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Declaration
I Pooja Ahuja is submitting the research project report on CREDIT RATING conducted during MBA. I, hereby declare that this is an original work compiled and completed by me under the guidance of Mrs. Mahima Mittal faculty, M.B.A. programme , E-MAX Business School Badhuli. This report has been submitted in partial fulfillment of the requirement for the award of Master of Business Administration with specialization in Finance to the Kurukshetra University, Kurukshetra and has not been submitted to any institution or board or universities and previously formed the basis for the award of any degree, diploma, association ship, fellowship or any similar titles.
ACKNOWLEDGEMENT
The research work requires co-operation of many people and this work is no exception. It is difficult to thank individually all the persons who patronized this work. The researcher had asked for favors, borrowed ideas, expressions and facts from so many that it would require one volume to give credit to all. So, the researcher wants to thank all the patrons of this report First and foremost, we would like to express our sincere and profound gratitude to Mrs. Mahima Mittal (Faculty Member of E-MAX Group Of Institute of Management studies, Badhuli),whose guidance has given a proper shape to this project. This is because of her attitude towards excellence, and helping nature has been source of constant inspiration. Her unhitching support during our work is very admirable. She is the true driving force behind his work throughout, constantly encouraging us to do our best and inspiring us to aim higher. We will be failing in our duty, if we do not express our thanks to our Parents and family members for generating Confidence in us right from the commencement of this task to its accomplishment. We want to thank our friends who extended their cooperation and were patient at all stages of our work. Last but not the least, we are thankful to all respondents, who gave us their precious time and support to fulfill this task, without their co-operation the study would not have seen the light of the day.
PREFACE
The Indian banking industry is passing through an exciting growth phase. The surge in the real economy, which has grown at over 8% in the past three fiscals, has provided significant growth opportunities for the sector. The rising personal incomes of the population have provided banks numerous opportunities for product development and distribution innovations. India has a robust banking structure characterized by three major bank groups, viz., Public Sector Banks, Private Sector Banks and Foreign Banks, and a large network of branches. Basic objective of any business is to maximize profit. Energy industrial or service oriented operation runs itself for the accomplishment of smooth return with least expenditure. For this purpose in this highly competitive world it becomes very important for the product or services to sell it with fighting the existing conditions. Today companies work is a war zone of rapidly changing competition technological advancements and other policies which keeps on changing by the regulatory authorities, so to run business successfully and profitably it is essential that company must keep re-examining their strategies through continuous market studies. A questionnaire was carefully prepared and thereafter an extensive survey was conducted in different banks and ATMs. Data and results obtained from this survey has been carefully analyzed and incorporated in this report suggestions based on this survey.
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CHAPTER I CHAPTER II CHAPTER III CHAPTER-IV DATA ANALYSIS AND INTERPRETATION CHAPTER-V FINDINGS SUGGESTIONS CONCLUSION
LIST OF TABLE
SR. NO. CONTENT PAGE NO.
LIST OF GRAPH
SR . NO. CONTENT PAGE NO.
Credit Rating is an assessment of the credit worthiness of individuals and corporations. It is based upon the history of borrowing and repayment, as well as the availability of assets and extent of liabilities. Credit is important since individuals and corporations with poor credit will have difficulty finding financing, and will most likely have to pay more due to the risk of default. Credit rating, however is neither a general purpose evaluation of a corporate entity nor an overall assessment of the credit risk likely to be involved in all the debts/financial instruments contracted/to be contracted by such issuers. A rating is specific to a debt/financial instrument and is intended to grade different and specific instruments in terms of the credit risk associated with the particular instruments. Although it is an opinion expressed by an independent professional organisation, on the basis of a detailed study of all the relevant factors, the rating does not amount to any recommendation to buy, hold or sell an instrument as it does not take into consideration factors such as market prices, personal risk preferences of an investor and such other considerations, which may influence an investment decision. As a fee based financial advisory service, credit rating is, obviously, extremely useful to investors, corporate (borrowers), banks, and financial institutions. For the investors, it is an indicator expressing the underlying credit quality of an (debt) issue program. The investor is fully informed about the company as any effect of changes in business/economic conditions on the company is evaluated and published regularly by the rating agencies. The corporate borrower can raise funds at a cheaper rate, with a good rating. It minimizes the role of name recognition and lesser-known companies can also approach the market on the basis of their rating. Fund ratings are useful to the banks and other financial institutions when they decide on lending and investment strategies. A prospective investor who is going to invest his earned money in securities (more specific debt securities) would naturally like an assessment of risk associated with the securities enabling him for the proper evaluation of risk-return trade-off. But, factors such as lack of time, lack of knowledge of security evaluation, lack of reliable etc. could leave any investor looking for an agency, which would provide an unbiased judgment of risk associated with the security.
Thus, the assessment of risk associated with particular security/financial instrument regarding timely repayments of interest and principal is termed as credit rating. Credit Rating is, that thus a symbolic indicator of the current opinion of the rating agency on the relative ability and willingness of the issuer of a financial (debt) instrument to meet the (debt) service obligations as and when they arise. In other words, credit rating provide grades to the securities by which Prospective investor of these securities can judge the capability of the companies (issue of these securities) regarding the timely repayment of interest and principle. A rating is specific to a debt/instrument. Thus, a rating is a general-purpose evaluation neither of the company or issuer, nor an overall assessment of the credit risk likely to be involved in all the debts contracted or to be contracted by such issues. Although it is an opinion expressed by an independent credit rating agency, on the basis of a detailed study of all the relevant factors, the rating dose not make any recommendations to buy, hold or sell an instrument as it does not take into consideration another factors such as market prices, personal risk preferences of an investor and such other considerations, which may influence an investment decision.1
Definitions:Following are some definitions of credit rating given by a few well-known rating agencies:-
1. A rating is an opinion on the future ability and legal obligation of the issuer to make timely payments of principle and interest on a specific fixed income security. The rating measures the probability that the issues 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.
2.
simple tool that couples a possibly unknown issuer with an informative and meaningful symbol of credit quality.
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gradation by which the relative capacities to make timely repayment of interest and principle on a particular type of debt can be noted
The above definitions emphasize the use of credit rating to access the probability of timely repayment of principle and interest by the issuer of debt security.
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 Pvt. Ltd. In1996.2
Code of conduct
1. Every credit rating agency shall abide by the Code of Conduct contained in the Third Schedule. 2. Agreement with the client 3. Every credit rating agency shall enter into a written agreement with each client whose securities it proposes to rate, and every agreement shall include the following provisions, namely:a. The rights and liabilities of each party in respect of rating of securities shall be defined; b. The fee be charged by the rating agency shall be specified; c. The client shall agree to a periodic review of the rating by the credit rating agency during the tenure of the rated instrument; d. The client shall agree to co-operate with the credit rating agency in order to enable the latter to arrive at, and maintain, a true and accurate rating of the clients securities and shall in particular provide to the latter, true, adequate and timely information for the purpose. The credit rating agency shall disclose to the rating assigned to the securities of the latter i. ii. Every credit rating agency shall carry out periodic reviews of all published ratings during the lifetime of the securities. If the client does not co-operate with the credit rating agency so to enable the credit rating agency to comply with its obligations under regulation, the credit rating agency shall carry out the review on the basis of the best
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available information, the credit rating agency shall disclose to the investors the fact that the rating is so based. iii. A credit rating agency shall not withdraw a rating so long as the obligations under the security rated by it are outstanding, except where the company whose security is rated is wound up or merged of dissemination, irrespective of whether the rating is or is not accepted by the client; i. The client shall agree to disclose, in the offer document;j. The rating assigned to the clients listed securities by any credit rating k. agency during the last three years and. l. Any rating given in respect of the clients securities by any other credit m. rating agency, which has not been accepted by the client. n. The client shall agree to obtain a rating from at least two different rating agencies for any issue of debt securities whose size is equal to or exceeds rupees one hundred crores. Monitoring of ratings 1. Every credit rating agency shall, during the lifetime of securities rated by it continuously monitor the rating of such securities. 2. Every credit rating agency shall disseminate regarding newly assigned ratings, and charges in earlier rating promptly through press release and websites, and, in the case of securities issued by listed companies, such information shall also be provided simultaneously to the concerned regional stock exchanges where the said securities are listed. Procedure for review of rating Internal procedures to be framed 6. Every credit rating agency shall frame appropriate procedures and systems for monitoring the trading of securities by its employees in the securities of its clients in order to prevent contravention of a. The Securities and Exchange Board of India (Insider Trading) Regulations, 1992;
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b. The Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market) Regulations, 1995;and c. Other laws relevant to trading of securities. Disclosure of Rating Definitions and Rationale 7.(1) Every credit rating agency a. Shall make public the definition of the concerned rating, along with the symbol and, b. Shall also state that the ratings do not constitute recommendations to buy , hold or sell securities. (2) Every credit rating agency shall make available of the ratings, which shall cover an analysis of the various factors justifying assessment, as well as factors constituting a risk. Submission of information to the Board 8. (1) Where the Board calls for any information from a credit rating agency for the purpose of these regulations including any report relating to its activities, the credit rating agency shall furnish such information to the Board a. Within a period specified by the Board or b. If no such period is specified, then within a reasonable time Every credit rating agency shall at the close of each accounting period, furnish to the Board copies of its balance sheet and profit and loss account. Compliance with circulars etc., issued by the Board 9 (1). Every credit rating agency shall comply with such guidelines; the Board may issue directives, circulars and instructions as from time to time, on the subject of credit rating. Maintenance of Books of Accounts records, etc. 10. (1) Every credit rating agency shall keep and maintain, for a minimum period of five years, the following books of accounts, records and documents, namely: a. Copy of its balance sheet, as on the end of each accounting period; 14
b. A copy of its profit and loss account for each accounting period. c. A copy of the auditors report on its accounts for each accounting period. d. A copy of the agreement entered into, with each client; e. Information supplied by each of the clients; f. Correspondence with each of the clients; g. Rating assigned to various securities including up gradation and down gradation (if any) of the ratings so assigned. h. Rating notes considered by the rating committee; (2) (3) (4) (5) (6) Every credit rating agency shall professional rating committees, comprising members who are adequately qualified and knowledgeable to assign a rating. All rating decisions, including the decisions regarding changes in rating, shall be taken by the rating committee. Every credit rating agency shall be staffed by analysts qualified to carry out a rating assignment. Every credit rating agency shall inform the Board about new rating instruments or symbols introduced by it. Every credit rating agency, shall,while rating a security, exercise due diligence in order to ensure that the rating given by the credit agency is fair and appropriate, A credit rating agency shall not rate securities issued by it. Rating definition, as well as the structure for a particular rating product, shall not be changed by a credit rating agency, without prior information to the Board. (7) A credit rating agency shall disclose to the concerned stock exchange through press releases and websites for general investors, the rating assigned to the securities of a client, after periodic review, including changes in rating, if any.3
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This instrument will enable the securities market regulator judge the compliance status of corporates on parameters such as effective creation, management and distribution of investors' wealth, according to the SEBI Chairman, Mr G.N. Bajpai. Talking to presspersons here on Thursday, the SEBI Chairman said the corporate governance framework currently under usage in the country was not serving the objectives of optimum creation, management and distribution of wealth. Stating that the issue of disproportionate distribution of wealth also needs to be addressed at the earliest, Mr Bajpai said intellectual dishonesty was proving more disastrous than financial dishonesty, while citing the example of Arthur Andersen. According to him, the damage that resulted out of financial dishonesty can be addressed while it might take more than couple of generations to compensate the damage caused by intellectual dishonesty. SEBI expects to receive the recommendations of CRISIL and ICRA on corporate governance rating instrument in a couple of months and implement them at the earliest, Mr Bajpai said. Seeking suggestions from various corners of the society, the market regulator has placed on its Web site the detailed recommendations submitted by the Justice H. Kania Committee on `Corporatisation and demutualisation of stock exchanges in India.' Stating that the Malegam Committee report on `Disclosure standards and accounting practices' was also placed on the Web site, Mr Bajpai said SEBI would pass its directions on the recommendations after taking into account the suggestions. The regulator would shortly decide on the proposals submitted by the Pratip Kar Committee on delisting of shares by MNCs from the Indian bourses. According to Mr Bajpai, T+1 settlement cycle was the objective to be achieved by 2004. This objective consists of three major milestones - straight through processing, T+2 settlement and the real time gross settlement (RTGS) mechanism, involving the money market regulator and the banking industry.4
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These common forms of credit ratings are shown in the following diagram: 5 Type of Credit Rating
Credit Ratings
Borrowers Rating
Compulsory Rating
Individuals Rating
Equity Rating
1. Long Terms Instruments Rating : Long-term instrument rating refers to the rating of bonds, debentures and another long-term debt securities issued by a government or quasi-governmental body.
