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CREDIT RATING
Ques.: What is credit Rating?
Ans.: A credit rating evaluates the credit worthiness of an issuer of specific types of debt, specifically, debt issued by a business enterprise such as a corporation or a government. It is an evaluation made by a credit rating agency of the debt
issuer’s likelihood of default. Credit ratings are determined by credit ratings agencies. Credit Rating is an independent
third party comprehensive assessment of the overall credit worthiness of an entity. It takes into account not only the
financial condition of the entity, but also several qualitative parameters that have bearing on its credit worthiness. The
credit rating represents the credit rating agency's evaluation of qualitative and quantitative information for a company or
government; including non-public information obtained by the credit rating agencies analysts.
Credit ratings are not based on mathematical formulas. Instead, credit rating agencies use their judgment and experience
in determining what public and private information should be considered in giving a rating to a particular company or
government. The credit rating is used by individuals and entities that purchase the bonds issued by companies and
governments to determine the likelihood that the government will pay its bond obligations. A poor credit rating indicates
a credit rating agency's opinion that the company or government has a high risk of defaulting, based on the agency's
analysis of the entity's history and analysis of long term economic prospects.
Ques.: What are the types of ratings?
Ans.: There are 3 broad categories of rating, namely:
SME Rating – For companies registered as SSI and having Bank Limit of < Rs. 5 crores.
Basel II Rating – Mandatory as per RBI guidelines having a bank limit of > Rs. 5 crores.
Corporate Rating – Mandatory as per SEBI guidelines for Corporate Instruments i.e. Bonds, Debentures,
Commercial Paper, etc.
Ques.: What are the benefits and, limitations of the Credit rating?
Ans.: Credit ratings help investors facilitate comparative assessment of investment options, complement the investors'
own credit analysis, and allow asset monitoring
BENEFITS FOR ENTITIES TO BE RATED MENTION BELOW:
Reduction in Interest Rates as per CAR to be maintained by the Bank
Better financial terms and confidence while negotiating with banks and FI’s
Financial institution looks for investment graded company in their portfolio
Helps in marketing and serves as first point to generate interest among potential partners
It is a “holistic health check-up of the unit” that establishes credibility, goodwill and assists in dealing with large
companies.
Enhance acceptability with Banks, Financial Institutions and provides access to cheaper and timely credit.
Assists in risk management by highlighting parameters measuring operational, financial and business risk.
Better market visibility and better corporate image of the company
Improve the comfort level with prospective/existing lenders
Credibility and confidence building with business partners
Self Improvement Tool
BENEFITS FOR LENDERS TO BE MENTION BELOW:
Provide an objective, independent and reliable opinion on credit quality
Serve as an additional input in the credit decision making process
Assist in risk pricing and capital allocation
Determining the terms of lending – interest rate, collateral, tenure etc.
Reduce time and cost in data analysis
Detailed rating rationale enhancing credit assessment of Client
DISADVANTAGES, LIMITATIONS OR DEMERITS OF CREDIT RATING ARE LISTED BELOW
Possibility of Bias Exist: The information collected by the rating agency may be subject to personal bias of the rating team. However, rating agencies try their best to provide an unbiased opinion of the credit quality of the company and/or instrument. If not, they will not be trusted.
Improper Disclosure May Happen: The company being rated may not disclose certain material facts to the investigating team of the rating agency. This can affect the quality of credit rating.
Impact of Changing Environment: Rating is done based on present and past data of the company. So, it will be difficult to predict the future financial position of the company. Many changes take place due to changes in economic, political, social, technological, legal and other environments. All this will affect the working of the company being rated. Therefore, rating is not a guarantee for financial soundness of the company.
Problems for New Companies: There may be problems for new companies to collect funds from the market. This is because, a new company may not be in a position to prove its financial soundness. Therefore, it may receive lower credit ratings. This will make it difficult to collect funds from the market.
Downgrading by Rating Agency: The credit-rating agencies periodically review the ratings given to a particular instrument. If the performance of a company is not as expected, then the rating agency will downgrade the instrument. This will affect the image of the company.
Difference in Rating: There are cases, where different ratings are provided by various rating agencies for the same instrument. These differences may be due to many reasons. This will create confusion in the minds of the investor.
Ques.: How does a credit rating agency differ from a credit bureau??
Ans.: A credit rating agency provides an opinion relating to future debt repayments by borrowers. A credit bureau
provides information on past debt repayments by borrowers.
Ques.: Is a credit rating a recommendation to invest in a debt instrument?
Ans.: A credit rating is not a recommendation to buy, hold, or sell a debt instrument. A credit rating is one of the inputs
used by investors to make an investment decision.
Ques.: What is the difference between credit rating and equity research?
Ans.: Credit ratings are assigned to debt instruments, while equity research relates to equity shares. A credit rating is
focused on the risk of non-payment, the primary variable in debt instruments. Equity research is focused on growth
possibilities, for that is what drives equity valuations.
Ques.: How does a credit rating differ from an audit?
