What is Credit Rating Agency - CRISIL

7/31/2019 What is Credit Rating Agency - CRISIL

1/40

6/13/2012Free PowerPoint Template from

www.brainybetty.com1


2/40

CREDIT RATING AGENCY

o A credit rating assesses the credit worthiness of an

individual, corporation, or even a country.

o A credit rating tells the probabilityof the subjectbeing able to pay back a loan.

o A poor credit rating indicates a high risk of defaultingon a loan, and thus leads to high interest rates.


3/40

IMPORTANCE OF CREDIT RATING

o An investor uses rating to asses risk

o For common investor

o For corporate issuero More over every investor dont possess the requisite

skills of credit evaluation


4/40

WHAT DO CRA RATE?

o Debenture

o State

o Bank

o Equities

o Sovereign funds, etc.


5/40

DEFINITION OF CREDIT RATINGS


6/40

LIST OF COUNTRIES BY CREDIT RATING BY S&P

Country Rating Outlook

Australia AAA Stable

Brazil BBB Stable

China AA Stable

Germany AAA Stable

Greece CC Negative

India BBB- Stable

Japan AA- Negative

Russia BBB Stable

South Africa BBB+ Stable

United Kingdom AAA Stable

United States AA+ Negative


7/40

6/13/2012 Free PowerPoint Template fromwww.brainybetty.com

7


8/40

CRISILoCRISIL was set up by financial institution on January 19,1988.

oassessment of all the major state governments and more than 100 urban

local bodies in the country.

o ThFirst and the largest credit rating agency in India

o 4th Largest Rating Agency in the World

o Affiliation with Standard & Poors (USA)

o The first to rate a state governmentin India Gujarat

o The first municipal bond rating in Asia Ahmedabad

Credit is also includes:

o 5 municipal corporations

o

2 Water and Sewerage Service providers


9/40


10/40

CRISILS RATING SCALE

Rating Symbol Definition

AAA Highest Safety

AA High Safety

A Adequate Safety

BBB Moderate Safety

BB Inadequate Safety

B High Risk

C Substantial Risk

D Default

Investment Grades

Speculative Grades


11/40

METHODOLOGY FOR RATING CREDIT

o BUSINESS RISK

o FINANCIAL RISK

o MANAGEMENT EVALUATION

o BUSINESS ENVIROMENT ANALYSIS


12/40

CRISIL OFFERINGS

Bonds/ LT instruments

CPs/ ST instruments

Structured Finance

Bank Loan Ratings


13/40

CRISIL OFFERINGS

o SME Ratings

o Real Estate Ratings

National Developer rating Real Estate star rating

o Business School Gradings


14/40

REAL ESTATE RATING LIST

Company Name Industry Name Rating

ABAD Builders Real Estate Development DA3+

Skyline Builders Real Estate Development DA2

Prestige Estates ProjectsLimited

Real Estate Development DA2+

Sobha Developers Ltd. Real Estate Development DA3


15/40

SME RATING LIST

Sr. No Name CityRating

AssignedDate

Assigned* Constitution

1A A Autotech

Private LimitedGurgaon SME 1 17-Jun-11 Private Limited

2 A K Engineers Kolkata SME 4 12-May-11 Proprietorship

3 Balaji Construction Ajmer SME 3 26-Aug-11 Others

4 Dharav Enterprise Mumbai SME 5 26-Aug-11 Others

5 Bajaj Electronics Hyderabad SME 2 27-Dec-10 Proprietorship


16/40

BOND / LONG TERM RATINGS

Company Name Instrument Category Rating Assigned

A B Chem (India) Letter of Credit Limit CRISIL A4+

I Blue Minerals Private Limited Term Loan Facilities CRISIL D

D D International Private Limited Cash Credit Limit CRISIL B+

IAC Electricals Pvt Ltd Cash Credit Limit CRISIL BBB-

Natraj Proteins Ltd Working Capital DemandLoan

CRISIL BB+


17/40

PROGRESS

o Its inception till march 2,2005,crisil has so farcompleted rating of issues 824 companies consistingof various types of debt instruments of companiesboth in public & the private sectors.

o Credit rating analysis is relatively a new developmentin India. It is expected that establishment of crisil will

provide a strong impetus to the systematic riskevaluation of specified corporate instruments as wellas the companies issuing them.


18/40

ICRA

Originally incorporated as

Investment Information and Credit Rating

Agency of India Limited


19/40

THE ICRA FACTOR

o Facilitating Efficiency in Business

o

The Research Factor

o Committed to the development of Capital Market


20/40

OUR PRODUCTS AND SERVICES ARE DESIGNED

TO

o Providing information and guidance

o Enhance the ability of borrowers/issuers to access

the money market and the capital market

o Assist the regulators in promoting transparency inthe financial markets; and

o Provide intermediaries with a tool to improveefficiency in the funds raising process.