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2. Equity Rating: Equity rating refers to the rating of equity issued in the capital market. The concept of equity rating is still not adopted by the rating agencies in India. 3. Short term Instrument Rating : In this kind of rating we include the rating of commercial papers, short-term public deposits etc. 4. Customer or Borrower Ratings: Customer/Borrowers rating require the assessment credit worthiness of the customers to whom the credit sale is being made or grant of loan is under consideration. 5. Sovereign Rating: Sovereign rating refers to evaluation of credit worthiness of a country in which investment by a foreign body (foreign Govt. or corporate body) is envisaged or to which a loan is to be given. This kind of rating is generally done by the international rating agencies. The international rating agency standard and poor has improved its outlook on India foreign currency rating to positive from stable but retained the sovereign rating at junk grade due to high public debt and serious fiscal inflexibility. S&P said the revision reflects Indias improving external liquidity and better prospects for the governments debt burden to stabilize. S&P had last revised Indias foreign currency outlook from negative to stable in December 2003 on account of improved external finance.6 6. 7. Individuals Rating: Rating of individuals is called as individuals credit rating. Compulsory Rating: The rating at which the government bound the obligation is called the compulsory rating like commercial papers etc. Following on the rating change, criticism of ratings per se has been in some evidence. One, that sovereign ratings have not been a good predictor of currency crisis, basically a reference to Asian difficulties in 1997-98. The principal problem of the Asian miracle was regulatory weakness, with large gaps in what the central banks knew about the external liabilities of their domestic banks, and rating agencies were affected by the same information lapses. Second, till this crisis, mainstream economic theory, had oversimplified the process by which
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capital flows occur. The received wisdom in the mid-nineties had little space for the singularity of large currency crises and contagion. 7
4.
Providing better corporate governance Recently, godrej consumer products improved its corporate governance ratings from Icra to CGR2 TO CGR2+. And one of the measures it adopted to attain the higher governance rating was by increasing frequency of audit committee meetings. Says Adi Godrej, chairman of Godrej group, increase in frequency 19
of audit committee meetings and adoption of better board procedures were key to enhancement of our corporate governance rating from Icra.9
CRISIL
The Credit Rating Information Service of India Ltd. was promoted in 1987 jointly by the ICICI Ltd and the UTI. Other shareholders include the Asian Development Bank
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Life Insurance Corporation of India, HDFC Ltd., General Insurance Corporation of India and several foreign and India banks. It commenced its operation in January 1998. In 1996 CRISIL forged a strategic business alliance with Standard and Poors with purpose to drive benefits such as international experience revamping of operating systems, introduction of value added methodologies in new areas and assist the client-companies in raising funds across the country. CRISIL was set up with a basic purpose to rate debt obligations, which would guide investors as to the risk of timely payment of interest and principle. At present, functions performed by CRICIL fall under three board categories:1. Credit Rating Services 2. Advisory Services 3. Research and Information Services 1. Credit Rating Services: - The principle function of CRICIL is to rate mandated debt obligations of Indian Companies, chit funds, real estate developers, non-banking finance companies, and Indian States and so on. It is the core business of CRISIL while new business has begun to make a moderate contribution, which is about 80% to the revenue. Following functions has been included in the rating services by CRICIL -Rating the debt obligations -Rating of structural obligations ` -Rating of real estate developers projects -bond fund rating -Rating of collective investment schemes.
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2. CRISIL Research and Information Service:- CRISIL Advisory Services for consultancy services to various state Government, Disinvestments Commission on disinvestments plan for public sector enterprise, major port authorities, and state Electricity Boards and so on. Other clients availing of advisory services from CRISIL are the Public sector enterprises, banks and financial institutions and instigating risk. It also formulates and executes strategies for that. 3. CRISIL Research and Information Services:- CRISIL Research and Services include value-added
Information
research activities and customized studies in following areas. -Indian Capital Market -Indian Industries, and -Indian Corporate Sector. Following are the services, which are included in CRIS A. CRISIL Sector Wise B. CRISIL View C. International Information Vending D. CRISIL Index Services11 Crisil~CPR: The Crisil~CPR is a scientific and objective methodology for assessing all parameters affecting fund performance by synthesizing both risk-return parameters as well as portfolio related attributes including liquidity, credit quality and diversification to arrive at a composite rank. A Crisil Fund Services analysis indicates that the predictive power of the Crisil~CPR has been demonstrated thus considerably enhancing its utility as a measure of mutual fund performance on a forward looking paradigm. Fund managers need a dynamic approach to measure the risks and returns of financial portfolios, one based not just on historical trends but also on a projection of inherent portfolio risks and their impact on future performance. The Crisil~CPR is an analytical tool for measuring fund performance that fulfills this goal. The methodology is superior since it also overcomes market imperfections and the lack of long history in the Indian capital market while the inclusion of the portfolio attributes gives it the ability to look forward. 22
Need for a dynamic measure All financial portfolios with holdings of tradable assets would at the first level need to be evaluated on two basic dimensions: the returns generated for investors and the risks borne in generating those returns. Returns are measured by the change in price of the asset or security over a defined period. These could be simple arithmetical averages or geometrically compounded. The volatility or amplitude of the day-to-day price fluctuations measures risks. Returns can then be divided by risks yielding riskadjusted returns or return per unit of risk. Institutional investors and professional money managers generally go by absolute returns. What is really needed is to maximise returns at acceptable levels of risk or volatility of specific asset classes as well as the overall portfolio. It is also important to not only look at historical returns and risks but also capture future returns and likely risks from the portfolio attributes of the scheme. This analysis can be based partly on observed performance and partly on structural features of asset portfolios that determine the likely future performance. Credit quality of bond portfolios, duration and volatility levels of bond and equity portfolios, their liquidity and diversification profiles are some key structural characteristics that have a bearing on the future risk-adjusted performance. Viewed in this background the Crisil~CPR offers a comprehensive evaluation tool whereby the risk-return trends exhibited by mutual funds in the past are harmonised with the portfolio level attributes like credit quality, concentration, liquidity and so on. A Crisil FundServices study also reveals the strong predictive power of the Crisil~CPR. This is reflected in the fact that when viewed over a reasonably long time frame post the assignment of a Crisil~CPR, schemes ranked at high levels continued to outperform the other relatively lower ranked schemes. The Crisil~CPR has evolved over nearly three years with the active participation of fund managers, distributors and investors. This has given the Crisil~CPR all-round acceptability. More importantly, it reflects the realities of a relatively less mature and developing market. CPR is predictive To answer the key question as to whether the Crisil~CPR is predictive, we selected Crisil~CPR ranked schemes for a detailed examination. For equity schemes, we took the eight quarterly ranks from September 2001 to June 2003. Next, we averaged the ranking over this period to find the better performing scheme. The top two and bottom two schemes were mapped to the market indices. While the ranking performance was till June 2003, the NAV performance was from April 2003 to March 2004. The 23