Ans.: A credit rating agency relies on a variety of information sources, including published annual reports. An audit
process is designed to detect fraud or misrepresentation of information, whereas the credit rating process is not.
Ques.: How does a rating agency operate when issuers' disclosure levels are low?
Ans.: During a credit rating exercise, issuers provide rating agencies with confidential information and insights into
business strategy that are not normally available in the public domain. As a policy, CRISIL does not assign credit ratings
without issuer interaction, except when a previously rated instrument is outstanding or when a specific investor asks for a
private exercise. In cases where CRISIL believes that the information is inadequate to assign a rating, it may not do so.
Also, for rated clients, if subsequent information is not adequate, CRISIL may suspend the rating and inform the
investors.
Ques.: Is competition desirable in the credit rating industry?
Ans.: Competition in the credit rating industry is desirable to meet the 'better service at a cheaper price' objective on an ongoing
basis. However, it is essential to guard against some undesirable effects of competition, such as lax ratings or sub-optimal quality of
research and analysis.
Ques.: What is the rating process adopted by the Rating Agencies? Ans.: NORMALLY FOLLOWING THE RATING PROCESS ADOPTED BY THE RATING AGENCIES:-
Ques.: What is the rating scale followed by the Rating Agencies? Basel II Rating Scale SME Rating Scale Ans.: RATINGS AWARDED BY MAJOR CREDIT RATING AGENCIES: AAA - : Highest Safety AA - : High Safety A - : Adequate Safety
BBB - : Moderate Safety BB - : Sub -moderate Safety B - : Inadequate Safety
C - : Substantial Risk
D - : Default
Basel II Rating Scale
SME Rating Scale
Ques.: Which are the rating agencies prevailing in India and what are their address?
Ans.: MAIN RATING AGENCIES PREVAILING IN INDIA ARE MENTION BELOW:
SME Ratings Basel II Ratings Corporate Ratings
CRISIL CRISIL CRISIL
ICRA ICRA ICRA
CARE CARE CARE
Fitch Fitch Fitch
SMERA Brickwork Ratings
Brickwork Ratings
ONICRA
DNB
CONTRACT INFORMATION OF MAIN RATING AGENCIES PREVAILING IN INDIA ARE MENTION BELOW:
Credit Rating Information Services of India Limited (CRISIL)
Investment Information and Credit Rating Agency of India (ICRA)
Credit Analysis & Research Limited (CARE)
ONICRA CREDIT RATING AGENCY OF INDIA LIMITED.
Duff & Phelps Credit Rating India Private Ltd. (DCR India)
Head office: 254/B, 2nd Floor, Nirlon House, Dr. A.B. Road, Worli, Mumbai - 400 025, India. Tel : (91 22) 493 94 45 - 9 Fax : (91 22) 493 94 41 E-mail: [email protected]
Head Office: 4th Floor, Kailash Building 26, Kasturba Gandhi Marg New Delhi 110 001, India. E-mail: [email protected]
Head Office: 5th Floor, Mahindra Towers Dr G. M. Bhosale Marg Worli, Mumbai 400 018, India. Tel: (91 22) 492 5242 / 44, 493 2588 / 5627, 497 5574 / 75 Fax: (91 22) 497 3243 E-mail: [email protected] Website: http://www.careratings.com
Corporate Office Vatika City Point, 11th Floor M.G. Road, Gurgaon- 122002 Tel + 91.0124.3076000 Fax + 91.0124.3076033 Email: [email protected]
Head Office: 64, Atlanta Nariman Point Mumbai 400 021, India (91-22) 282-8720 or 281-1814 or 281-7445 (91-22) 281-7447 (fax) E-mail: [email protected]
Ahmedabad Branch: 302/303, 3rd Floor, Paritosh Bldg, Usmanpura, Ahmedabad - 380 013, India. Tel : (91 79) 755 0317 /
Ahmedabad Branch: Sakar -II, Ellisbridge, Ahemedabad- 380006 Tel: (91 792) 658 5049 Fax:(91 792) 658 4924 E-mail: [email protected]
Ahmedabad Office: 85, 8th Floor, World Business House Off. C.G. Road, Near Piramal Garden Ahmedabad - 380 006, India.
