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The initial rating exercise was started by Henry Poor who published financial statistics of
Railroad companies in 1860. In addition to his publishing business, John Moody
(Moody’s Investors Services) started publishing ratings for railroad bonds from the
year1909.
The rating activity got a boost post Great Depression of 1933 when US Government
Controller of Currency directed the banks in USA to purchase bonds rated BBB/Baa and
above and the rest came to be known as ‘junk’ bonds. At present in US markets all
commercial bonds are invariably rated.
Benefits of rating:
1
• Strong indicator of company’s financial capacity,
• Periodical evaluation of company’s financial capacity by rating agency helps the
investor to exit the investment, in case rating is downgraded subsequently.
CRISIL was established on 1st Jan 1988, promoted by ICICI and UTI jointly, with initial
equity capital of Rs.4 crs.
Each one of these promoters holds 18% of the capital. Other contributions to the capital
are as follows:
1. Asian Development bank 15%
2. LIC, GIC & SBI 5% each
3. HDFC 6.2%
4. Banks (Indian) 19.25%
5. Banks (Foreign) Balance
Debentures:
“AAA”: Highest safety of timely payment of interest and principal.
“AA”: Offer high safety of interest and principal. Differ in safety from AAA
only marginally.
“A”: Adequate safety; however changes in circumstances can affect adversely
more than those in higher rated
2
categories.
“BBB”: Sufficient safety, however change in circumstances likely to lead a
weakened capacity.
“BB”: Inadequate safety but less susceptible to default than other speculative
grade debentures.
“B”: Greater susceptibility to default.
“C”: Vulnerable to default.
“D”: In default and in arrears of interest or principal or expected to default on
maturity.
Additionally CRISIL also uses (+) or (-) signs to denote higher or lower safety
within the grade (AA+, AA- etc.).
Rating Scales:
Long Term (Debentures, Bonds, Pref. Shares):
L AAA Highest safety.
L AA+ }
L AAA } High safety
L AA- }
LA+ }
LA } Adequate safety
LA- }
L BBB+ }
L BBB } Moderate safety
L BBB- }
L BB+ }
L BB } Inadequate safety
L BB- }
L B+ }
LB } Risk Prone
L B- }
3
L C+ }
LC } Substantial Risk
L C- }
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