BILASPUR UNIVERSITY , BILASPUR (C.G.

PRESENTATION OF FINANCIAL SERVICES

PRESENTED BY : GUIDED BY :
VINITA SAHU DR. POOJA PANDEY
SAMIKSHA SAHU
NIHAL GOLE
ANNAPURNA CHANDRA
SURAJ KUMAR
ANJU MAHANT
 Content

• Content , Need and Objectives – Vinita Sahu

• Types of Credit Rating – Samiksha Sahu

•Methodologies for Credit Rating – Nihal Gole

•SEBI Guidelines for Rating – Annapurna Chandra

•Advantages & Disadvantages of credit rating – Suraj Kumar

•Credit Rating Agencies in India – Anju Mahant

 CONCEPT :

MEANING :

A credit rating evaluates the credit worthiness of a debtor ,

especially a business (company) or a government . It is a
evaluation made by a credit rating agency of the debtor ‘s
ability to pay back the debt and the likelihood of defaults .
 DEFINITIONS :
Ratings are designed exclusively for the purpose of grading
bonds according to their investment qualities .

- Moody’s

Credit rating is an unbiased and independent opinion as to

issuer’s capacity to meet its financial obligations . It does not
constitute a recommendation to buy/sell or hold a particular
security .

- CRISIL
 NEED FOR CREDIT RATING

1.) Maintenance of investor’s confidence , since default

shatter the confidence of investors in corporate instruments .

2.) Protect the interest of investors who can not into merits of
the debt instruments of a company .

3.) Motivate savers to invest in industry and trade .

 Objectives :

1.) improves a healthy discipline on borrowers .

2.) Lends greater credence (faith) to financial and other
representations .
3.) Helps merchant bankers , brokers , regulatory authorities
etc. in discharging their functions related to debt issues .
4.) May reduce interest costs for highly rated companies .
5.) Act as marketing tools .
6.) Facilitates formulation of public guidelines on institutional
investments .
 Types of credit rating
Different kinds of credit rating are listed below

Bond debentures rating- Ratings the debentures / bonds issue by

corporate government etc. is called debentures or bond rating .
equity ratings –rating of equity shares issued by a company is called
equity rating . Preference share rating- rating of preference share
issued by a company is called preference share rating . Commercial
paper ratings - issued by commercial are those instruments used for
short term borrowings . Commercial paper Manufacturing companies
Finance companies Bank and financial institution

- Finance companies
- Bank and financial institution
 Fixed deposit rating : fixed deposit programmes are
medium term unsecured borrowings . Rating of such
programme is called as fixed deposit rating .
 Borrower ratings : rating of borrowers is referred as
borrower rating .

 Individuals rating : rating of individual is called as

individual credit rating .

 Structured obligation :structured obligation is also debt

obligation different to debenture or bond or fixed deposit
programmes and commercial paper.
 Sovereign rating : it is a rating of a country which is being
considered whenever a loan is to be extended or some
major investment is envisaged in a country
Credit Rating Methodology

There are two method of credit rating

areas follows:-

1. Business risk
2. Financial risk
 Business risk
The business risk that an issuer is
exposed to is a combination of the
industry risk in its major product
segments and its competitive
position within the industry
1. industry risk
The objective here is to understand the attractiveness of
the industry in which the issuer operates. The aspects
examined include:

I. Existing and expected demand-supply situation

II. Intensity of competition
III. Vulnerability to imports Regulatory risks
IV. Outlook for user industries
V. Working capital intensity
VI. Overall prospects and outlook for the industry
2. issuer’s competitive
position
An assessment of the issuer’s competitive position
within an industry is made on the basis of its
operating efficiency as well as its market position.
Some of the factors assessed are:

I. Scale of operations
II. Vintage of technology used
III. Capital cost position
IV. Operating efficiencies (yields, rejection
rates, energy consumption, etc.)
2. Financial risk
The objective here is to determine
the issuer’s current financial
position and its financial risk
profile.
Some of the aspects
analyzed in detail in this
context are:
1. Operating profitability
2. Gearing
3. Debt service coverage ratios
4. Working capital intensity
5. Cash flow analysis
6. Foreign currency related risks
7. Accounting quality
3. Strength of promoters
& management quality
All debt ratings necessarily incorporate an
assessment of the quality of the issuer’s
management, as well as the
strengths/weaknesses arising from the
issuer’s being a part of its “group”. Usually, a
detailed discussion is held with the
management of the issuer to understand its
business objectives, plans and strategies, and
views on past performance, besides the
outlook on the issuer’s industry.
Some of the other points
assessed are:
1. Experience of the promoter/management in
the line of business concerned
2. Commitment of the promoter/management
to the line of business concerned
3. Attitude of the promoter/management to
risk taking and containment
4. The issuer’s policies on leveraging, interest
risks and currency risks
5. The issuer’s plans on new projects,
acquisitions, expansion, etc.
 6. Strength of the other companies
belonging to the same group as the
issuer.
7. The ability and willingness of the
group to support the issuer through
measures such.
8. as capital infusion, if required.
9. The possible need to support other
group entities, in case the issuer is
among the.
10. stronger entities within the group.
SEBI GUIDELINES FOR RATING

1. The credit rating agencies cannot rate a

security issued by its promoters.
2. If the debt issues is more than Rs.100
crores, dual rating must compulsorily
involve.
3. The company should provide correct
information to the rating agencies.
4. The net worth of rating agencies
has been fixed at Rs.5crore.
5. The rating agencies can choose
their own methodology of
operation.
6. No chairman, director or
employee of the promoters shall be
a directors, chairman or employee.
ADVANTAGES AND DISADVANTAGES
OF CREDIT RATING
ADVANTAGES-
1) The main advantage of credit rating is being
rewarded for managing your budget and finances
responsibly.
2) Credit rating qualifies you for the best credit cards
offers, including low rates and cards that give you gifts.
3) Credit rating makes the borrower eligible for a good
loans at low interest rates.
4) A qualified customer can also take advantage of the
latest credit cards offers that carry discount, gifts,
certificates and other rewards.
DISADVANTAGES -

1)- Their my be problem for new companies to

collect fund 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 rating. This will make it difficult to
collect fund from the market.
2)- There are so many credit rating agency having
different rating grades on same instrument, so it
can make confusion in the mind of investors.
3)- The credit rating agencies do not have uniform
fee structure or changing rates and as a result,
they creates confusion among investors.
CREDIT RATING AGENCIES IN INDIA
Currently , there are five credit rating agencies in
India:
1. Credit rating information service ltd . ( CRISIL) :
credit rating information service limited (CRISIL) the first
credit agencies was floated on January 1, 1988 it was started
jointly by ICICI and UTI with an equity capital of 4 crore. each
of them holds 18% of the capital .the other promoters are Asian
capital development bank (15%) the LIC and general insurance
corporation and its subsidiaries and the SEBI (5%) each the
housing finance development corporation (6.2%) nine public
sector and private sector Banks (19.25%) and 10 foreign banks
(7.55%) .

2. INVESTMENT INFORMATION AND CREDIT

RATING AGENCY OF INDIA ( ICRA): the ICRA was set
up by industrial finance corporation of India on 16TH January ,
1991. it is a public limited company with an authorized share
capital of 101 crore.The initial paid up capital of 3.50 crore is
subscribed by IFC, UTI, LIC , GIC SBI and 17 other banks .
IICRA started its operations from 15th march , 1991 .
 3. CREDIT ANALYSIS AND RESEARCH (CARE) : The
CARE was promoted in 1993 jointly with investment companies ,
banks and finance companies . Services offered by CARE are: (I)
credit rating (II) information service, (III) equity research and (IV)
rating of parallel market of LPG and kerosene. Since its inception till
the end of December 2007 , CARE has related 3850 debt
instruments coverings a total debt volume of 80, 716 crore .

 4. DUFF PHELPS CREDIT RATING PVT. Ltd.

(DCR India ) : The Duffs and Phelps is a leading
international credit rating agency . The J.M financial and
alliance group in joint venture with Duffs and Phelps has
now set - up DCR in India . Its main objectives is to give
credit rating to debt instruments .
5. ONIDA INDIVIDUAL CREDIT RATING
AGENCY Ltd. (ONICRA): almost all credit rating
agencies established in India undertake credit
analysis work of corporate bodies only . Unlike
these agencies the ONICRA ltd has taken up the
individual borrowers . It has been sponsored by the
ONIDA finance Ltd .
THANK YOU