Crisil~CPR was then put through another test to determine whether the Superior Return Score, which is at the heart of the analysis, matches the classic risk return paradigm. The analysis was done for the March 2004 Crisil~CPR for equity and the debt funds. The period of the analysis was the two-year period ending March 2004. The differential return and volatility of return were plotted on the Y and X axis respectively. The results are shown in Chart 2 and Chart 3 which are segmented into four quadrants by the median volatility of return and the median differential return of the funds in the ranking universe. For the 38 equity funds, all the four CPR~1 funds appear on either the out-performer quadrant or the active quadrant. The funds in the active quadrants have assumed relatively higher risk and have also yielded returns commensurate to the risks borne. The funds in the out-performer quadrant have taken a conservative approach but have still produced good returns. This approach helps investors to select funds that suit their risk profile. We did the same analysis for debt funds. Both the CPR~1 funds out of the 20 funds we ranked appear in the active quadrant. These funds have been assuming risk and rewarding the shareholder appropriately. In comparison, the CPR~5 funds appear in the under-performer quadrant and have provided low returns, compared to their peers, for higher risk. Our tests bear out the accuracy and usefulness of the Crisil~CPR. It has proved itself in the Indian market and CRISIL FundServices believes that given its versatility and universal applicability, it is suitable for other emerging markets with similar characteristics. The Superior Return Score is defined as the ratio of differential return (average of difference between scheme return and peer average return on daily basis during period of analysis) and standard deviation of the differential return series.12 Crisil composite performance rankings Crisil / Mumbai May 5, 2004 business standard CRISIL Rating symbols: CRISIL assigns ratings only to rupee denominated debt instruments. These symbols are symbolic expression of opinion/assessment of the credit rating agency. Here is a brief summary of CRISILs rating symbols used for the rating of: 1. Debenture. 2. Fixed Deposits. 3. Short Term Instruments. 4. Structured Obligations. 5. Foreign Structured Obligations. 24
6. Instrument Carrying Non-credit Risk. 7. Financial Strength ratings of insurance companies. 8. Debt Fund Portfolio 9. Real Estate Projects. 10. Government and Creation Ratings Difference between A And AA There is a slightly difference between these. The differences between fundamentals of A and AA instruments, we believe, are not significant enough to justify the complete neglect of A rated paper by the bond market, Roopa Kudva, CRISILs executive director and chief rating officer, said. Explaining Crisils perspective at a seminar on investment opportunities in the debt market, Kudva said, A-rated papers provide an untapped opportunity for investors. There is an increasing trend of rating upgrades, she said.13
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Instruments
Substantial Risk C
Default
FA
FB
FC
FD
Short
Term P1 P2 P3 P4 P5
AAA(So)
AA(So)
A(So)
BBB(So)
BB(So)
B(So)
C(So)
D(So)
Foreign Structured Obligations Debt Funds AAAf AAf Af BBBf BBf Cf AAA(FSo) AA(FSo) A(FSo) BBB(FSo) BB(FSo) B(FSo) C(FSo) D(Fso)
Portfolio Instrument Carrying Non Credit Risk Rating Insurance Companies Debt Portfolio Real Projects Estate Fund of
AAAr
AAr
Ar
BBBr
BBr
Br
Cr
Dr
AAA AAAf
AA AAf
A Af
BBB BBBf
BB BBf
C Cf
PA1
PA2
PA3
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Note:-CRISIL may apply +or - signs for ratings with rating symbols to reflect comparative standing within the category.14 Controversy regarding A and AA symbols : Corporate papers with A rating provide good investment opportunities as their credit ratings have stabilised and financial ratios improved, rating agency Crisil Ltd said Tuesday. The differences between fundamentals of A and AA instruments, we believe, are not significant enough to justify the complete neglect of A rated paper by the bond market, Roopa Kudva, CRISILs executive director and chief rating officer, said. Explaining Crisils perspective at a seminar on investment opportunities in the debt market, Kudva said, A-rated papers provide an untapped opportunity for investors. There is an increasing trend of rating upgrades, she said. According to Kudva, A-rated papers were victims of a vicious circle of investor apathy wherein these companies are unable to raise money from the market due to poor demand and there is no liquidityas demanded by investorsbecause there is no issuance. Weak investor appetite for A-rated papers was prompting companies not to accept and publish the A rating. As a result, A-rated companies are seeking finance from banks instead of tapping the bond market. As a result, issuance volumes in A-rated papers tend to be low, which in turn leads to low liquidity for this paper, which again increases bias against these papers among bond market investors, Kudva said. According to Kudva, issuance of A-rated papers fell to 9% of the total issuance in 2000-2003 from about 60% in the previous three years. Kudva noted that the financial ratios of the A-rated papers were increasing and their ratings had become more stable. We believe A-rated papers present significant untapped opportunities for investors, she said. R. Ravimohan, managing director and chief executive officer, CRISIL, said, We are making a plea to support endangered species called A-category paper. Explaining the investor perspective, Alok Vajpeyi, president, DSP Merrill Lynch Fund Managers, said liquidity was the key issue for investors. Is there enough liquidity in AAA before we go down the line? Vajpeyi said. Liquidity is the key. To revive the corporate bond market, Vajpeyi said trading infrastructure and transparency should increase. There is also a need for market making in corporate bonds, he said.15
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Market position of CRISIL: SHAREHOLDERS of CRISIL can continue to hold the stock. They, however, will need to nurse a long-term perspective for the stock to deliver returns that are commensurate with risk. Regulatory shock For many years now, CRISIL has been a beneficiary of the changes in regulations governing debt securities. Regulations such as mandatory rating for securities helped the company notch steady growth in revenues and profitability. However, in the quarter ended December 2003, regulatory changes became a hurdle for revenue growth. The requirement that banks can invest in only listed debt securities affected activity in the market for private placement of debt securities. The restriction on raising loans from the overseas markets also played a part. Consequently, rating income declined. The impact on profitability turned out to be quite significant. In the first half of 200304, rating revenues rose about 10 per cent; in the third quarter ended December 2003, they declined by about 17 per cent. Importantly, operating profits from rating rose 24 per cent in the first half suggesting that CRISIL was enjoying the benefits of scale. However, the slump in rating revenues led to a 33 per cent fall in operating profits. With ratings accounting for about 90 per cent of profits, net profits too fell by about 43 per cent. However, the shock to rating revenues is likely to prove temporary. The requirement of listing of debt securities is unlikely to stop triple-A rated companies from participating in the market for private placement. The volume of activity is only likely to improve with the debt issuers likely to take the listing requirement in their stride. The step up in economic activity is another growth driver. Over the long-term, structural changes such as the shift in investor preference for mutual funds vis--vis bank term deposits and issuance of complex securities, such as mortgage-backed securities, have the potential to augment ratings revenue growth for CRISIL.
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Enhanced risks However, CRISIL, on an acquisition mode, could enhance risks. Its attempt to explore opportunities at the global level augurs well from the point of profit growth. Similar to IT-enabled services companies, CRISIL is seeking to exploit the arbitrage in labour costs for high-end research. The Rs 15-crore acquisition of a London-based gas advisory and information firm needs to be viewed in this context. Still, acquisitions enhance risk since a failed acquisition can hurt the return on net worth. Further moves on acquisition need to be viewed with caution. From the shareholder's perspective, continuing acquisitions by CRISIL is negative as it also perpetuates its policy of holding on to free cash flows rather than distributing them as dividends. Cash and equivalents accounted for more than half of CRISIL net worth as at end-March 2003. CRISIL did step up the dividend rate in 2003; however, the growth in dividends needs to be maintained to ensure that the downside risk to stock price is capped. Stiffly valued
Source: Crisil: Hold Sunday, Jan 04, 2004 business line The valuation of the stock at about 20 times its earnings for the trailing 12 months ended December 2003 is stiff. CRISIL does have the potential to record earnings growth needed to justify the stiff valuation. Factors such as the return on net worth of
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about 20 per cent, the possibility of improvement in economies of scale and the expectations of steady growth in rating income augur well. However, the risks are high since CRISIL would need to maintain growth for a considerable period to generate reasonable returns for shareholders. In this backdrop, fresh exposures can be avoided now.16 Capital History 1993-94 CRISIL made public offer of 20,00,000 equity shares of Rs. 10 each at a premium of Rs. 40 per share. The offer was over subscribed by 2.47 times. 1994-2001 The Issued, Subscribed & Paid up Capital of CRISIL is 6,200,000 Equity Shares of Rs. 10/- each fully paid up aggregating Rs. 6,20,00,000/2001-2003 The Issued, Subscribed & Paid up Capital of CRISIL is 6,243,500 Equity Shares of Rs. 10/- each fully paid up aggregating Rs. 6,24,35,000/-17
ICRA Ltd.
Investment Information and Credit Rating Agency has been promoted by IFCI to meet the requirements of companies based in north India. IECI holds 26% stake in ICRA and the other shareholders, which are UTI, Banks, LIC, GIC, HDFC and Exem Bank, hold rest. This credit rating agency started its operation in 1991. ICRA has entered into a memorandum of understanding (MoU) with Mondays Investors Services in order to bring international experience and practices to the Indian capital market. 18 Like CRISIL, the objective of ICRA is to unbiased information to the individual and institutional investors regarding instruments, so that they can take better investment decision. In the twelve years of its operation, it has diversified into variety of services. At present it provides following kind of services: i. ii. iii. Rating Services Information Services Advisory Services
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1.
