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CREDIT RATING AGENCIES
Ø CREDIT RATING
AGENCY
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IS A COMPANY THAT RATES DEBTORS ON THE BASIS OF
THEIR ABILITY TO PAY BACK THEIR INTEREST AND LOAN AMOUNT ON TIME AND THE
PROBABILITY OF THEM DEFAULTING.
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MAY ANALYSE THE CREDIT WORTHINESS OF DEBT
ISSUERS AND PROVIDE RATINGS TO ONLY ORGANIZATIONS AND NOT INDIVIDUAL CONSUMERS.
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THE ASSESSED ENTITIES MAY BE COMPANIES,STATE
GOVTS,LOCAL GOVERNMENT,NON PROFIT ORGANIZATION EVEN COUNTRIES ALSO.
Ø CREDIT RATING AGENCIES IN INDIA
- CRISIL( CREDIT RATING INFORMATION SERVICES LIMITED)
- IICRA(INVESTMENT INFORMATION AND CREDIT RATING AGENCY OF INDIA
- CARE( CREDIT ANALYSIS AND RESEARCH)
- SMERA(SMALL AND MEDIUM ENTERPRISE RATING AGENCY)
- FITCH INDIA( INDIA RATING AND RESEARCH)
6. BRICKWORK
RATING
Ø
REGISTRATION
OF CRA
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AS PER SECTION 12 OF THE SEBI ACT 1992 A PERSON
HAS TO GET REGISTERED WITH SEBI UNDER SEBI( CREDIT RATING AGENCIES) 1999 REGULATIONS TO CARRY ON THE ACTIVITIES ON CREDIT RATING.
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HAS TO
FOLLOW THE CODE OF CONDUCT IN THIRD SCHEDULE
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SEBI ( CREDIT RATING AGENCIES REGULATIONS 1999
COVERS RATING OF SECURITIES ONLY AND NOT
RATING OF FIXED DEPOSITS,FOREIGN
EXCHANGE.COUNTRY RATING AND REAL ESTATE
Ø
PROMOTERS OF A CRA
- PUBLIC FINANCIAL INSTITUTION
- SCHEDULED COMMERCIAL BANK
- A FOREIGN BANK
- A FOREIGN CREDIT RATING AGENCY( MINIMUM FIVE YEARS EXPERIENCE)
- A BODY CORPORATE HAVING NET WORTH 100 CRORES IN EACH OF THE IMMEDIATELY PRECEDING 5 YEARS
Ø GENERAL
OBLIGATIONS
1. EVERY CREDIT
RATING AGENCY HAS TO ENTER INTO WRITTEN AGREEMENT WITH THE CLIENT AND ALL TERMS
AND CONDITIONS SHOULD BE SPECIFIED IN THE AGREEMENT
2. CONTINUOUSLY
MONITOR THE RATING
3. CHANGES
SHOULD BE NOTIFIED THROUGH PRESS RELEASES AND WEBSITES
4. EVERY CREDIT
RATING SHOULD FRAME APPROPRIATE PROCEDURES AND SYSTEMS FOR MONITORING THE
TRADING SECURITIES BY ITS EMPLOYEES IN THE SECURITIES OF ITS CLIENTS IN ORDER
TO PREVENT CONTRAVENES( SEBI INSIDER TRADING REGULATIONS 1992)
5. SHOULD GIVE
THE DEFINITIONS OF ITS SYMBOLS AND SHOULD STATE THAT THE RATING DOES NOT
CONSTITUTE RECOMMENDATION TO BUY OR HOLD OR SELL ANY SECURITIES
6. EVERY CREDIT
RATING AGENCY SHOULD ABIDE BY THE CODE OF CONDUCT
7. SHOULD NOT
RATE A SECURITY ISSUED BY ITS PROMOTER
8. INFORMATION
SUPPLIED BY THE CLIENT SHOULD BE KEPT CONFIDENTIAL
9. EVERY CREDIT
RATING AGENCY SHOULD SUPPLY ANY INFORMATION/REPORT DEMANDED BY THE BOARD
10. SHOULD COMPLY
ALL THE RULES AND REGULATIONS SPECIFIED BY SEBI TIME TO TIME’
11. KEEP AND
MAINTAIN THE BOOKS AND ACCOUNT AND DOCUMENTS RELATING TO CREDIT RATING FOR
MINIMUM FIVE YEARS.
12. IN CASE OF
FAILURE OR CONTRAVENTION OF CONDITIONS SUBJECT TO WHICH CERTIFICATE HAS BEEN
GRANTED OR CONTRAVENTIONS OF THE PROVISIONS IS LIABLE TO EITHER OF THE PENALTIES–
SUSPENSION OR CANCELLATION OF REGISTRATION
Ø CREDIT RATING
INFORMATION SERVICES LIMITED ( CRISIL)
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FIRST CREDIT RATING AGENCY FLOATED ON 1 ST
JANUARY 1988
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STARTED JOINTLY BY ICICI AND UTI WITH AN EQUITY CAPITAL OF RS 4 CRORE
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EACH OF THEM HOLD 18%
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THE OTHER PROMOTERS ARE:ASIAN DEVELOPMENT BANK
OF INDIA,LIC AND GIC,HOUSING FINANCE DEVELOPMENT CORPORATION AND NINE PUBLIC
SECTOR BANK AND PRIVATE AND FOREIGN SECTOR BANK.
