Monday, December 17, 2018

MEANING,FEATURES,FUNCTIONS AND BENEFITS OF CREDIT RATING


   
           CREDIT RATING : MEANING,FUNCTION AND BENEFIT OF CREDIT RATING
FINANCIAL SERVICES

           MEANING AND DEFINITION OF CREDIT RATING
           CREDIT RATING IS AN ANALYSIS OF THE CREDIT RISK ASSOCIATED WITH A FINANCIAL INSTRUMENT OR A FINANCIAL ENTITY. IT IS RATING GIVEN TO PARTICULAR ENTITY BASED ON THE CREDENTIALS AND EXTENT TO WHICH THE FINANCIAL STATEMENTS OF THE ENTITY ARE SOUND IN TERMS OF BORROWING AND LENDING THAT HAS BEEN DONE IN THE PAST.
           IS SIMPLY OPINION ON THE FUTURE ABILITY AND LEGAL OBLIGATION OF AN ISSUER TO MAKE TIMELY PAYMENTS OF PRINCIPAL AND INTEREST ON SPECIFIC FIXED INCOME SECURITY,
           DEFINITION
           CRISIL 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 R SELL OR HOLD A PARTICULAR SECURITY.
           ICRA RATINGS ARE OPINIONS ON THE RELATIVE CAPABILITY OF TIMELY SERVICING OF CORPORATE DEBT AND OBLIGATIONS. THESE ARE NOT RECOMMENDATIONS TO BUY AND SELL NEITHER  THE ACCURACY NOR THE COMPLETENESS OF INFORMATION IS GUARANTEED.
           FEATURES
I.            IS AN ASSESSMENT OF THE CAPACITY OF AN ISSUER OF DEBT SECURITY BY AN  INDEPENDENT AGENCY
II.            RATINGS ARE EXPRESSED IN THE CODE WHICH CAN BE EASILY UNDERSTOOD BY  LAY THE INVESTOR
III.            IN INDIA IT IS DONE FOR SPECIFIC DEBT SECURITY AND NOT FOR THE COMPANY AS WHOLE
IV.            IT IS NOT ONE TIME EVALUATION OF CREDIT RISK. NOT VALID FOR ENTRE LIFE OF THE SECURITY
V.            NO FIDUCIARY RELATIONSHIP BETWEEN THE RATING AGENCY AND USERS
           IMPORTANT CREDIT RATING AGENCIES IN INDIA
I.            CREDIT ANALYSIS AND RESEARCH LIMITED(CARE)
II.            INVESTMENT INFORMATION AND CREDIT RATING AGENCY OF INDIA LIMITED(ICRA)
III.            CREDIT RATING AND INFORMATION SERVICES( INDIA ) LIMITED
IV.            FITCH CREDIT RATING INDIA PRIVATE LIMITED
V.            STANDARD AND POOR’S CORPORATION

           REGISTRATION OF CRA
           AS PER SECTION 12 OF THE SEBI ACT 1992 A PERSON HAS TO GET REGISTERED WITH SEBI UNDER SEBI( CREDIT RATING AGENCIES) REGULATIONS TO CARRY ON THE ACTIVITIES ON CREDIT RATING.
           HAS TO  FOLLOW THE CODE OF CONDUCT IN THIRD SCHEDULE
           SEBI ( CREDIT RATING AGENCIES REGULATIONS 1999 COVERS RATING OF  SECURITIES ONLY AND NOT RATING OF  FIXED DEPOSITS,FOREIGN EXCHANGE.COUNTRY RATING AND REAL ESTATE

           PROMOTERS OF A CRA
I.            PUBLIC FINANCIAL INSTITUTION
II.            SCHEDULED COMMERCIAL BANK
III.            A FOREIGN BANK
IV.            A FOREIGN CREDIT RATING AGENCY( MINIMUM FIVE YEARS EXPERIENCE)
V.            A BODY CORPORATE HAVING NET WORTH CRORES IN EACH OF THE IMMEDIATELY PRECEDING 5 YEARS


           PROCEDURES FOR CREDIT RATING
I.            TAKING REQUIRED INFORMATION FROM THE COMPANY
II.            DISCUSSION WITH MGMT AND VISITING THE COMPANY’S OPERATING LOCATIONS IF REQUIRED
III.            PREPARATION OF AN ANALYTICAL ASSESSMENT REPORT
IV.            PRESENTING THE REPORT TO SENIOR EXECUTIVE OF CRA COMMITTEE
V.            DISCUSSION BY THE COMMITTEE  AND ASSIGN RATING
VI.            COMMUNICATING THE RATING
           FUNCTIONS OF CREDIT RATING
I.            SUPERIOR INFORMATION: UNBIASED OPINION,GREATER ABILITY TO ASSESS RISKS,HAS ACCESS TO LOTS OF INFORMATION
II.            LOW COST INFORMATION
III.            BASIS FOR A PROPER RISK RETURN TRADE OFF
IV.            HEALTHY DISCIPLINE ON CORPORATE BORROWER
V.            FORMULATION OF PUBLIC POLICY GUIDELINES ON INSTITUTIONAL INVESTMENT
           BENEFIT TO THE CREDIT RATING TO THE INVESTOR
A.      ASSESSMENT OF CREDIBILITY
B.       RISK INDICATOR
C.       PROTECT AGAINST BANKRUPTCY
D.      HELP IN TAKING QUICK DECISIONS
E.       INDEPENDENT DECISIONS
F.       RATING SURVEILLANCE
G.      OTHER SERVICES
           BENEFITS TO THE ISSUERS
1.       LOWERS THE COST OF BORROWING
2.       WIDENS INVESTOR BASE
3.       FOSTERS A BETTER IMAGE
4.       INDUCES SELF DISCIPLINE
5.       LOWERS THE COST OF THE ISSUE
6.       MOTIVATES THE GROWTH
           BENEFITS TO THE INTERMEDIARIES
1.       RATING HELP THE MERCHANT BANKERS AND OTHER CAPITAL MARKET INTERMEDIARIES IN PROPER PLANNING,PRICING,UNDERWRITING ETC
2.       MONITOR THE RISK EXPOSURE
3.       IN SECURITIZATION OF ASSETS ETC



No comments:

Post a Comment