Manufacturing companies, Commercial Banks, Non-Banking Finance Companies, Financial Institutions, Public Sector Undertaking etc. Apart from this Rating Services includes credit assessment of large, medium and small-scale enterprises, which are looking for financial assistance from commercial banks, financial institutions and financial services companies. 2. Information Services: - Information Services offered by ICRA focuses on
providing authentic and unbiased information to various intermediaries, financial institutions, banks, assets managers, individuals and institutional investors etc. This includes corp. reports, equity assessment, mandate based studies and industry specific publications. 3. Advisory Services: - Under these services, ICRA provides consultancy to the
various player in financial markets such as investors, issuers, regulators, intermediaries and the media on business and organizational issues. For this, it has also signed a MoU with international credit rating agency Moody Investor Services. These services include: 1. Strategic Consultancy 2. Risk Management 3. Inputs for Policy Formulation.19 ICRA BPO venture ICRA Ltd on Thursday said that its business process outsourcing facility in Kolkata will be operational by the month-end. The facility will cater to the analytical and research-based requirements of diverse users, an ICRA release said here. The operations would be conducted through ICRA Online. ICRA has roped in Mr Joydeep Bhattacharya, head of the Indian operations of research body Zacks, to head the BPO venture.20
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MARKING the entry of the first Indian credit rating agency into the European market, ICRA Ltd has signed a memorandum of understanding (MoU) with the Bulgarian Credit Rating Agency (BCRA). As per the MoU, according to an ICRA statement here, the Indian rating agency will provide technical assistance to BCRA in designing rating methodologies, besides imparting training to its analysts, and help them in carrying out rating assignments. Commenting on the development, ICRA Managing Director, Mr P.K. Choudhury, said: "The entry into Bulgaria underscores ICRA initiatives towards lending its proven expertise to rating entities beyond India. The MoU with BCRA is important not only because it marks our entry into Europe, but also because it highlights the growing international acceptance of the expertise that our country has built up in the area of credit rating within a relatively short span of 14 years or so." For BCRA, the MoU with ICRA is a critical step in the direction of institutionalizing the system of credit rating in Bulgaria. Said Ms Sonya Sofronova, Executive Director, BCRA: "We propose to use ICRA expertise in establishing a firm base for the system of credit rating in our country. Through credit rating, we want to assist Bulgarian companies find new opportunities of financing and market expansion." Besides, BCRA has set for itself the target of becoming "a leader in providing correct and unbiased assessment of Bulgarian companies' creditworthiness and the MoU with ICRA is a move towards this goal, she said. For ICRA, the MoU marks yet another step by the Indian agency beyond national borders. Already, it has helped in the establishment of a credit rating agency in Kuwait and also signed an MoU in another country in West Asia.21 ICRA Rating Symbols: The ICRA rating is a symbolic indicator of the current opinion of the relative capability of timely servicing of the debt obligations. ICRA rates long term, medium term and short-term debt instruments.
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Following is a brief summary of the rating symbols used by ICRA for the following: Long Term Instruments (Debentures Bonds, Preference Shares) Collative Investment Schemes. Rating of Insurance Companies. Corp. Governance Rating.
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Instruments
Adequate Safety LA
High Risk LB
Substantial Risk LC
Default LD
Long Term Instruments Medium Term Debt Short Term Instruments Collective Instrument Schemes Insurance Companies Corporate Governance
MAAA
MAA
MA
MB
MC
MD
A1
A2
A3
A4
A5
CS1
CS2
CS3
CS4
CS5
CARE 5
iAAA
iAA
iA
iBBB
iBB
iB iC
CGR1
CGR2
CGR3
CGR4
CGR5
CGR6
Note:- The Suffix of + or - may be used with rating symbols to indicate the comparative position within the group covered by the symbols.22
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MAJOR SHAREHOLDERS
Moody's Investment Company India Private Limited IFCI Limited State Bank of India Life Insurance Corporation of India Unit Trust of India Punjab National Bank General Insurance Corporation of India Central Bank of India Allahabad Bank Indian Bank UCO Bank Canara Bank Andhra Bank Indian Overseas Bank Oriental Bank of Commerce Others
CARE
Credit analysis and research Ltd. was promoted by IDBI jointly with financial institution, banks and private finance companies. It started its operation in 1993 and now it offers a wide range of products and services in the field of credit information and equity research. These services are categorized into the following categories:i. Credit Rating Services
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ii. iii. i.
Information Services Equity Research Credit Rating Services:-CARE rates all types of debt instruments including long term. It is the core business of this rating agency.
ii.
Information Services:-Like CRISIL and ICRA. It also provides information services to various players in the financial market. It provides information on any company, industry or sector to individuals, mutual funds, and investment companies. So that they can take well informed investment decision.
iii.
Equity Research: -Equity Research involves extensive study of the shares listed or which are going to be listed on stock exchange and forecasts Potential looser and winner on the basis of this study. For this purpose, it analyzes all the fundamentals affecting the industry, market share, management capabilities etc.
Apart from basic services, CARE also provides some other services like: CARE Loan Rating Credit Analysis Rating etc.
Rating Symbols:CARE rating symbols are related with the rating of following: Long term and Medium term Instruments, which includes which includes fixed deposits, certificate of deposits structured obligations, debenture and bonds etc. Short Term Instruments Credit Analysis Rating Long Term Loan Short Term Loan
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Instruments
Default CARED
PR1
PR2
PR3
PR4
PR5
Instruments Credit Analysis Rating Long Loans Short Loans Collective Investment Schemes CARE1 (CIS) CARE2 (CIS) CARE3 (CIS) CARE4 (CIS) CARE5 (CIS) Term Term CAREAAA (L) PL1 CAREAA (L) PL2 CAREA (L) PL3 CAREBBB (L) CAREBB (L) PL4 CAREB (L) CAREC (L) CAREC (L) PL5 CARE1 CARE2 CARE3 CARE4 CARE5
NOTE: CARE may assign + or - signs after the assigned rating, where necessary, to indicate the relative position within the brand covered by the symbol.24
Rating services: Credit Rating Services: - Duff and Phelps rates all types of debt instruments including long term. It is the core business of this rating agency. Company rating services: - Duff and Phelps rates all types of company. Country rating services: - In addition to debt instruments it also rates companies and countries on request. Duff and Phelpss Rating Symbols
Instruments
Default Ind D
Ind D-1+
Ind D-1
Ind D-2+
Ind D-2
Ind D-3
Ind D-4
-----
Ind D-5
Instruments
25
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various types of credit extensions. Onicra provides a platform to credit seekers and granters build long lasting relationship. ONICRA are the first to launch commercial services and provide individual credit rating and reporting services to the Indian financial market. ONICRA has been acknowledged as pioneers of Individual Credit Rating in the Economic Survey of India 1993-94 issued by Ministry of Finance, Government of India and its services have been hailed by the financial sector and in the media. Today we proudly have premier NBFCs, banks and loan agencies on our portfolio. Onicra has been working closely with the industry through network of branches and investment in technology with a vision to provide online/offline services to the credit seekers/extenders with fast, authentic and objective information. Onicra has conducted intensive research into the credit analysis of small business as well as into the rating of fixed deposits programmes of various non-banking finance companies based upon which it has developed systems and procedures for performing rating in these areas. The creditworthiness of the individual is based on various parameters. Onicra has divided the parameters on a 100 point scale where every aspect of the credit seekers history like age, qualification, occupation, stability at work, savings etc, will come under microscopic examination. They also consider the extent of repayment and the history of payment. The extent of payment, i.e., the amount of loan that an individual can avail of is calculated by discounting the present earnings over the five years. The history of repayment includes the intention of an individual to repay which in turn leads to a higher exposure to risk. A rated individual is given a certificate which he can use to obtain credit. An individual cannot approach Onicra directly for a rating and it is the finance company that will insist on its customer obtaining an ICR. Onicra takes up the credit rating for individuals at the request of a leading institution which writes to Onicra whenever a potential customer approaches such a lending firm or institution for the customers credit. The customer is required to fill in a prescribed form. Onicra takes up the rating exercise in hand and swiftly establishes a credit rating of the individual customer. Depending upon the rating, the lending institution takes decisions objectively on the financial exposure. A lender can focus on the core interest areas of finance and investment without undertaking the credit appraisal of the individual borrower. A lender can depend upon 39
the rating of the individual customer done by Onicra based on a highly sophisticated system of credit appraisal, which pools to provide a comprehensive picture about his or her credit worthiness. Onicra maintains a centralized pool of information about the credit performance of thousands of potential customers by creating a linkage amongst a number of financial institutions across the country and continuously update this massive database on dayto-day basis which any individual institution would not find it easy to take on. Onicra credit rating system is based on the sophisticated software developed in collaboration with James Martin and co. (which has a collaboration with Duff and Phelps rating agency) the worlds largest information engineering consultancy company. James Martin and Co. has provided to Onicra the most comprehensive methodology that addresses the needs of mega credit rating system. 26 Onicra Rating Scale: ONICRA has been pioneer to introduce the concept of individual credit rating.It has developed a rating system for various types of credit extension by conducting in-depth study of all aspects of the behaviour of credit seekers. Rating system takes into account number of parameters which influence individuals credit behaviour. The creditworthiness of the individual is measured on various parameters divided into 100 point scale.The parameters include1. Age 2. Qualifications 3. Occupation 4. Stability at work 5. Saving 6. Extent of payment i.e. the amount of loan that an individual can avail of 7. History of repayment. Every individual being rated is issued a certificate which helps him in obtaining loan/credit. Onicra Rating Process: Every bank or financial institution wants to know creditworthiness of its potential customers so as to minimize the financial risk. In India there has been no agency to
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rate the individuals. But Onicra has filled in this gap. It provides credit ratings of individuals on international patterns, for use of banks and financial institutions. (i) (ii) (iii) (iv) (v) An individual cannot get rated himself directly. Onicra takes up the credit rating for individuals at the request of lending institution. A lending institution/firm writes to the Onicra whenever a potential customers visit the firm for customers credit. The customer is requird to fill in a prescribed form. Onicra uses 100 point scale to rate the individual on various parameters. Depending upon rating assigned by Onicra the lending institutions proceed with granting of consumer credit.27 Tandon Committee: For purposes of better control, the RBI Study Group (Tondon Committee) has also suggested a system of borrower classification in each bank within a credit rating Scale. The Study Group has suggested a five point scale in which borrowers could be classified as Excellent, Good, Average, below-Average or Unsatisfactory; an alphabetical range would do equally well. Such a system of classification according to credit risk, which results from periodic reviews will facilitate easy identification of the borrower whose affair require to be watched with more than ordinary care. Moreover, such classification will be advantageous for the formulation of a rational base for fixing the rates of interest according to the credit rating of the borrower. A customer who is given the finest credit rating may be given the lowest lending rate of the bank. On the other hand a customer who is the bank should take appropriate action to improve the quality of loan and lessen the banks exposure. Should the credit rating of a borrower improve in future, he may be given an incentive by way of lower rate of interest. The recommendation of the Study Group have been, by and large, accepted by the Reserve Bank. Banks have, therefore, accepted the suggested procedure as a regular part of their follow-up machinery. A procedural consideration will have to do how management chooses to deal with loans graded anything less than satisfactory, that is, those that are classified below average or unsatisfactory. In effect, the entire administration of a substandard loan should be shared or regularly reviewed with management.