21/40

RANGE OF SERVICESo Rating Service

Rates Rupee denominated debt instruments

Corporate Governance Rating

Stakeholder Value and Governance Rating

Credit Risk Rating of Debt Mutual Funds

Rating of Claims Paying Ability of Insurance Companies

Project Finance Rating, and Line of Credit Rating

ICRA Indonesia (ICRAIndo)

Rupiah-denominated debt instruments

ICRA Lanka Limited (ICRALanka)


22/40

o Grading Service Initial Public Offers (IPOs)

Microfinance Institutions (MFIs)

Construction Entities

Real Estate Developers and Projects

Healthcare Entities &

Maritime Training Institutes

o Consulting ServiceICRA Management Consulting Services Limited (IMaCS)

Strategy & Risk Management

Regulation & Reform

Transaction Advisory

Development Consulting &

Process Re-engineering.


23/40

LIMITATIONS OF ICRA RATING

o ICRA ratings convey only the relative credit risk.

o Are only an opinion on the relative ranking of credit risk.

o ICRA categories group debt obligations with similar but not

necessarily identical credit risks

o ICRA ratings are not always constant and are subject to change.

o For assigning ratings, ICRA relies on information made available

to it by the issuer company

o ICRA ratings are not to be construed as recommendation to buy,

sell, or deal in the rated instruments


24/40

RATING SCALEo IrAAA --- Lowest Credit Risk

o IrAA --- Low Credit Risk

o IrA --- Average Credit Risk

o IrBBB --- Higher Than Average Credit Risk

o

IrBB --- High Credit Risk

o IrB --- Very High Credit Risk

o IrC --- Extremely High Credit Risk


25/40

METHODOLOGY

FOR

CREDIT RATING


26/40

CORPORATE CREDIT RATING

BUSINESS RISK

Industry Risk

Competitive Position

Management Quality

New project Risk

FINANCIAL RISK

Financial Position

Profitability Capital Structure

Financial Flexibility

Future Cash Flow

Adequacy


27/40

BANK CREDIT RATING

BUSINESS RISK

Operating and

Regulatory Environment

Ownership Structure and

Govt. Support

Governance Structure

Franchise

Management, Risk

positioning, Systems and

Strategy

FINANCIAL RISK

Asset Quality

Diversity of funding

and Liquidity

Profitability

Capital Adequacy


28/40


28


29/40


29


30/40


30


31/40

GLOBAL IMPACT

o US subprime crisis

o downgrading Us

o Euro crisis


32/40

US SUBPRIME CRISIS

o Overview

o Rating Mistakes

AAA rating to MBS & CDO

Conflict of Interests

Over optimism about housing market

Little knowledge of the individual borrower


33/40

ACTIONS DURING CRISIS

o S & P downgraded 902 MBS & CDO

o Moodys Downgraded 83% of MSB & CDOs originally

rated AAA


34/40

US SUBPRIME CRISIS

o The Financial Crisis Inquiry Commission reported in

January 2011 that: "The three credit rating agencies

were key enablers of the financial meltdown. The

mortgage-related securities at the heart of the crisiscould not have been marketed and sold without their

seal of approval


35/40

US DOWNGRADING

o US downgraded from AAA to AA+

o Debt

o Increased debt ceiling by $ 2.1 trillion

o Political fight


36/40

EURO CRISIS

o Downgraded Greece, Spain, Ireland,

o Criticized for late reaction

o accelerated Euro problem


37/40

CRA-CRITICISM

o LACK OF TRANSPERENCY IN RATING PROCESS

o FLAWS IN RATING PROCESS

Doubtful assessment of financial documents andothers as such

Ratingassigned within two weeks on urgency ofcompanys request

Incompetent rating staff


38/40

o FAMILIAR RELATION WITH COMPANY

MANAGEMENT

o ENGAGES BLACKMAIL TACTICS

o CRAS DO NOT DOWNGRADE COMPANIES

PROMPTLY ENOUGH

o ISSUERS PAY BUSSINESS MODEL


39/40

EU - REGULATION ON CRA

o European Securities And Markets Authority(ESMA) Amendments

Yearly publication of transparency report

Rating analyst should not have ownership interest in entity

Investigatory powers demand any document or data , conduct

onsite inspections , imposing fines and penalties

Lead analyst should not be involved in rating for more than 4

years

Ratings from two different CRA for structured finance products


40/40

TRUST-WOZRTHINESS

o Impact on the markets

o Many blame agencies for triggering financial crisis

o Country or company may pay CRA to rank it

o Downgrades put further strain on government

What is Credit Rating Agency - CRISIL

Documents

Transcript of What is Credit Rating Agency - CRISIL