What is the Default risk? What is Credit Rating? What is the role of Credit rating Agencies? These questions should be taken into consideration at the time of the investment process.
3. 3
Investment in bonds is subject to a variety of Risk
So, Be careful while investing.
Interest Rate Risk Inflation Risk Default Risk Call Risk
Risks In Bonds
Liquidity Risk
4. Default Risk
Credit Risk
Default Risk refers to the risk accruing from the fact that the borrower may not pay interest and/or
principal on time. Credit rating agencies assign ratings to debt instruments of financial institutions
and companies. Other things being being equal, in general. Default risk also known as Credit Risk
5. Credit Risk
Principal
Interest
Default Risk
Default Risk refers to the risk accruing from the fact that the borrower may not pay interest and/or
principal on time. Credit rating agencies assign ratings to debt instruments of financial institutions
and companies. Other things being being equal, in general. Default risk also known as Credit Risk
7. Credit Rating
Meaning & Basics
A credit rating agency (CRA, also called a ratings service) is
a company that assigns credit ratings, which rate a
debtor's ability to pay back debt by making timely interest
payments and the likelihood of default. An agency
may rate the creditworthiness of issuers of debt
obligations, of debt instruments, and in some
cases, of the servicers of the underlying debt,
but not of individual consumers.
The debt instruments rated by CRAs
include government bonds, corporate bonds,
CDs, municipal bonds, preferred stock, and
collateralized securities, such as
mortgage-backed securities and
collateralized debt obligations.
8. 8
Credit Rating Agencies
Role of CRAs
CRAs theoretically provide investors with an independent
evaluation and assessment of debt securities'
creditworthiness.[57] However, in recent decades the paying
customers of CRAs have primarily not been issuers of securities
but buyers, raising the issue of conflict of interest
They perform two main roles such as follows:
1. Information Role
2. Monitoring Function
9. 9
Present Global Scenario
Presently, Fitch, standard and poor’s amd Moody’s Investor
Services are three major credit rating agencies operating globally.
As of 2013 their collective market share was roughly 90%.
Credit Rating Agencies
10. 10
Present Indian Scenario
In India, credit rating agencies started with the setting up of The
Credit Rating information Servies of India(now CRISIL Ltd.) in
1987. Presently, there are six major credit rating agencies
operating in India which have been registered with SEBI. These
are CRISIL Ltd., Fitch Ratings Infia Pvt. Ltd. ICRA ltd, CARE ltd.,
Brickworks rating India private ltd. And SMERA Ltd. We. Will talk
about them in next slides.
Credit Rating Agencies
13. CRISIL
CRISIL (formerly Credit Rating Information Services of India Limited) is a global analytical
company providing ratings, research, and risk and policy advisory services.[3] CRISIL’s
majority shareholder is Standard & Poor's, a division of McGraw Hill Financial and provider
of financial market intelligence.
Promoted by the likes of premier financial institutions like ICICI,HDFC, UTI, SBI, LIC and Asian
Development Bank in its intial years, CRISIL is now an S&P company headquatered in
Mumbai, India,
CRISIL in India is leading rating agency and a global analytical company providing ratings,
research, risk and policy advisory.
15. ICRA
ICRA Limited (ICRA) is an Indian independent and professional investment information and credit rating
agency.[2] It was established in 1991, and was originally named Investment Information and Credit
Rating Agency of India Limited (IICRA India).
ICRA’s credit ratings are symbolic representations of its current opinion on the relative credit risks
associated with the rated debt obligations/issues. These ratings are assigned on an Indian (that is,
national or local) credit rating scale for Indian Rupee denominated debt obligations. ICRA ratings may be
understood as relative rankings of credit risk within India. ICRA ratings are not designed to enable any
rating comparison among instruments across countries; rather, these address the relative credit risks
within India.
ICRA’s ratings (other than Structured Finance Ratings) in the investment grade convey the relative
likelihood of default, i.e., the possibility of the debt obligation not being met as promised. All other
ratings, including Structured Finance Ratings, reflect both the probability of default and the severity of
loss on default, i.e., the expected loss against the rated debt obligation.
17. CARE
CARE Ratings commenced operations in April 1993 and over nearly two decades, it has
established itself as the second-largest credit rating agency in India. With the rating volume
of debt of around Rs. 92 lakh crores (as on March 31, 2017) , CARE Ratings is proud of its
rightful place in the Indian capital market built around investor confidence. CARE Ratings
provides the entire spectrum of credit rating that helps the corporates to raise capital for
their various requirements and assists the investors to form an informed investment decision
based on the credit risk and their own risk-return expectations. CARE Ratings’ registered
office and head office, is located at 4th floor, Godrej Coliseum, Somaiya Hospital Road, Sion
(East), Mumbai 400 022.
Vision
“To be a respected company that provides best - in its field - quality and value services”
19. Ind-Ra
India Ratings and Research (Ind-Ra) is India's Most Respected credit rating agency committed
to providing the India's credit markets with accurate, timely and prospective credit opinions.
Built on a foundation of independent thinking, rigorous analytics, and an open & balanced
approach towards credit research, Ind-Ra has grown rapidly during the past decade gaining
significant market presence in India's fixed income market.
Fitch Group is a global leader in financial information services with operations in more than
30 countries. Fitch Group is comprised of: Fitch Ratings, a global leader in credit ratings and
research.
21. BRIP
A pioneering visionary and entrepreneur, Vivek Kulkarni, the founder of Brickwork group of
companies, started his career as an IAS officer and worked in government for 22 years. As an
IT Secretary, Government of Karnataka, Vivek pioneered many path-breaking initiatives to
aggressively promote Bangalore as a preferred destination for global companies to set-up
their offices and captive centers. It was under his tenure, that Bangalore, became popularly
known as the 'Silicon Valley' of India.
Brickwork group has grown significantly within a decade. The group companies include,
Brickwork Ratings, India's 5th credit rating agency, Brickwork Finance Academy (BFA), which
offers weekend program in Finance and also Brickwork Foundation, which is the CSR arm of
the group.
23. SMERA
SMERA Ratings Ltd (SMERA) is a full service credit rating agency exclusively set up for micro,
small and medium enterprises (MSME) in India and has grown to rate SME, mid & large
corporate . It provides ratings which enable MSME, SMEs,Corporates to raise bank loans at
competitive rates of interest.[3] However, its registration with Securities and Exchange Board
of India (SEBI), as a Credit Rating Agency and accreditation by Reserve Bank of India (RBI), in
September 2012 as an external credit assessment institution (ECAI) to rate bank loan ratings
under Basel II guidelines has paved way for SMERA to rate/grade various instruments such as:
IPO, NCDs, Commercial Papers, Bonds, Security Receipts, Fixed Deposits etc.
24. 24
1. Business Risk
a. Economy risk
b.Industry risk
c. Issuer’s competitive Position
d.New project risk
Credit Rating Methodology
2. Financial Risk
a. Operating profitability
b.Gearing
c. Debt service coverage ration
d.Working capital intensity
e. Cash flow analysis
f. Financial flexibility
g.Financial ration
3. Strength of promoters or management quality
a. Track record
b.Strategy
c. Organization Structure
d.Corporate governance
e. Control systems
f. Personnel Policies
25. +
Add to Market
Efficiency
Import Tool
Information Tool
Means of cheques &
Balances
Advantage of Credit Rating Agencies
.
Utility of
Sovereign ratings
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+
+
+
26. -
Lack of accuracy
Conflict of Internet
Respond with Time
lag
Lack of proper
disclosures
Limitations of Credit Rating Agencies
.
Severe Impact of
opinion
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