28
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RATING PROCESS
In India all the four credit rating agencies adopt almost a similar rating process for rating new debt issues and reviewing the rating of existing instruments. The steps generally taken by the rating agencies in rating process are shown as under: Issuer request for rating CRISIL Assigns an analytical team Analytical team collects and analyses information Meets Companys management Interaction and resolves with back up Questions team for industrial formation Findings presented to a rating committe e
r ue ss to si oe ants al D w pe ap Yes
No
Rating is released
1.
Rating Request: - the purpose of the rating starts with the rating request made
by the issuer of the instrument issues a letter to the rating agency and signed an agreement with the agency. 2. Assignment of Analytical Team: - On the basis of rating request credit rating agencies assign an analytical team comprising two or more analysts. These analysts would be the experts in the relevant business area. It is a very detailed process.
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Normally, two-three persons with the required technical skills team up for investigations (due diligence) for about three weeks. They go to the company, talk to the people, go through the company's books and records, its accounts, talk to its auditors, its bankers, its consumers, look at how the company has handled investor grievances, look at its track record in servicing debt obligations and so on. This pile of data is then screened and, based on that, the team arrives at a structured report. This report is then presented before the rating committee. A brainstorming session on due diligence ensures that no one gets away by making a sweeping statement. After a lot of interaction, the matter is finally put to vote for a decision on the rating.29
3.
Analytical Team, the team obtains and analysis information relating to its financial statements, cash flow and other relevant information which have impact on the companys functioning. Generally, following kind of information is obtained and analyzed by this team: A. B. C. D. E. Annual reports for past five years including cash flow statements and Two copies of the prospectus offering statement and application for listing Consolidated financial statements for the past three fiscal years. Two copies of the projected financial statements along with assumptions A certified copy of resolution passed by the Board of Directors authorizing interim reports. on any major stock exchange.
on the which projection have made. the insurance of debentures instruments, including the name of authorized signatories. F. List of bank showing lines of credit along with the contact officers. Apart from this, analytical team may obtain some addition information, which it considers to be necessary for this purpose. 4. Meeting with Management: - After obtaining and analyzing the information explained in previous step, analytical team meets with the management of the company and obtains more information on some important aspects which have impact on the credit quality of the instrument being rated. Though the topics 43
discussed during the management meeting are wide ranging but discussion with management might reveal more information like: Managements Philosophy and Plan for the company in future. Business segment analysis. Competitive position, strategies, financial polices. Historical performance. 5. Interaction with Back Up Team:- While Analytical team collects the information from company; its back up team collects the information on industry which this company belongs. It also makes interaction with back up team in order to collect information on industry along with the industry prospects in near future. 6. Rating Committee:- After collecting and analyzing information from company and its management, the analytical team presents their report to a rating committee which then decides on the rating. The rating committee meeting is the only aspects of the process in which the issuer does not participate. 7. Deciding on Rating by Rating Committee:- Now the rating committee makes assessment or evaluate all the factors concerning the issuer giving greater attention to some key issues. After proper analysis rating committee arrives at the rating, which is suitable to the proposed issue. 8. Notification to the issuer:- after the committee has assigned the rating, this decision is communicated to the issuer along with the reasons or rational supporting the rating. If the issuer agrees with the ratings and does not wish to appeal fo9r reviewing the rating given to the instrument, then as a last movement rating is released through print media by the rating agency. But if issuer raises objection on the rating given by the rating agency and wants to furnish additional data for that, then this additional information is reviewed and rating agency may revise previous rating. Then this revised rating is released through media and formal notification of final rating assigned to the issuer.
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(1)
The first problem of Credit Rating System relates to the rating symbols.
Sometimes, rating symbols according to the tenure of the instrument and not by the instruments characteristics creates confusion. For example the instruments like Fixed Deposits, Non Convertible Debentures or Commercial papers are rated by ICRA on the basis of their maturity period, them will be given the same rating by ICRA.But on the other hand CRISIL provides rating symbols in accordance with the characteristics of instrument. For example, CRISIL prefix F to the rating for Fixed Deposits. This problem of assigning rating symbols cause confusion among treasury managers and investors who otherwise can determine the product or the instrument on the instrument on seeing the rating. (2) The rating agencies do not perform an audit and they rely only on the information provided by the issuer of the instrument. If the information provided is inaccurate or incomplete, the ratings process is compromised. Therefore, ultimately, this kind of rating will not reflect the true picture behind the issuance of security or in other words, it will not assess the true creditworthiness of the issuer. (3) A Credit Rating provides only guidance to the investors and creditors in determining the risk associated with a instrument. It does not recommend buying selling a particular security because it does not take into account factors like: market prices and personal risk preferences, which might influence investors decision. So apart from Credit Rating, investors should analyze all those factors depending on his proposed investment decision. (4) Sometimes, certain instrument of a specific company is provided lower rating by a rating agency. Now the company has an incentive to go around for the best possible rating by compromising the authenticity of the rating process itself. (5) Some companies use Credit Rating as a tool to cheat the investors. They get rating done by more then one rating agency and publish only that rating which reflects highest safely. But this published rating may not be true which can mislead investors decision.31 (6) Conflict between the two rating agencies can be happen. E.g. IDBI Bank has been upgraded to AA+ from A on account of the merger with Industrial Development Bank of India (IDBI), said Crisil. Meanwhile, Icra has placed IDBI Bank under rating
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watch with positive implications. The agency said that the rating action takes into account the announcement of the in-principle approval of the merger of the IDBI Bank with IDBI. The rating agency is in the process of evaluating the impact of the merger and would announce its final view on the outstanding rating after completion of the merger, an Icra official said. The rating agency is in the process of evaluating the impact of the merger and would announce its final view on the outstanding rating after completion of the merger said an official with the rating agency. Agency has also assigned outstanding ratings of LAA, MAA+ and A1+ to IDBIs long-term, medium-term and short-term debt plans. Now it can create controversy between the two rating agency if the ratings of the bank varies. 32 (7) Ratings volatility The most important issue arising in the present turmoil is do rating agencies need the quasi government authority of inside access at all as rating agencies access to inside access at all as rating agencies access to inside information did not help them anticipate the financial information is essential to understanding company creditworthiness, it is not helpful to detect fraud. It is not economically viable for rating agencies to act as guarantors of fraud. Financial instruments are increasingly designed solely to carry a particular rating, not the other way round. The effect is to discourage agencies from changing ratings on objective grounds until it is too late. Further, though companies tend to give credit rating agencies access to confidential documents in general to justify the highest possible credit rating, there is no requirement that they divulge everything. Conflicts-Dj vu? The credit rating agencies probably do not feel the pressure to please issuers to get their business. There are some points which are the reason of conflicts: A company might be tempted to use the fee to strategically bargain for a higher rating. It is, therefore, important that the amount of the fee be independent of the rating, as it presently is. Rating agencies claim that no analyst has financial stake in the outcome of his or her rating judgment unlike investment banks. Another difference thy point out to is, unlike accounting firms, rating agencies have no disproportionately large concentrations of customer fees, which might influence ratings decisions.
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internal conflicts of interest based on fees such as combining both auditing and consulting businesses with the same entity.33 Evaluation of Ratings: In evaluation and monitoring ratings, both qualitative and quantitative criteria are employed. The methodology involves an analysis of the past performance of the company and an assessment of its future prospects which involves judgement of the companys competitive position and evaluation of its management and strategies. In order to eliminate subjectivity, a multi-layered decision-making process is applied in assigning a rating which ensures that no single individual decides on a rating.
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Management Evaluation Track record of the management; planning and control systems; depth of Evaluation of capacity to overcome adverse situations. Goals, philosophy and strategies.35 managerial talent; succession plans.
NEW PROVISIONS A. Preposition of starting of Ratings in IPOs First of all, what do you mean by rating of IPOs? CRISIL has reportedly devised a system that is awaiting SEBIs approval. Apparently, it is based on a scoring system that will evaluate the IPO on a numerical scale (either 5 or 10). ICRA too has been working on a similar system. The rating agencies are thrilled with the idea, for it means more business for them. Little wonder that spokespersons of the leading rating 48
agencies have been quoted in the media sying how this professional evaluation will help the vulnerable investor. Yet, despite the well-meaning attempts by SEBI is it rally possible to rate IPOs? CRISILs system reportedly looks at the company fundamentals based on five key parameters-business prospects, financial risks, governance, quality of accounting and management. But will this tell investors whether or not they will make money? Reasons To illustrate this point further, consider the recent IPOs of Biocon and PCS. Both these companies are fundamentally sound in the sense that their management s are well respected, large VCs have invested in them they have a good track record and proven business models. Moreover, both were oversubscribed more than 30 times, but Patni listed below offer price even as Biocon listed at a huge premium and continued to appreciate. This was partly due to perceptions of very high growth in Biocon as well as hype about the word biotechnology while the declining dollar and outsourcing politics affected sentiment in Patni. It is not sure how any rating agency will be able capture this sentimental factor in their ratings. Even assuming that they are able to, everything still depends on issue price. For instance, if the Biocon IPO had been priced at Rs. 1500, and Patnis at Rs.100, the picture would have been totally reversed. The danger here is that investors will assume (and why not?) that ratings implicitly reflect future performance. Naturally then, if the stock tanks due to some unexpected event, there is every chance that the so called fundamental ratings well be discredited. Inevitably, this well hurt the credibility of rating firms. Threats If, for instance, CRISIL rtes an IPO at more than 4 on 5, and the stock underperforms, investors will get agitated-and no amount of disclaimers and explanations will save CRISILs reputation, Hence, in the long run, the attempt to rate equity instruments will end up tarnishing the brands of the rating agencies. I do admit tat brokerage reports are usually positive in their bias. Also, that much more independent research is required. But surely, the solution is to encourage the growth of independent and unbiased research houses, and devise means for them to build sustainable revenues. No doubt this is extremely difficult, as the SEC is finding in the US.
