Post on 07-Apr-2018
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Credit Rating
Prepared & Presented By
Ankita Bhatta
Nishi Dhan
Shilpika Minz
Raja Babu
Sangeeta Tirkey
Silky Sahay
Harpreet Kaur
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Ankita Bhatta
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Introduction
The need for anindependent rating
agency capable of
assessing
creditworthiness of borrowers was felt when
corporate started
mobilizing resourcesdirectly from savers
instead of accessing it
through banks which
assumed the credit risk
Role and Rationale
Functions and
Approaches
Related products and
activities.Non-rating related
activities
The rating process
Analytical framework
Limitations of credit
ratings.
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Major Agencies
There are three major
credit rating
agencies operating
internationally-
1. Fitch,
2. Standard and
Poors,3. Moodys Investor
Services
Name Year Promoter
CRISIL 1988
ICICI, HDFC,
UTI, SBI, LIC ,
ADB,
( S&P)
ICRA 1991 IFCI, (Moody)
CARE 1993 IDBI
FitchIndia
1996 (Fitch)
Brickwo
rks
2008 (Brickworks)
Credit Rating Agencies
In India
CRAs are governed by Securities and Exchange Board of
IndiaCredit Ratin A encies Re ulations 1999.
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CRISILAND ICRA
CREDIT RATINGINFORMATIONSERVICES OF INDIA
SET UP IN 1998
PROVIDER OF RATINGAND ADVISORYSERVICES
TIE UP WITHSTANDARD AND POOR
S USA
INVESTMENTINFORMATION AND
CREDIT RATING
AGENCY OF INDIALTD
OBJECTIVE
ICRA LAUNCED TWOSERVICES:
CREDITASSESSMENT
GENERAL
ASSESSMENT
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CARE, FITCH AND
BRICKWORK
CREDIT
ANALYSISAND
RESEARCH
LIMITED
SET UP IN
NOV1993
MAIN
SERVICES
BRICKWO
RK IS THE
FIFTHRATING
AGENCY
COMMENCE
D ITACTIVITIES
FROM SEP
24,2008
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SEBI Regulations
1. Code ofConductstipulated by SEBI
2. Agreement with the
client3. Monitoring of ratings
4. Procedure for reviewof rating
5. Internal procedures tobe framed by the CRA
6. Disclosure of Ratingdefinitions andRationale by the CRA
7. Submission ofinformation to theBoard
8.C
ompliance withcirculars etc., issuedby the Board
9. Appointment ofCompliance Officer
10. Maintenance of Booksof Accounts records,etc.
11. Confidentiality
12. Rating process
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Harpreet
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Role &
Rationale
Table 1: Capital-saving potential
by banks on a loan of Rs.1000
Million
1. Its an opinion (relative
credit risk)
2. Instrument is rated (not
company)
3. Role of gatekeeper4. Importance for the stake
holders
Investors
Issuers
Banks/ Bank loanrating
Regulators
banking regulators
capital market
regulators
Ratin
gs
Basel 1 Basel 2
RiskCapit
al
Capital
requir
ed
Riskcapit
al
Capital
requir
ed
Capital
Save
d
AAA 100% 90 20% 18 72
AA 100% 90 30% 27 63
A 100% 90 50% 45 45
BBB 100% 90 100
%
90 0
BB 100% 90 150
%
135 (45)
Unrat
ed
100% 90 100
%
90 0
Capital required is computed as Loan
Amount x Risk Weight x 9%
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Shilpika Minz
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Function & Approaches
Rating related productsand activities
Financial products
1. Bonds/ debentures- [the
main product]2. Commercial paper
3. Structured financeproducts
4. Bank loans
5. Fixed deposits andbank certificate ofdeposits
6. Mutual fund debtschemes
7. Initial Public OffersIPOs
Non-rating relatedactivities
1. Economy and Company
Research
2. Risk consulting:
3. Funds research:
4. Advisory services:
5. Knowledge ProcessOutsourcing:
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Silky
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Rating Process
Drawing on the
knowledge and
expertise of the
participants, the ratingcommittee determines
the rating ,
On finalization of a
rating at the rating
committee meeting,
the rating decision is
communicated to the
issuer .
Rating request from
the issuer, and the
signing of a rating
agreement ,The rating agency
undertakes
discussion with the
management of theissuing entity ,
After discussion with
the issuer's
management, a report
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Nishi
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Analytical
framework
TTC methodology has
two aspects: a focus on
the permanentcomponent of default risk
and rating change policy.
This methodologydisregards short term
fluctuations in default
risk.
In contrast, PIT approach
ensures change in credit
rating immediately as the
Risks
Business risk,
Technology risk,
Operational risk,
Industry risk,Market risk,
Financial risk
Management risk.
Methodology
1. Through The Cycle(TTC)
2. Point In Time (PIT)
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Analytical framework
Industry
Risk
Market
Position
Operating
Efficiency
Business Risk
Management
Risk
Financial Risk
Final credit
quality
Parent support
Projec
t Risk
Stand-alone
credit risk
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Sangeeta
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Market Share
& Symbols
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Current
Issues IPO Rating IssueDate
Issue
Price
Curre
ntPrice
Relian
ce
Power
Grade
4
(Crisil)
Febru
ary 18,
2008
Rs.43
0
Rs.114
.9
Orient
Green
Power
Co.Ltd
Grade
4
(
Crisil)
Octob
er 8,
2010
Rs.46
.55
Rs.16.
8
Jaype
e
Infrate
h Ltd
Grade
3
( both
ICRA
and
May
21,
2010
Rs.10
2
Rs.51.
75