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Credit Rating

What is credit rating?


A credit rating estimates the credit worthiness of an individual, corporation, or even a country. It is an evaluation made by credit bureaus of a borrowers overall credit history. It is also known as an evaluation of a potential borrower's ability to repay debt, prepared by a credit bureau at the request of the lender. Credit ratings are calculated from financial history and current assets and liabilities.

Objectives
It provides guidance to investors or creditors in determining a credit risk associated with debt instrument or credit obligation.
Establishes a link between risk and return. Helps investors in making investment decisions.

Credit rating shows the exact worth of the organization.

Credit Rating Agencies


Credit Rating Information Services of India Limited (CRISIL) (1988) Investment Information and Credit Rating Agency of India (ICRA) (1991) Credit Analysis & Research Limited (CARE) (1993) Standard and Poors (S&P) (1966) Credit Information Bureau India Ltd. (CIBIL) (2000) Fitch Ratings, Ltd.(1913)

Credit Rating Information Services of India Limited (CRISIL) (1988)


CRISIL Ratings offer a full & comprehensive range of rating services. reliable opinions on risk by combining its understanding of risk and the science of building risk frameworks, with a contextual understanding of business. It offers a comprehensive range of integrated product & service offerings-

real time news, & analysed data ,


incisive insights & opinions &expert advice

Rating Symbols

Investment Information and Credit Rating Agency of India (ICRA) (1991)


It provide information & guidance to investors for determining the credit risk associated with a debt instrument.

Credit Analysis & Research Limited (CARE) (1993)


It offers services such as credit rating of debentures/ preference shares / F.D / CP / information services & equity research extensive study of the shares listed on major stock exchanges through EIL (economy,industry,company) analysis. CARE AAA to CARE D Short-term Instruments (NCD/FD/SO/CPS/RPS/L) CARE A1 A2 A3 A4 D

SYMBOLS

Fitch Ratings, Ltd.(1913)


Fitch Ratings covers a broad range of sectors, issuers and securities with timely insights, objective opinions, and indepth credit analysis. - Financial Institutions , Structured Finance , Sovereigns & Supernationals , Corporate Finance , Insurance , Public Finance. AAA AA+ AA AA- A+ A A BBB+ BBB BBB-BB+ BB BB- B+ BB CCC+ CCC CCC - CCC D

Standard and Poors (S&P) (1966)


CATEGORIES - Corporate, Financial Institutions, Fund Ratings, Insurance , International Public Finance , Sovereigns , Structured Finance AAA AA+ AA AA- A+ A A- BBB+ BBB BBB-BB+ BB BB- B+ BB- CCC+ CCC CCC- CC C D

Who uses Credit Rating?


Investors Regulators Issuers Intermediaries

RATING METHODOLOGY
Business analysis - covers an analysis of industry risk, market position in the country, operating efficiency of the company & legal position.

Financial analysis analysis of accounting quality, earnings protection, cash flow adequacy & financial flexibility.
Management evaluation study of track record of the managements capacity to overcome adverse situations, goals, philosophy & strategies. Fundamental analysis analysis of liquidity management, asset quality, profitability & interest & tax sensitivity.

RESTRAINTS
Biased rating and misrepresentation,

Static study, human bias


Concealment of material information, No guarantee for soundness of the company, Reflection of temporary and adverse conditions, Frequent revision of grading creates confusion questioning credibility of the expertise of rating agencies. difficult to predict a borrowers financial health in the short term. Differences in rating of two agencies.

References
http://crisil.com/index.jsp http://www.icra.in/ http://www.careratings.com/

Group Members
JEETENDRA. A PRIYA .A LEENA .L MANISHA .A NIRAJ.B TRIPTI.B MANSI.B