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To Save Investors Protection Already it has become so difficult for young companies to get listed, that we have all but killed the primary market. I agree that investors need protection against dubious operators but this does not mean that anybody small, or with a risky venture should not be allowed to list. Entrepreneurs of a equity market is defeated if only government companies or those who can anyway raise funds else where come to market. In the recent crop of IPOs, companies like Patni and Biocon could easily have raised money form private or institutional investors-in fact, they went public only to allow early investors including VCs an exit option. So what is the message here? That companies who are unable to raise VC or bank funding can never go public? Or that the VCs and other early stage investors will skim the gravy in the best companies, leaving the public with only marginal gains? The regulator should focus on the truthfulness of declarations and statements rather than get involved in trying to help investors make decisions. In fact rather than mollycoddling investors, they should take more efforts to educate them about riskeven while making it easier for young companies to access risk capital. Much of investor disillusionment is because of past frauds, and catching he crooks well do more to revive the primary markets than providing a rating that cannot predict performance.36 Rating Blues Value For Money Arun Jethmaliani The Economic Times New Delhi Sunday 30 may 2004. p4 B. Credit rating agencies can rate its associates
A Credit rating agency can now rate a security issued by its `associate' having a common `independent director' with the agency or its rating committee. Prior to this partial relaxation, a Credit rating agency was forbidden from rating a security issued by its associate or subsidiary if the agency or its rating committee had a common Chairman, director or employee with such associate or subsidiary. This relaxation, made by the Securities and Exchange Board of India (SEBI) in its regulations on Credit rating agencies, is expected to provide a new avenue of revenue streams for the Credit rating agencies in the country.
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SEBI has, however, held that a Credit rating agency cannot rate the security of an associate, if the agency has common Chairman, director or employee with that associate and such associate is connected with the promoter of the Credit rating agency as a borrower or subsidiary or an associate. The rating of the security issued by an associate would be permitted so long as the independent director does not participate in the discussion of rating decisions. Further, the Credit rating agency would have to make a disclosure in the rating announcement of such associate about the existence of common independent director on its board or of its rating committee. It should also be specified that the common independent director did not participate in the rating process or in the meeting of its board of directors or in the meeting of the rating committee, when the securities rating of such associate was discussed. SEBI has now inserted an explanation to the expression `independent director' in the sub-regulation (2) of regulation 27 of Credit rating regulations. An independent director means a director who, apart from receiving remuneration as a director does not have any other material pecuniary relationship or transaction with the company, its promoters, its management or its subsidiaries, which in the judgment of the board of the company may affect the independence of the judgment of such directors. SEBI's existing regulations on Credit rating agencies have defined an "associate", in relation to a promoter, to include a body corporate in which the promoter holds 10 per cent or more of the share capital. A promoter is a person who owns 10 per cent or more of the shares of the Credit rating agency.37 hen you borrow money your lender sends information to a credit bureau which details, in the form of a credit report, how well you handled your debt. From the information in the credit report, the bureau determines a credit score based on five major factors: 1) previous credit performance, 2) current level of indebtedness, 3) time credit has been in use, 4) types of credit available, and 5) pursuit of new credit.
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Although all these factors are included in credit score calculations, they are not given equal weighting. Here is how the weighting breaks down:
As you can see by the pie graph, your credit rating is most affected by your historical propensity for paying off your debt. The factor that can boost your credit rating the most is having a past that shows you pay off your debts fairly quickly. Additionally, maintaining low levels of indebtedness (or not keeping huge balances on your credit cards or other lines of credit), having a long credit history, and refraining from constantly applying for additional credit will all help your credit score.4
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users.
about issuers can easily and quickly be disseminated to broad and varying groups of
symbol.
group of entities and debt instruments. Rating service allows investors to assign an individual issuer or debt instrument into a credit risk class vis-a-vis the overall universe of debt issuers and instruments.
industry have strict internal policies and procedures have mitigated the latent conflict of interest that is inherent in the rating agency business model. As such, the rating opinions are the product of analysis that is widely accepted as unbiased and trustworthy.
has been consistently mapped and measured. All top rating agencies and many academic researchers have published studies on the relationship between the ratings and credit defaults. Research has shown a strong relationship between assigned ratings and actual default experience.
through a rigorous and judicious process that tends not to react to transitory conditions in favor of longer-term considerations and ratings stability.14 For different class of persons different benefits accrue from use of rated instruments. Such benefits directly accruing to investors through rated instruments which become a reason for trustworthiness are as:
Trustworthiness to Investors
Investors are benefited in very many ways if the corporate security in which they intend to invest their saving has been rated by credit rating agency. Some of the benefits, which become a reason for trustworthiness to investors are as:
53
Credit rating of an instrument done by credit rating agency give an idea to the investors about degree of financial strength of the issuer company which enables him to decide about the investment. Highly rated instrument of a company gives an assurance to the investors of safety of instrument and minimum risk of bankruptcy.
Recognition of risk:
Credit rating provides investors with rating symbols which carry information in easily recognizable manner for the benefit of investors to perceive risk involved in investment. Rating symbol gives them the idea about the risk involved or the expected advantages from the investment.
Credibility of issuer:
Rating gives a clue to the credibility of the issuer company. The rating agency is quite independent of the issuer company and has no business connections or otherwise any relationship with it or its Board of Directors, etc. Easy understandability of investment proposal: Rating symbols can be understood by an investor which needs no analytical knowledge on his part. Investor can take quick decisions about the investment to be made in any particular rated security of a company.
Saving of resources:
Investors rely upon credit rating. This relieves investors from the botheration of knowing 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 reposes confidence in him to rely upon the rating for taking investment decisions.
For making investment decisions, investors have to seek advice of financial intermediaries, the stock brokers, merchant bankers, the portfolio managers etc. about the good investment proposal, but 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.
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Investors get the benefit of credit rating agencys 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 companys financial strength declines or any event takes place which necessitates consequent dissemination of information on its position to the investor.
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 through yielding marginally lower rate of return.
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 understands the degree of certainty about timely payment of interest and principal on a debt instrument with better rating.
Companies with rated instrument 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.
A company with higher rated instrument is able to attract the investors and with least efforts can raise funds. Thus, the rated company can economise 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.
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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 through higher credit rating the company can mobilize funds from public and instructions or banks from selfassessment of its own status, which is subject to self-discipline and selfimprovement, it can perceive and avoid sickness.
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.
Highly rated instruments put the brokers at an advantage to make less efforts in studying the companys credit position to convince their clients to select an investment proposal. This enables brokers and other financial inter-mediaries to save time, energy, costs, and man-power in convincing their clients about investment in any particular instrument.15
about issuers can easily and quickly be disseminated to broad and varying groups of
56
symbol.
group of entities and debt instruments. Rating service allows investors to assign an individual issuer or debt instrument into a credit risk class vis-a-vis the overall universe of debt issuers and instruments.
industry have strict internal policies and procedures have mitigated the latent conflict of interest that is inherent in the rating agency business model. As such, the rating opinions are the product of analysis that is widely accepted as unbiased and trustworthy.
has been consistently mapped and measured. All top rating agencies and many academic researchers have published studies on the relationship between the ratings and credit defaults. Research has shown a strong relationship between assigned ratings and actual default experience.
through a rigorous and judicious process that tends not to react to transitory conditions in favor of longer-term considerations and ratings stability.14 For different class of persons different benefits accrue from use of rated instruments. Such benefits directly accruing to investors through rated instruments which become a reason for trustworthiness are as:
Trustworthiness to Investors
Investors are benefited in very many ways if the corporate security in which they intend to invest their saving has been rated by credit rating agency. Some of the benefits, which become a reason for trustworthiness to investors are as:
Credit rating of an instrument done by credit rating agency give an idea to the investors about degree of financial strength of the issuer company which enables him to decide about the investment. Highly rated instrument of a company gives an assurance to the investors of safety of instrument and minimum risk of bankruptcy. 57
Recognition of risk:
Credit rating provides investors with rating symbols which carry information in easily recognizable manner for the benefit of investors to perceive risk involved in investment. Rating symbol gives them the idea about the risk involved or the expected advantages from the investment.
Credibility of issuer:
Rating gives a clue to the credibility of the issuer company. The rating agency is quite independent of the issuer company and has no business connections or otherwise any relationship with it or its Board of Directors, etc. Easy understandability of investment proposal: Rating symbols can be understood by an investor which needs no analytical knowledge on his part. Investor can take quick decisions about the investment to be made in any particular rated security of a company.
Saving of resources:
Investors rely upon credit rating. This relieves investors from the botheration of knowing 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 reposes confidence in him to rely upon the rating for taking investment decisions.
For making investment decisions, investors have to seek advice of financial intermediaries, the stock brokers, merchant bankers, the portfolio managers etc. about the good investment proposal, but 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.
Investors get the benefit of credit rating agencys 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 companys financial strength
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declines or any event takes place which necessitates consequent dissemination of information on its position to the investor.
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 through yielding marginally lower rate of return.
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 understands the degree of certainty about timely payment of interest and principal on a debt instrument with better rating.
Companies with rated instrument 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.
A company with higher rated instrument is able to attract the investors and with least efforts can raise funds. Thus, the rated company can economise 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.
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 through higher credit rating the company can mobilize funds from public and instructions or banks from self-
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assessment of its own status, which is subject to self-discipline and selfimprovement, it can perceive and avoid sickness.
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.
Highly rated instruments put the brokers at an advantage to make less efforts in studying the companys credit position to convince their clients to select an investment proposal. This enables brokers and other financial inter-mediaries to save time, energy, costs, and man-power in convincing their clients about investment in any particular instrument.15
Why Indian companies rate their companies by international rating agencies rather than Indian rating agencies?