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EXPANDED ITS BUSINESS IN USA,UK,HONGKONG,CHINA
ETC AND NOW THE MAJORITY SHAREHOLDER OF CRISIL IS STANDARD AND POOR’S
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MAIN OBJECTIVE OF CRISIL IS TO RATE THE DEBT
OBLIGATIONS OF INDIAN COMPANIES.
Ø OBJECTIVES OF
CRISIL
1. TO ASSIST
BOTH INDIVIDUAL AND INSTITUTIONAL INVESTORS IN MAKING INVESTMENT DECISIONS IN
FIXED INCOME SECURITIES
2. TO ENABLE CORPORATE
TO RAISE FUNDS AT FAIR COST
3. HELP TO
INTERMEDIARIES IN PACING THE DEBT INSTRUMENTS
Ø RATING
METHODOLOGY
1. RATING AT THE REQUEST OF THE COMPANY
2. FIRST
ANALYSIS RELATES TO PAST PERFORMANCE OF THE COMPANY
3. ASSESSMENT OF
THE FUTURE PROSPECT
4. ANALYSIS OF
THE INDUSTRY
5. ANALYSIS OF COMPANY
AND RELATED
6. EVALUATION OF
THE MGMT WITH REFERENCE TO TRACK RECORD,RECRUITMENT AND TRAINING SYSTEM,PLANNING,CONTROL SYSTEM AND PHILOSOPHY ETC
7. OWN
ASSESSMENT OF CASH
8. IDENTIFICATION OF THE KEY ISSUE CONCERNING THE COMPANY
Ø
MECHANISM OF RATING BY CRISIL
- EMPLOYS BOTH QUALITATIVE AND QUANTITATIVE CRITERIA
- EMPLOYS A MULTI LAYERED DECISION MAKING PROCESS IN ASSIGNING RATINGS
- TWO TEAMS ARE ASSIGNED ON GETTING RATING REQUEST FROM CLIENT
- FIRST TEAM MEETS THE OFFICIALS OF THE COMPANY AND MAKE AN ASSESSMENT OF
THE INDUSTRY
- SECOND TEAM STUDIES THE INDUSTRY ON THEIR OWN
- BOTH THE TEAM DISCUSS AND SUBMIT THEIR REPORT TO BRANCH INTERNAL
COMMITTEE( MINIMUM THREE SENIOR ANALYSTS OF CRISIL AND SIX SENIOR
EXECUTIVES)
- RATING ARE RECOMMENDED TO RATING COMMITTEE( SIX DIRECTORS)
Ø DEBENTURE
RATING SYMBOLS BY CRISIL
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HIGH INVESTMENT GRADES
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TRIPLE (AAA)----HIGHEST SAFETY
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AA—HIGH SAFETY
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INVESTMENT GRADE
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A ---ADEQUATE SAFETY
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BBB---MODERATE SAFETY
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SPECUALITVE GRADES-----
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BB---INADEQUATE SAFETY
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B----HIGH RISK
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C----SUBSTANTIAL RISK
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D---DEFAULT
Ø
INVESTMENT INFORMATION AND CREDIT RATING AGENCY OF INDIA(ICRA)
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SET UP BY INDUSTRIAL FINANCE CORPORATION OF
INDIA ON 16 JAN,1991
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PUBLIC LIMITED COMPANY WITH AN AUTHORIZED CAPITAL OF 101 CRORE
Ø RATING SCALE
OF LONG TERM INCLUDING DEBENTURES,BONDS AND PREFERENCE SHARES
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LAAA---HIGHEST SAFETY
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LAA------HIGH SAFETY
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LA----ADEQUATE SAFETY
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LBBB---MODERATE SAFETY
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LBB----INADEQUATE SAFETY
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LB RISK
PRONE, LC---- SUBSTANTIAL RISK
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LD DEFAULT
Ø
CARE ( CREDIT ANALYSIS AND RESEARCH LIMITED)
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SET UP IN 1993
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SERVICES
OFFERED :_
1. CREDIT RATING
2. INFORMATION
SERVICE
3. EQUITY RESEARCH
4. RATING OF PARALLELED MARKET OF KEROSENE AND LPG
RATES
DEBENTURES,CERTIFICATE OF DEPOSIT,COMMERCIAL PAPER AND FIXED DEPOSITS
Ø CARE RATING
SYMBOLS
Ø LONG TERM
DEBT INSTRUMENTS
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CARE AAA)----HIGHEST SAFETY
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CARE AA—HIGH SAFETY
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CARE A ---ADEQUATE SAFETY
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CARE
BB---INADEQUATE SAFETY
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CARE B----HIGH RISK
Ø MEDIUM TERM
DEBT INSTRUMENTS
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CARE AAA---HIGHEST SAFETY
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CARE AA—HIGH SAFETY
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CARE A ---ADEQUATE SAFETY
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CARE
B---INADEQUATE SAFETY
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