&
CREDIT RATING AGENCIES
PRESENTED BY:
Priyanka
Namrata
Sumit
Pankaj
Siddharth Jain
Credit Rating
A credit rating assesses the credit worthiness of an
individual, corporation, or even a country.
Credit ratings are calculated from financial history
and current assets and liabilities.
A credit rating tells a lender or investor the probability
of the subject being able to pay back a loan.
A poor credit rating indicates a high risk of defaulting
on a loan, and thus leads to high interest rates.
Credit Rating
Credit is important since individuals and corporations
with poor credit will have difficulty finding financing,
and will more likely have to pay more due to risk of
default.
The ratings are expressed in code numbers which can
be easily comprehended by lay investors.
Credit rating, as exists in India, is done for a specific
security and for the company as a whole.
A credit rating does not create fiduciary relationship
between the agency & the users.
Credit Rating
Agency
Company that assigns credit ratings for issuers of certain types
of debt obligations as well as the debt instruments themselves.
ICRA’s major shareholders IFCI (26%), and the balance by UTI, LIC, GIC,
PNB, Central Bank of India, Bank of Baroda, UCO Bank and banks (SBI) .
If necessary , meetings with top management suppliers & dealers & a visit to the plant or
proposed sites are arranged to collect additional data. This team of professionals submits
their recommendations to the rating committee.
Rating assigned is then notified to the issuer & only on his acceptance , rating is
published.
Once the issuer decides to use & publish the rating, agency has to continuously monitor it
over the entire life of instrument….called Surveillance.
Rating Symbols
High investment grades: –
Speculative grades :-
BB - inadequate safety
B – high risk
C – substantial risk
D - default
Limitations
Institutions whose instruments were given highest rating didn’t perform
well. For eg. CARE gave the highest rating to CRB capital, which failed, it
created a panic among investors & credit agencies.
Frequent revision of grading creates confusion questioning credibility of the
expertise of rating agencies.
No audit, only rely on information provided by the issuer which may be
inaccurate & incomplete.
Biasing investors lose their investments.
Rating agencies often fail to correctly predict a borrower’s financial health
in the short term. The latest case is NCD issue of BPL which was
downgraded by CRISIL from A to D. Investors who depends on these
ratings is not given any warning by rating agencies to wind down his
investment in time.
THANKYOU.
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