VARUN MIRCHANDANI DIRECTOR Tel: +91.0124.3076016 Email: [email protected]
755 1533 Fax : (91 79) 755 2657 E-mail: [email protected]
s.vsnl.net.in Tel: (91 79) 464 794
Bangalore Branch: W-101, Sunrise Chambers, 22, Ulsoor Road, Bangalore - 560 042, India. Tel : (91 80) 558 0899, 558 4801 Fax : (91 80) 559 4802 E-mail: [email protected]
Bangalore Branch: 6 Fl.,Vayudhoot Chambers,Trinity Circle,15-16 M.G.Road, Bangalore-560001, India. Tel: 91-80-5597401/ 4049 Fax: 91-80-5594065 E-mail: [email protected]
BANGALORE Sri Siridi Krupa Complex, 1st Floor Nagappa Street, Shesadripuram Bangalore-560020 Tel + 91. 080.30019727 Email: [email protected]
Calcutta Branch: Satyam Apartment, 142/1A, Sarat Bose Road, Calcutta - 700 029, India. Tel : (91 33) 475 99 33 / 4251, 475 42 65 Fax : (91 33) 475 42 51 E-mail: [email protected]
Calcutta Branch: A-13, 5th Floor, FMC Fortuna, 234/ 3A, A.J.C. Bose Road, Calcutta-700020, India. Tel:(91 33) 287 0450/ 240 6617/ 8839/ 280 0008 Fax:91-33- 2470728 E-mail: [email protected]
Calcutta Office: 404 & 405 'Krishna Bldg' 224, A.J.C. Bose Road Calcutta 700 017, India Tel: (91 33) 240 9561 / 240 9438
KOLKATA Office No. A-148, Ground Floor Near Axis Bank ATM, Lake Gardens Kolkata-700045 Tel + 91.9332321601 Email: [email protected]
Calcutta Office: N 214, North Block, Ideal Plaza 11/1, Sarat Bose Road Calcutta 700 020, India (91-33) 240-7608 or 280-1303 (91-33) 280-6505 (fax) E-mail: [email protected]
Chennai Branch: Chennai Branch: Chennai Office: CHENNAI Chennai Office:
Mezzanine Floor, Thapar House, 43/44 Montieth Road, Egmore, Chennai - 600 008 Tel : (91 44) 8546205/06 8569301/02 , 8546093 Fax : (91 44) 854 75 31 E-mail: [email protected]
5th Floor, Kurumuttu Centre, 498 Anna Salai, Nandanam, Chennai- 600035, India. Tel: (91 44) 433 3293/ 94, 434 0043/ 9659/ 8080, 433 0724, Fax: (91 44) 4343663 E-mail: [email protected]
22, Wellington Plaza 90, Anna Salai Chennai 600 002, India. Tel: (91 44) 853 0284 /855 5876
Office No-2, Raja Rajan St. Visalatchi Nagar Ekkaduthangal Chennai-32 Tel + 91.044.43542421, + 91.044.43542587 Email: [email protected]
F-14, Akshava Plaza 55/56 Aditanar Salai Opp. Egmore Court Chennai 600 002, India (91-44) 859-4602 or 851-2046 (91-44) 859-4607 (fax) E-mail: [email protected]
Hyderabad Branch: 6, Nagarjuna Hills, Punjagutta, Hyderabad - 500 482 Tel : (91 40) 335 81 03/05 Fax : (91 40) 33 57 507 E-mail: [email protected]
Hyderabad Branch: Greendale, 1st Floor, No. 7-1-24/ 2/ D, Ameerpet, Hyderabad- 500016, India. Tel:(91 40) 373 5061 / 7251 Fax:(91 40) 373 5152 E-mail: [email protected]
Hyderabad Office: Mahaveer House 4th Floor, Basheerbaug Hyderabad-500 029 Tel: (91 40) 212 385 / 212 386
VIJAY JOSHI ASSOCIATE DIRECTOR-FINANCE Tel: +91. 0124.3076012 Email:[email protected]
New Delhi Branch: Hindustan Times Bldg 18/20, Kasturba Gandhi Marg New Delhi - 110 001, India. Tel : (91 11) 372 16 03, 332 20980 / 1073 Fax : (91 11) 372 16 05
Chandigarh Branch: SCO 50-51, Second Floor, Sector 9D Chandigarh, India. Tel: (91-172) 743882, 743776 E-mail: [email protected]
New Delhi Office: 504, Indra Prakash Barakhamba Road New Delhi - 110 001, India. Tel: (91 11) 331 8701 / 371 6199
BRANCH OFFICES NOIDA B-10/Sector-59, Noida-201301 Tel + 91.0120.3009700 Fax + 91.0120.3009801 Email: [email protected]
E-mail: [email protected]
Pune Branch: 1187/17, Ghole Road Shivaji Nagar Pune 411 005, India. Tel : (91 20) 329 064 - 7 Fax : (91 20) 329 068 E-mail: [email protected]
Pune Branch: 5A, 5th Floor, Symphony, SNO 210, CTS 3202 Range Hills Road Shivajinagar, Pune-411 007, India. Tel: (91 20) 220194-96 Fax: (91 20) 329231
Mumbai Branch: 3rd Floor, Electric Mansion, Appasaheb Marathe Marg Prabhadevi, Mumbai - 400 025 Tel: (91 22) 433 1046/ 1053/ 1062/ 1074/ 1086/ 1087 Fax: (91 22) 433 1390 E-mail: [email protected]
MUMBAI Mangalaya Centre, Office No.101-A, Marol Maroshi Road, Marol Naka, Andheri East Mumbai - 400059 Tel + 91. 022.30974530 Email: [email protected]
Ques.: Is Rajput Consultancy Services Pvt. Ltd a rating agency approved by RBI/SEBI?
Ans.: We are rating consultant and not a rating agency. Rating will be given only by RBI / SEBI approved rating agencies but we will be your consultant to help you in getting a better rating, which will help you to avail all the benefits of a good
rating.
