Description
A credit rating agency (CRA, also called a Ratings Service) is a company that assigns credit ratings — rating of the debtor's ability to pay back the debt making timely interest payments and the likelihood of default.
UNIT-V
1
DEFINITION
Ratings are designed exclusively for the purpose of grading bonds according to their investment qualities
2
CREDIT RATNG
• Originated in USA – 1860, Henry vannum poor – railroad companies(Standard & Poor’s) • Three credit rating agencies are recognized worldwide: Standard & Poor’s, Moody’s Investor Service(1914)(New York , 1900, John Moody), Fitch Ratings(Fitch publishing company – dec24th 1913John knowles Fitch – New York City) • Standard & Poor’s :The agency’s founding principle was “the investor has the right to know”.
In 1966, The McGraw-Hill Companies, Inc. acquired Standard & Poor’s
Fitch’s acquired Duff & Phelps Credit Rating Co., headquartered in Chicago, in April, 2000 – New York, London
CREDIT RATING
• Credit rating is the symbolic indicator of the current opinion of the rating agency regarding the relative ability & willingness of the issuer of a financial (debt) instrument to meet the (debt) service obligations as & when they arise.
CREDIT RATING AGENCY & RATING
CREDIT RATING AGENCY: A credit rating agency means a body corporate engaged in the business of rating of securities offered by way of public issues. RATING: Rating is defined as an opinion regarding securities expressed in the form of standard symbols or in any other standardized form.
WHY CREDIT RATING?
Extremely useful to……….. • Investors • Corporate (borrowers) • Banks & Financial institutions
Debentures, bonds, secured premium notes, certificates of deposits, fixed deposits PSU bonds, preference shares, LPG/KEROSENE dealers, chit fund, real estate developers/builders
ADVANTAGES OF CREDIT RATING
• • • • Independent evaluation Low cost information Investor protection Easily understandable symbols
CREDIT RATING AGENCIES IN INDIA
1.Credit rating information services of India ltd (CRISIL)(UTI & ICICI)January 1, 1988 2.Investment Information & credit rating agency of India (IICRA)(Public Limited Company)16th January 1991(IFC,UTI,LIC,GIC,SBI & 17 banks) 3.The credit Analysis and Research Ltd.(CARE): 1993)investment companies, banks & finance companies) 4.Phelps credit rating India Ltd. –JM Financials, Alliance Group and international agency Duffs & Phelps –
REGULATORY FRAMEWORK :
CREDIT RATING AGENCIES REGULATIONS • Their registration • General obligations • Restrictions on the rating of securities • Procedure for inspection and investigation • Action in case of default
REGISTRATION
• Registration with the SEBI is mandatory for carrying on the rating business. • Promoter of credit rating agency • Eligibility criteria:Minimum Networth of Rs. 5 crore • Grant of certificate of registration: Initial payment of Rs. 5,00,000, Renewal fee – every 3 years Rs. 3,00,000
GENERAL OBLIGATIONS
• • • • • • • • • • • • Code of conduct Agreement with the client Monitoring of ratings Procedure for review of ratings Internal procedures Disclosure of rating definitions Submission of info to the SEBI Compliance with circulars issued by the SEBI Appointment of compliance officer Maintenance of books of accounts & records Confidentiality Rating process
CREDIT RATING METHODOLOGY
• For Manufacturing companies:
– Business risk analysis: Industry risk, market position, operating efficiency, legal position – Financial Risk analysis: Accounting quality, earning prospects, cash flows, flexibility, interest and tax sensitivity – Management risk analysis
• Financial services sector:
– Regulatory and competitive environment – Fundamental analysis: Capital adequacy, resources, asset quality, liquidity mgt, profitability and financial position, interest and tax sensitivity
of existing rating: Analysis of new data , 1. New issue rating: locating possibility of rating 1. Initial contact , 2. introductory meeting credit watch notification, 3. Supply of data detailed analysis meeting 4. Rating exercise
5. Analysis of new facts & enlisting new unresolved questions 6. Meeting 7. Preparation of rating profile 8. Discussion & vote to determine rating. 9. Notification of rating 10. Issuer appeals against rating 11. formal notification 12. rating surveillance system
RATING PROCESS
2. Review
SERVICES OFFERED BY ICRA Ltd
• Rating services • Information services • Advisory services
RATING SERVICES
• • • • • • • Credit Assessment General Assessment Structured Finance Rating Claims Paying Ability Rating (CPRs) Corporate Governance Rating Line of credit rating Credit assessment for small & medium scale industries
INFORMATION SERVICES
• Earnings Prospects & Risk Analysis (EPRA) • Investment Information Publications • Customized Research • Corporate Reports • Grading Services
ADVISORY SERVICES
• • • • • • • Strategic Consulting Risk Management Area Regulatory Practice Transaction Practices Banking & Financial Services Manufacturing & Service sector Power sector
CONCLUSION
• Default in payment of interest • Non-banking companies – maturities more 18mths – rated • Rating of municipal bonds,govt borrowings, deposits – rated • Several constraints • Strategic alliances with international agencies.
REFERENCES
• http://www.kazakhstaninvestment.com/ credit-rating-2.html • Financial services by MY Khan • Emerging scenario of Financial servicesGordon & natarajan
END OF UNIT-V
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Title
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doc_494337220.ppt
A credit rating agency (CRA, also called a Ratings Service) is a company that assigns credit ratings — rating of the debtor's ability to pay back the debt making timely interest payments and the likelihood of default.
