Credit rating

Basic knowledge of credit rating, its importance, procedure and about different credit rating agencies - national and international.

1. Credit Rating Submitted to: Prof. Megha Jain Submitted by : Shreta Maheshwari Ayush Malviya Ayushi Rathore Akash Chouhan Apkesha Malviya Mayur Yadav Nikhil Bijlani Satyam Kesarwani

2. Credit Rating A credit rating estimates the credit worthiness of an a financial security, a corporation, local government or even a country . An estimate of the ability of a person or organization to fulfill their financial commitments, based on previous dealings.

3. Importance Credit ratings for borrowers are based on substantial due diligence conducted by the rating agencies. While a borrower will strive to have the highest possible credit rating since it has a major impact on interest rates charged by lenders, the rating agencies must take a balanced and objective view of the borrower’s financial situation and capacity to service/repay the debt.

4. Nature of Credit Rating

5. Benefits of Ratings For Companies Market access (gate keeping) Expands breadth of market Widens distribution Improves liquidity Improves pricing Helps management with independent, outside perspective on company Helps management monitor counterparty risk For Investors Due diligence efficiency Multiple independent perspectives Facilitates comparisons Tool in portfolio management Enhances secondary market liquidity Relatively stable over time Basis for performance benchmarks 5

6. Use of Credit Rating

7. Factors Affecting Credit Rating Payment history ---- 35% A mount owed ---- 30% Length of credit history ---- 15% New credit ---- 10% Types of credit in use ---- 10%

8. Credit Rating Symbols An opinion on the issuer ’ s capacity to meet its financial obligations on a particular issue in a timely manner, for example long-term bonds:

9. Rating Methodology

10. Rating Methodology (Continue)

11. Rating Methodology (Continue) Business risk

12. Rating Methodology (Continue) Business risk (continue)

13. Rating Methodology (Continue)

14. Cash Flow and Financial Analysis

15. Additional Analysis

16. Short term v/s Long term Credit Rating Short term Long term Type of credit rating has become the norm in recent years . In the past , long-term credit ratings were more heavily considered. Reflects the likelihood of the borrower defaulting within the year . Long-term credit ratings predict the borrower's likelihood of defaulting at any given time in the extended future .

17. Process of Credit Rating

18. Distinction Between Credit Rating and Reporting   A credit reporting agency is responsible for compiling financial data that is necessary for loan decisions. A credit rating agency does all the statistical assessments that are involved in placing a rating on a company or organization’s credit history. . A credit rating agency is responsible for providing investors with information about an organization’s creditworthiness. 

19. Nationally Recognized Statistical Rating Organization In 1975, the U.S. Securities Exchange Commission established the ‘ Nationally Recognized Statistical Rating Organization ’ (NRSRO) designation Three of best known rating agencies in the U.S. were named: Moody ’ s Investor Services Standard and Poor ’ s Fitch Rating In 2003, the SEC approved a fourth NRSRO, Dominion Bond Rating Services (DBRS ) from Canada.

20. Top Credit Rating Agencies

21. Standard And Poor’s Established in ---- 1957 Corporate office ---- New York City, New York, US Business ---- credit ratings, research Market Share ---- last price in USD – 2018.94

22. Moody’s Established in ---- 1909 Corporate office ---- New York City, New York, US Business ---- credit ratings, research, credit risk management and other services Market Share ---- last price in USD – 97.93

23. Fitch Ratings Established in ---- 1914 Corporate office ---- New York and London Business ---- credit ratings and research ; F itch Solution, analytical tools and risk services ; BMI research, an independent provider of country risk and industry and   Fitch Learning. Market Share ---- last price in USD –

24. Rating Scales used by major Credit Raters

25. Top Credit Rating Agencies

26. Crisil Ltd Established in ---- 1987 CEO --- Mr. Ashu Suyash Headquarter ---- Mumbai, Maharashtra Business ---- A Global analytical company providing ratings, research and risk, and policy advisory services. Market Share ---- last price in USD – Majority shareholder is hold by S&P.

27. CIBIL Established in ---- August 2000 (It’s a Credit Information Company) CEO --- Mr. Satish Pillai Headquarter ---- Nariman Point, Mumbai Business ---- help loan providers manage their business or help consumers secure credit faster and at better terms Market Share ---- last price in USD –

28. CARE Established in ---- April 1993 Corporate office ---- Somaiya Hospital Road, Sion (East), Mumbai 400 022.  Business ----  the entire spectrum of credit rating Market Share  it has established itself as the second-largest credit rating agency in India. With the rating volume of debt as Rs. 68.08 lakh crore  

29. Advantages of Credit Rating Benefits to Investors Safety of investments. Recognition of risk and returns. Freedom of investment decisions. Wider choice of investments Dependable credibility of issuer Easy understanding of investment proposals Benefits the Company Easier to raise funding Reduced cost of borrowing Reduce cost of public issues Ratings can build up image Ratings facilitates growth Recognition to unknown companies Slide 33 Benefits to Intermediaries For brokers ratings make it easier to persuade clients to select an investment proposal of investment in highly rated instruments.

30. Disadvantages of Credit Rating Credit rating suffers from the following limitations : Non-disclosure of significant information Static study Rating is no certificate of soundness Rating may be biased Rating under unfavorable conditions Difference in rating grades Improper Disclosure May Happen Impact of Changing Environment Problems for New Companies Downgrading by Rating Agency

31. Conclusion Moody is consider the best credit rating agency in the world. It is consider while dealing in capital market and debt for investing in a company, corporation or in the country.

32. Reference   A Brief History Of Credit Rating Agencies   http://www.investopedia.com/articles/bonds/09/history-credit-rating-agencies.asp#ixzz3pHOrey7h http://www.careratings.com/about-us.aspx http://www.crisil.com/index.jsp https://www.cibil.com/search/node/market%20share https://www.google.co.in/#q=fitch+ratings https://www.moodys.com/researchandratings/region/asia-pacific/india/00400000000C/4294965089/4294967230/-1/0/-/0/-/-/-/-/-/-/-/en/global/pdf/-/rra http://www.hoovers.com/company-information/cs/company-profile.MOODYS_CORPORATION.bfdac814a90fd613.html http://markets.ft.com/research/Markets/Tearsheets/Summary?s=INX:IOM http://www.careratings.com/about-us.aspx

33. THANK YOU