Indias currency rating under threat: Fitch
International ratings agency Fitch Ratings said on Monday Indias local currency rating looks to be under threat due to the governments bloated fiscal deficit. The domestic credit picture is poor. The local currency rating looks to be under threat, Brian Coulton, Senior Director of Asian sovereign ratings, told a client seminar here. India has set a fiscal deficit target of 5.3 per cent of gross domestic product for the financial year ending March, 2003, down from 5.7 per cent last year. But it has consistently overshot its deficit target in previous years. The International Monetary Fund (IMF) last week said Indias yawning fiscal deficit is a big short-term risk and New Delhi needs to aggressively pursue reforms to overcome the problem. Fitch, which last revised Indias rating in November last year, has a speculative grade BB-plus rating on local debt. The agency said in September it had planned to
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review Indias rating in another two months. Fitch rates Indias local currency at BBplus and foreign currency at BB with a stable outlook. Fellow ratings agency Standard & Poors cut its long-term local currency credit rating on India to BB-plus from BBB-minus in September, citing a rising debt burden and vulnerable public finances. The S&Ps downgrade came on the heels of concerted opposition within Indias multi-party coalition to a Rs 120 billion ($2.5 billion) privatisation programme that would have helped to bridge the ballooning fiscal deficit. The struggling privatisation programme is also a concern for Fitch, which said the government lacked the appetite to deal with the deficit. Theres no political will to tackle the problem. You have weak state banks and there has been stop-start privatisation, Coulton said. Despite the underlying economic risks, Indias foreign exchange reserves have risen to a record $ 62.066 billion this year, boosted by stronger exports and remittances from overseas Indians as the US dollar fell. Rival agency, Moodys Investors Service, bucked the negative trend last month by placing Indias ratings on review for a possible upgrade, based primarily on a substantial strengthening of the countrys external financial situation. The foreign currency issuer rating for India the proxy for the rating that would likely be assigned were the government to issue a foreign currency-denominated bond in the international capital markets has also been placed on review for possible upgrade. At present, however, the government has no such bonds outstanding nor are there any rated government-guaranteed eurobonds outstanding, Moodys said. But the BA2 domestic currency bond rating of the government is not on review and the outlook on that rating remains negative due to continuing stress in Indias internal finances and last years broad-based reduction in import tariffs.
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62
63
a) b)
To know the awareness and impact of Credit Rating Agencies on the To know the awareness of Credit Rating Agencies among the Brokers.
investors decisions.
RESEARCH METHODOLOGY
It is well known fact that the most important step in research process is to the problems choose for investigation, because a problem well defined is half solved. That was the reason that out most care was taken while defining various parameters of the problem. After giving through brainstorming session objectives were selected set on the base of these objectives. A questionnaire was designed major emphasis of which was gathering new ideas or insight so as to determine and bind out solution to the problems.
DATA COLLECTION
PRIMARY DATA Primary data was collected through structured questionnaire. SECONDARY DATA Secondary data in the form of internal sources come from books and internet.
SAMPLING METHOD
SAMPLE UNIT For this project the Brokers and Investors was taken out . SAMPLE SIZE Total number of respondent was 150. Out of which 100 were Investors and 50 were Brokers. SAMPLING TECHNIQUES Non-Probability sampling method was selected, under which I went for convenience sampling.
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findings may not be applicable to the others parts of the country. result may not give an exact representation of the population.
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INTERPRETATION The above table and chart shows that 57% of respondents invest in share and debenture frequently while 7% of respondents invest in share and debenture frequently and rest are partly and not invest in share and debentures.
11 12 2 2 59 FIGURE 1.2
INTERPRETATION On the above table it has been shown that most of the respondents know the CRISIL whereas others are concerned, they have less knowledge. 3.Do you depend your investment decision on rating given to the instrument by credit rating agencies? TABLE 4.3 Response Yes No Cant Say 68 Respondent 9 30 61
FIGURE 4.3
INTERPRETATION The majority of the investors do not made their investment decision on the rating given to the instrument by credit rating agencies. As shown in the table and chart i.e 61%. 30 % of those investors who give no answer. While only 9% investors make their investment based on rating. 4. Do you know anything about multiple credit rating system? TABLE 4.4 Response 69 Respondent
2 80 18 FIGURE 4.4
INTERPRETATION Most of the investors do not know anything about Multiple Credit Rating system and they constitute the 80% of the total sample. Only 2% have any knowledge of Multiple Credit Rating system while 18% have no answer.
5.
Do you think multiple credit rating system is boom to the capital market? TABLE 4.5 Response Yes Respondent 12 70
No Cant Say
61 27 FIGURE 4.5
INTERPRETATION As we saw in the previous table and chart it is clear that 61% of investor have no knowledge about the Multiple Credit Rating system. So if we see the above table we find that 27% of the respondent do not know whether this is boom to the capital market or not. 61% directly said no. while 12% said yes, it helps in booming the capital market. 6. Do you think Credit Rating Agencies will prove to be an effective tool for risk management? TABLE 4.6 Response Yes No Cant Say Respondent 36 25 39 FIGURE4.6 71
INTERPRETATION Only 36% of the investors have the opinion that credit rating agencies will prove to be an effective tool for risk management. While 25% said no. Most of the investors i.e. 39% have none kind of opinion. 7. Do you consider it safe for small investor depending upon the rating given by the Credit Rating Agencies? TABLE 4.7 Response Yes No Cant Say Respondent 29 37 34 FIGURE 4.7
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INTERPRETATION The above table and chart shows that only 29% have the opinion that it is safer for the small investors depending upon the rating given to the instrument by the credit rating agencies. However, 37% said no that it is not safer for the small investors. While 34%, have no opinion.
SERVICES Credit Rating Services Advisory Services Research and Information Services Equity Research Information assistant to Govt. None of these
Respondent s 12 2 2 2 2 80
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FIGURE 4.8
INTERPRETATION It is shown from the above table and chart that only one service i.e. credit rating service is recognized by the respondents while the have full ignorance regarding others 9. Should the rating agencies monitor the issue already rated? TABLE 4.9 Response Yes No Cant Say Respondent 18 21 61 FIGURE 4.9
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INTERPRETATION Majority of the investors i.e. 61% said that they cant say whether rating agencies monitor the issue already rated or not. While 18% said, yes and again 21% said no.
10. Do you think a good rating given to an instrument can help it sail easily in the market? TABLE 4.10 Response Yes No Cant Say Respondent 23 15 62
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FIGURE 4.10
INTERPRETATION Again, the majority of the respondent does not have any opinion that a good rating given to a instrument can help its easily sail in the capital market and there percentage is 62%. 23% respondent said yes that it helps in its easily sail in the market. While 15% respondent said no that this is not provide any help in its easily sail.
IN CASE OF BROKERS
Do you depend your investment decision on rating given to the instrument by credit rating agencies? TABLE 4.11 Response Yes No Respondent 17 28 Percentage 34 56
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10
N o 56%
INTERPRETATION More than half of the Brokers i.e. 56% say that they do not take their decisions based on rating given to the instrument by credit rating agencies. 34% take their investment decision based on the rating given to the instrument.10percentage `respondents they have no opinion. Do you think Credit Rating Agencies will prove to be an effective tool for risk management? TABLE 4.12 Response Yes No Cant Say FIGURE 4.12 Respondent 39 2 9 Percentage 78 4 18
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Yes 78%
INTERPRETATION 78% of the Brokers said that Credit Rating Agencies have an effective tool for risk management, as the above table and chart shows. While 18% have no opinion. And 4% said these are not effective tool for risk management.
Do you consider it safe for small investor depending upon the rating given by the Credit Rating Agencies? TABLE 4.13 Response Yes No Cant Say FIGURE 4.13 Respondent 18 22 10 Percentage 36 44 20
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No 44%
INTERPRETATION The above table and chart shows that 44% said no because small investor do not have full knowledge of Credit Rating Agencies and the ratings given to the instrument in which they are going to made investment . However, 36% believes that it is safer for the smaller investor, 20% have no opinion.
Is the introduction of Credit Rating Agencies have proved conductive for capital market? TABLE 4.14 Response Yes No Cant Say FIGURE 4.14 Respondent 10 12 28 Percentage 20 24 56
79
Yes 20%
No 24%
INTERPRETATION More than half of the Brokers are comes in the category of cant say. Only 20% said that these ratings agencies have proved conductive for the capital market, while 24% said no.
Should the rating agencies monitor the issue already rated? TABLE 4.15 Response Yes No Cant Say FIGURE 4.15 Respondent 38 5 7 Percentage 76 10 14
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Yes 76%
INTERPRETATION As the above table and chart shows that 76% of the Brokers are in favour of that rating agencies should monitor the issues/instrument already rated./ while 10% said no and 14% give no answer.
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CRISIL and out of 100 respondents 59% did not know anything about the credit rating agencies working in India. The majority of the investors do not made their investment decision on the rating given to the instrument by credit rating agencies. As shown in the table and chart i.e 61%. 30 % of those investors who give no answer. While only 9% investors make their investment based on rating. Only 2% have any knowledge of Multiple Credit Rating system while 18% have no answer. So if we see the above table we find that 27% of the respondent do not know whether this is boom to the capital market or not. 61% directly said no. while 12% said yes, it helps in booming the capital market. Only 36% of the investors have the opinion that credit rating agencies will prove to be an effective tool for risk management. While 25% said no. Most of the investors i.e. 39% have none kind of opinion. However, 37% said no that it is not safer for the small investors. While 34%, have no opinion. Only one service i.e. credit rating service is recognized by the respondents while the have full ignorance regarding others Majority of the investors i.e. 61% said that they cant say whether rating agencies monitor the issue already rated or not. While 18% said, yes and again 21% said no.