UNIT-V
1
DEFINITION
Ratings are designed exclusively for the purpose of grading bonds according to their investment qualities
2
CREDIT RATNG
• Originated in USA – 1860, Henry vannum poor – railroad companies(Standard & Poor’s) • Three credit rating agencies are recognized worldwide: Standard & Poor’s, Moody’s Investor Service(1914)(New York , 1900, John Moody), Fitch Ratings(Fitch publishing company – dec24th 1913John knowles Fitch – New York City) • Standard & Poor’s :The agency’s founding principle was “the investor has the right to know”.
In 1966, The McGraw-Hill Companies, Inc. acquired Standard & Poor’s
Fitch’s acquired Duff & Phelps Credit Rating Co., headquartered in Chicago, in April, 2000 – New York, London
CREDIT RATING
• Credit rating is the symbolic indicator of the current opinion of the rating agency regarding the relative ability & willingness of the issuer of a financial (debt) instrument to meet the (debt) service obligations as & when they arise.
CREDIT RATING AGENCY & RATING
CREDIT RATING AGENCY: A credit rating agency means a body corporate engaged in the business of rating of securities offered by way of public issues. RATING: Rating is defined as an opinion regarding securities expressed in the form of standard symbols or in any other standardized form.
WHY CREDIT RATING?
Extremely useful to……….. • Investors • Corporate (borrowers) • Banks & Financial institutions
Debentures, bonds, secured premium notes, certificates of deposits, fixed deposits PSU bonds, preference shares, LPG/KEROSENE dealers, chit fund, real estate developers/builders
ADVANTAGES OF CREDIT RATING
• • • • Independent evaluation Low cost information Investor protection Easily understandable symbols
CREDIT RATING AGENCIES IN INDIA
1.Credit rating information services of India ltd (CRISIL)(UTI & ICICI)January 1, 1988 2.Investment Information & credit rating agency of India (IICRA)(Public Limited Company)16th January 1991(IFC,UTI,LIC,GIC,SBI & 17 banks) 3.The credit Analysis and Research Ltd.(CARE): 1993)investment companies, banks & finance companies) 4.Phelps credit rating India Ltd. –JM Financials, Alliance Group and international agency Duffs & Phelps –
REGULATORY FRAMEWORK :
CREDIT RATING AGENCIES REGULATIONS • Their registration • General obligations • Restrictions on the rating of securities • Procedure for inspection and investigation • Action in case of default
REGISTRATION
• Registration with the SEBI is mandatory for carrying on the rating business. • Promoter of credit rating agency • Eligibility criteria:Minimum Networth of Rs. 5 crore • Grant of certificate of registration: Initial payment of Rs. 5,00,000, Renewal fee – every 3 years Rs. 3,00,000
GENERAL OBLIGATIONS
• • • • • • • • • • • • Code of conduct Agreement with the client Monitoring of ratings Procedure for review of ratings Internal procedures Disclosure of rating definitions Submission of info to the SEBI Compliance with circulars issued by the SEBI Appointment of compliance officer Maintenance of books of accounts & records Confidentiality Rating process
CREDIT RATING METHODOLOGY
• For Manufacturing companies:
– Business risk analysis: Industry risk, market position, operating efficiency, legal position – Financial Risk analysis: Accounting quality, earning prospects, cash flows, flexibility, interest and tax sensitivity – Management risk analysis
• Financial services sector:
– Regulatory and competitive environment – Fundamental analysis: Capital adequacy, resources, asset quality, liquidity mgt, profitability and financial position, interest and tax sensitivity
of existing rating: Analysis of new data , 1. New issue rating: locating possibility of rating 1. Initial contact , 2. introductory meeting credit watch notification, 3. Supply of data detailed analysis meeting 4. Rating exercise
5. Analysis of new facts & enlisting new unresolved questions 6. Meeting 7. Preparation of rating profile 8. Discussion & vote to determine rating. 9. Notification of rating 10. Issuer appeals against rating 11. formal notification 12. rating surveillance system
RATING PROCESS
2. Review
SERVICES OFFERED BY ICRA Ltd
• Rating services • Information services • Advisory services
RATING SERVICES
• • • • • • • Credit Assessment General Assessment Structured Finance Rating Claims Paying Ability Rating (CPRs) Corporate Governance Rating Line of credit rating Credit assessment for small & medium scale industries
INFORMATION SERVICES
• Earnings Prospects & Risk Analysis (EPRA) • Investment Information Publications • Customized Research • Corporate Reports • Grading Services
ADVISORY SERVICES
• • • • • • • Strategic Consulting Risk Management Area Regulatory Practice Transaction Practices Banking & Financial Services Manufacturing & Service sector Power sector
CONCLUSION
• Default in payment of interest • Non-banking companies – maturities more 18mths – rated • Rating of municipal bonds,govt borrowings, deposits – rated • Several constraints • Strategic alliances with international agencies.
REFERENCES
• http://www.kazakhstaninvestment.com/ credit-rating-2.html • Financial services by MY Khan • Emerging scenario of Financial servicesGordon & natarajan
END OF UNIT-V
20
Title
21
doc_494337220.ppt