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8/6/2019 Presentation CR

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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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15/22

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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20/22


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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

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