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be separate Credit Rating Agencies at Asia level who rates all the countries of Asia and this debt investments, most of the brokers said Yes that they should be, but they are enable to told the advantages or disadvantages of this. None of the brokers has given the answers of the questions like (1) What are the pros & cons if there are separate credit rating agencies at Asia level (2) What are the short coming of credit rating agencies working in India And (3) What measures should is taken by SEBI and others to promote Credit Rating Agencies in India.
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corporate with respect to the earnings prospects and the risks inherent in these earnings prospects. The CRA should adopt procedures and mechanisms to protect the confidential nature of information shared with them by issuers under the terms of a confidentiality agreement or otherwise under a mutual understanding that the information is shared confidentially. Unless otherwise permitted by the confidentiality agreement and consistent with applicable laws or regulations, the CRA and its employees should not disclose confidential information in press releases, through research conferences, to future employers, or in conversations with investors, other issuers, other persons, or otherwise. The CRA should use confidential information only for purposes related to its rating activities or otherwise in accordance with any confidentiality agreements with the issuer. CRA employees should take all reasonable measures to protect all property CRA employees should be prohibited from engaging in transactions in and records belonging to or in possession of the CRA from fraud, theft or misuse. securities when they possess confidential information concerning the issuer of such security. In preservation of confidential information, CRA employees should familiarize themselves with the internal securities trading policies maintained by their employer, and periodically certify their compliance as required by such policies. CRA employees should not selectively disclose any non-public information about rating opinions or possible future rating actions of the CRA, except to the issuer or its designated agents. CRA employees should not share confidential information entrusted to the CRA with employees of any affiliated entities that are not CRAs. CRA employees should not share confidential information within the CRA except on an as needed basis. CRA employees should not use or share confidential information for the purpose of trading securities, or for any other purpose except the conduct of the CRAs business. The credit rating agencies should merge with the foreign agencies to start the credit rating in the equity trading
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There should be proper corporate governance Security market awareness campaign should be conducted by sebi in the other
REFERENCES
1. Vasant Desai CREDIT RATING: AN INTRODUCTION Ch. Credit Rating Institution quoted from the book The Indian Financial System Himalya Publication House Delhi second edition 1997.p375-378
86
2. V.K. Bhalla Definition and Evolution of CRA Ch. Credit Rating quoted from the
book Investment Management S. Chand and Co. Ltd. New Delhi Eighth edition 2001.p 132-133
3. www.icraindia.com/services/inves/sebi.htm, SEBI Guidelines for Rating Agency Dated: -8/18/2004. 4. Editors views SEBI proposes `corporate governance rating' soon In touch with CRISIL, ICRA BUSINESS LINE Friday, Aug 30, 2002 5. V.K. Bhalla Type of credit rating Ch. Credit Rating quoted from the book
Investment Management S. Chand and Co. Ltd. New Delhi Eighth edition 2001.p137 6. Sumitra chaudhary Sovereign Rating Titled Fiscal Stress And Rating Views The fallacy that debt does not matter edit and column financial express Monday feb.2003 7. Editors views Compulsory Rating Titled outlook a notch up The economic times India Mumbai bureau 24Tuesday 2004.p1 8. Vasant Desai Importance of CRA Ch. Credit Rating Institution quoted from the book The Indian Financial System Himalya Publication House Delhi second edition 1997.p377-378 9. Muthukumar India Inc moves towards better governance The economic times chandigarh. Thursday 19 august 2004p4.
10. V.K. Bhalla Credit Rating agency in India Ch. Security Credit Rating quoted
from the book Investment Management S. Chand and Co. Ltd. New Delhi Eighth edition 2001.p 133-134
11. M Y Khan CRISIL Ch. rating quoted from the book Financial service Tata
McGraw Hill Publishing Company Limited New Delhi sixth edition 2003.p16.716.16. 12. Editors views Crisil composite performance rankings Crisil / business standard Mumbai May 5, 2004. 13. Editors views the difference between A And AA Titled Crisil: A-rated corporate papers are good buys business standard Mumbai August 18, 2004.
87
14. M Y Khan CRISIL Rating Symbols Ch. rating quoted from the book Financial
service Tata McGraw Hill Publishing Company Limited New Delhi sixth edition 2003.p16.31-16.38. 15. Editors views Crisil: A-rated corporate papers are good buys banking and finance Business srandard Thursday September 2004
16. Suresh Krishnamurthy Credit rating agencies can rate its associates CRILIS :
Hold business line Sunday, Jan 04, 2004
17. http://www.crisil.com/NASApp/cs/ContentServer?
pagename=Crisil/AboutUs/inv_pg_mainpage Capital History 8/18/2004.
18. http://www.icraindia.com/services/about/profile.htm
8/18/2004.
19. M Y Khan ICRA Ltd. rating quoted from the book Financial service Tata
McGraw Hill Publishing Company Limited New Delhi sixth edition 2003.p16.1616.24
20. Edited in money and banking ICRA BPO venture Titled To go beyond Indian
boundaries: - BUSINESS LINE Friday, May 07, 2004
21. Editors Views To go beyond Indian boundaries Titled Icra Signs Mou With
Bulgarian Agency Business Line Thursday, Jul 22, 2004
22. M Y Khan ICRA Rating Symbols Credit rating quoted from the book Financial
service Tata McGraw Hill Publishing Company Limited New Delhi sixth edition 2003.p16.39-16.47.
24. M Y Khan Care Ch. Credit rating quoted from the book Financial service Tata
McGraw Hill Publishing Company Limited New Delhi sixth edition 2003.p16.2416.25.
25. M Y Khan Duff and Phelps Credit Rating Private Ltd. Ch. Credit Rating quoted
from the book Financial service Tata McGraw Hill Publishing Company Limited New Delhi sixth edition 2003.p16.25-16.28. 26. V.K. Bhalla ONICRA-Onida Credit Rating Agency Ch.Security Credit Rating quoted from the book Investment Management S. Chand and Co. Ltd. New Delhi Eighth edition 2001.p 147-150.
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28. Nisha Aggarwal and Shashi K. Gupta ONICRA Rating Scale Ch. Credit Rating quoted from the book Financial Services Kalyani Publication Ludhiana First edition 2004.p 29. H.R. Suneja Tondon Committee Ch. Follow-up, supervision, control, and monitoring of advances and accounts from the book Management of bank credit Himalya Publication House Delhi First edition 1992.p587.
30. M Y Khan Rating Process Ch. Credit rating quoted from the book Financial
service Tata McGraw Hill Publishing Company Limited New Delhi sixth edition 2003.p16.25-16.31.
31. V.K. Bhalla Limitation of credit rating in India Ch. Security Credit Rating quoted
from the book Investment Management S. Chand and Co. Ltd. New Delhi Eighth edition 2001.p 136-137. 32. Editors views Conflict between the two rating agencies titled Crisil upgrades IDBI Bank, Icra puts it on rating watch Thursday, business standard September 9, 2004 33. Sowdeepti Rating volatility titled financial services rating agencies inducing competition, Chartered financial analyst Vol-X, Issue-1 january2004 p.49.
36. Arun Jethmaliani Preposition of starting of Ratings in IPOs titled Rating Blues
Value For Money The Economic Times New Delhi Sunday 30 may 2004. P4 37. K.R. Srivats Credit rating agencies can rate its associates titled Rating agencies can rate `associate' business line money and banking section Sunday, Feb 23, 2003.
Questionnaire
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Dear Respondent, Hello, I am student of M.B.A. I am doing my project on Credit Rating Agencies. Please give me true and fair information.
iv. How occasionally of you invest in share and debenture? (b) Frequently (c) Cant say
How many credit rating agencies listed below is recognized by you? (b) CARE (c) ICRA
vi.
If Yes or No, what are the pros and cons? Pros ... Cons: vii. (a) Yes Do you know anything about Multiple Credit Rating system? (b) No (c) Cant say
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Do you think Multiple Credit Rating system is boom to the capital market? (b) No (c) Cant say
ix.
Do you think Credit Rating Agencies will prove to be an effective tool for risk
x.
Do you consider it safe for small investor depending upon the rating given by the
Credit Rating Agencies? (a) Yes xi. (b) No (c) Cant say
Credit Rating Services Advisory Services Research and Information Services Equity Research Information assistant to Govt.
xii. (a) Yes xiii. market? (a) Yes xiv. (b) No (c) Cant say Should the rating agencies monitor the issue already rated? (b) No (c) Cant say
Do you think a good rating given to an instrument can help it sail easily in the
............................................................
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xv.
What measures should be taken by SEBI and others to promote credit rating
agencies in India or what changes you want in these agencies? ..................................................................................................................................................... ..................................................................................................................................................... ..................................................................................................................................................... ................................................................................................................................. xvi. How you see the future of equity rating in India? ..................................................................................................................................................... ..................................................................................................................................................... ..................................................................................................................................................... ................................................................................................................................. xvii. Demographic profile :Occupation. Qualification.. Age:Less than 25 years years 25-50 Above 50 years
Thanks
92
Hello, I am student of M.B.A. I am doing my project on Credit Rating Agencies. Please give me true and fair information.
xviii.
Are you satisfied with the working and rating of Credit Rating Agencies in India? (b) No (c) Cant say
xx.
Pros ... Cons: xxi. Do you think Credit Rating Agencies will prove to be an effective tool for risk
Do you consider it safe for small investor depending upon the rating given by the
Credit Rating Agencies? (a) Yes xxiii. market? (b) No (c) Cant say
Is the introduction of Credit Rating Agencies have proved conductive for capital
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(a) Yes
(b) No
Should the rating agencies monitor the issue already rated? (b) No (c) Cant say
xxv.
............................................................ xxvi. What measures should be taken by SEBI and others to promote credit rating
agencies in India? ..................................................................................................................................................... ..................................................................................................................................................... ..................................................................................................................................................... ................................................................................................................................. xxvii. How can credit rating agencies in India work effectively?
..................................................................................................................................................... ..................................................................................................................................................... ..................................................................................................................................................... ................................................................................................................................. xxviii. What suggestion you can give?
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xxix.
Demographic profile :-
Occupation. Qualification.. Experience. Place of work. Age:Less than 25 years years 25-50 Above 50 years
Thanks
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