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Credit Rating

Credit ratings are issued by credit rating agencies and represent their opinion on an issuer's ability to meet financial obligations. Ratings use symbols like AAA to indicate creditworthiness. Agencies like CRISIL and ICRA provide unbiased ratings to help investors understand risk. They influence markets as ratings are often required for securities trading. The rating process involves agencies meeting issuers, analyzing financial data, and committees assigning ratings which are then disseminated publicly. Ratings are periodically reviewed and can be changed if new data suggests different credit risk.

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483 views13 pages

Credit Rating

Credit ratings are issued by credit rating agencies and represent their opinion on an issuer's ability to meet financial obligations. Ratings use symbols like AAA to indicate creditworthiness. Agencies like CRISIL and ICRA provide unbiased ratings to help investors understand risk. They influence markets as ratings are often required for securities trading. The rating process involves agencies meeting issuers, analyzing financial data, and committees assigning ratings which are then disseminated publicly. Ratings are periodically reviewed and can be changed if new data suggests different credit risk.

Uploaded by

Mohammed Jashid
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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CREDIT RATING

Meaning Credit rating is the symbolic indicator of the current opinion of the rating agency regarding the relative ability of the issuer of the financial (debt) services obligations as and when they arise.

DEFINITION
MOODYS
Ratings are designed exclusively for the purpose of grading bonds according to their investment qualities.

CRISIL. Credit Rating is an unbiased and


independent opinion as to issuers capacity to meet its financial obligations. It does not constitute a recommendation to buy/sell or hold a particular security.

What they do
Credit Rating Agencies (CRAs) influence investor

behavior and regulate issuers' access to financial markets and thus, they act as markets' gatekeepers. Given the statutory requirements for rating of securities before trading can commence thereon, CRAs occupy an intriguing inter-twined position of quasipublic regulators charged with the implementation of good governance norms and informational intermediaries seeking to protect the investors by purging the markets of information asymmetry.

RATING AGENCIES
1. Credit rating Information services of India

Limited (CRISIL)-1988 2. Credit Analysis & Research Ltd. (CARE)-1993 3. Information and Credit rating services (ICRA) 1990 4. Fitch Ratings India Private Ltd.(FITCH India Ltd )-1995 5. Small and Medium Enterprises Rating Agency of India Ltd. (SMERA)-2005 6. Brickwork Ratings India Private Limited

Credit rating agency means a corporate body

engaged in the business of rating of securities Rating is a opinion regarding securities expressed in standard symbols or any other standard form assigned by a credit rating agency and used by the issuer of such securities, for ex- AAA, AA, BB, etc

Credit rating process

The steps followed by them in the rating process are illustrated with reference to 1. New issue/instruments 2. Review of rating and 3. Flow chart of rating.

1. Rating Process of New


issue/instruments
The following steps are involved in rating the issuers of instruments for the first time, before going public. Rating agreement and assignment of analytical team: the process of rating starts with the/ issue of rating request letter by the issuer of the instrument and the signing of the rating agreement.

Meeting With Management: Prior to meeting with

the issuer, the analytical team obtains and analyses information relating to its financial statements, cash flow projections and other relevant information detailed bellow. Rating Committee: After meeting with the management, the analysts present their report to a rating committee, which then decides on the rating. Communication to the Issuer: After the committee has assigned the rating, the rating decision is communicated to the issuer, with the reasons or rationale supporting the rating.

Dissemination to the Public: Once the issuer

accepts the rating, the CRAs disseminate it, along -with the rationale, through the print media.

2. Rating Review for Possible Change: In the case


of rated instruments, the rated company is on the surveillance system of the CRA, and from time to time, the earlier rating is reviewed.

New Data Of Company: Analysts review the new

information or data available on the company, which might be sent to it by the company or it might have been procured through routine channels, as strategic Information under its sure
Rating Change: On preliminary analysis of the

new data, if the analysts feel that there is a possibility for changing the rating, then the analysts request the issuer for a meeting with its management and proceed with a comprehensive rating analysis. veil lance approach.

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