informed investment decisions.
Contents Of The CRISIL IPO Grading Report
The report for each CRISIL IPO grading will contain a summary and a detailed report.
 Summary- One-page report highlighting the key elements of analysis
 Detailed report- Comprehensive commentary on the assessment parameters.
This report will be a one-time assessment based on the information disclosed in the
draft prospectus filed with Securities Exchange Board of India (SEBI); our
understanding of the industry and company fundamentals; and interactions with
the issuer management and other stakeholders.
The report will comprise our assessment on the following parameters:
 Management quality
 Business prospects: Industry and company
 Financial performance
 Corporate governance
 Project related factors
 Other factors:

- Compliance track record

- Litigation history
- Capital history.
A comprehensive assessment that aids investment decisions of both -

Institutional and retail investors.
CRISIL IPO Grading: Assessment Scale

The assessment is an ‘overall assessment of fundamentals’ on a five-point scale.
The companies assessed highest will be scored 5/5 and the lowest score will be 1/5.
Gradings are assigned to various parameters and then aggregated.
CRISIL IPO grading is not to be construed to mean

 A valuation of the equity offering; present or future
 A comment on the issue price or the likely price on listing
 An assessment of the market risk associated with equity investments
 An audit or a recommendation to invest
 A forensic exercise that can detect fraud.
CRISIL IPO Grading - Scale
CRISIL IPO Grade Assessment
5/5 Strong fundamentals
4/5 Above average fundamentals
3/5 Average fundamentals
2/5 Below average fundamentals
1/5 Poor fundamentals

CONCLUSION
Thus we can say that Credit rating is a qualified assessment and formal evaluation of company’s
credit history and capability of repaying obligations. It measures the default probability of the
borrower, and its ability to repay fully and timely its financial debt obligations.
The main purpose of credit rating is to provide investors with comparable information on credit
risk based on standard rating scale, regardless of specifics of companies, separate sector of the
economy and country as a whole.
Credit rating has proven itself to be effective instrument of risk assessment in countries with
advanced economy since it demonstrates transparency of an enterprise. Credit rating reflects
financial, sectorial, operational, legal and organizational sides of companies, which characterize
ability and willingness duly and in full amount to repay obligations
In world practice, credit rating can be assigned to sovereign governments, regional and local
executive bodies, corporations, financial organizations and etc.

BIBLIOGRAPHY
www.crisil.com
www.stretcher.com
www.careratings.com
www.onicra.com
www.care.org
www.careratings.com
www.smera.in
www.sebi.gov.in
www.hindubusiness.com
www.wikipedia.org

Ajit Credit Rating Final

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CREDIT RATING IN INDIA

A.E KALSEKAR COLLEGE 1

Signature of the student

A.E KALSEKAR COLLEGE 2

SHURPARAKA EDUCATIONAL & MEDICAL TRUST’S

We hereby certify that Mr./ Miss ________________________ __________ of

Internal Examiner: ________

External Examiner: __________ College Seal

A.E KALSEKAR COLLEGE 3

I am thankful to A. E. Kaleskar college of Management for giving me an opportunity to pursue Studies of

A.E KALSEKAR COLLEGE 4

A.E KALSEKAR COLLEGE 5

A.E KALSEKAR COLLEGE 6

Various advantages and limitation to Credit Rating are highlighted.

IPO Grading has also been included in this project.

A.E KALSEKAR COLLEGE 7

A.E KALSEKAR COLLEGE 8

A.E KALSEKAR COLLEGE 9

Credit Rating Function

Clients for Credit Rating

Clients comprise manufacturing companies, non-banking finance companies, nationalized and

A.E KALSEKAR COLLEGE 10

EVOLUTION OF CREDIT RATING AGENCIES

A.E KALSEKAR COLLEGE 11

A.E KALSEKAR COLLEGE 12

Following are the different kinds of rating:

(1) Bond/Debenture Rating

(2) Equity Rating

Rating of equity shares issued by a company is called equity rating.

(3) Preference Share Rating

Rating of preference share issued by a company is called preference share rating.

(4) Commercial Paper Rating

Commercial papers are instruments used for short-term borrowing. Commercial

(5) Fixed Deposits Rating

A.E KALSEKAR COLLEGE 13

(6) Borrowers Rating

Rating of borrowers is referred as borrower rating.

(7) Individuals Rating

Rating of individuals is called as individual's credit rating.

(8) Structured Obligation Rating

(9) Sovereign Rating

Is a rating of a country, which is being considered whenever a loan is to be extended,

A.E KALSEKAR COLLEGE 14

BENEFITS OF CREDIT RATING`

(A) BENEFITS TO INVESTORS

(1) Safeguards Against Bankruptcy

(2) Recognition Of Risk

(3) Credibility Of Issuer

A.E KALSEKAR COLLEGE 15

(4) Easy Understandability Of Investment Proposal

(5) Saving Of Resources

(6) Independence Of Investment Decisions

(7) Choice Of Investments

A.E KALSEKAR COLLEGE 16

(8) Benefits Of Rating Surveillance

(9) Other Advantages

A.E KALSEKAR COLLEGE 17

(B) BENEFITS OF RATING TO THE COMPANY

(1) Lower Cost Of Borrowing

(2) Wider Audience For Borrowing

(3) Rating As Marketing Tool

(4) Reduction Of Cost In Public Issues

A.E KALSEKAR COLLEGE 18

(5) Motivation For Growth

(6) Unknown Issuer

(C) BENEFITS TO BROKERS AND FINANCIAL INTERMEDIARIES

We hereby certify that Mr./ Miss ______________ of