• CRISIL: • BY ICRA
• Structured Finance Ratings
• Non-convertible debentures • Asset-Backed Securitisation
• Inter corporate deposits (ABS)
• Commercial • Mortgage Backed
papers/certificates of Securitisation (MBS)
deposits/short-term debt
• Collateralised Debt Obligation
INSTRUMENTS • Fixed deposits
• Loans
(CDO)
• Future Flow Transaction (FFT)
RATED BY • Structured debt
CRISIL, CARE, • CARE
• Corporate Debt Ratings
• Manufacturing companies
ICRA • Bank Loan Ratings
• Banks and financial
• Collective Investment Scheme institutions
Rating
• Infrastructure sector
• Mutual Fund Credit Quality companies
Rating
• Service companies
• IPO Grading
• Municipal and other local
bodies
• State governments
WHAT INSTRUMENTS ARE CREDIT RATED ?
Rating of structured Rating of debt obligations Bond Fund ratings Collective investment schemes
obligations
Opinion regarding the capacity and Debentures Opinion of the quality of bond funds Fund House Reputation
willingness to make timely payments of Preference shares underlying portfolio holdings. Fund Manager Track Record
financial obligations on rated Focus on fixed income securities
Deposits Investment Process
instruments.
CD’s commercial papers Factors considered
•Credit associated with the securities
Structured obligations of
•the systems and procedures followed
•manufacturing by the funds
•finance companies •management quality and expertise
•banks, financial institutions
• Country Rating
• Whenever a loan is to be extended or some major investment is to be made in it by
international investor
• Factors considered are growth rate, industrial and agricultural production, government
policies, inflation, fiscal deficit etc.
• Any upgrade movement in such—ratings has a positive impact on the stock markets.
• Morgan Stanlay, Moodys etc. give country ratings.
• Rating of Real Estate Builders and Developers
• Objective of helping and guiding prospective real estate buyers
RATING OTHER THAN
• Scrutinizes the sale deed papers, sanctioned plan, lawyers’ report government clearance
certificates
• Factors considered - Past experience of the builder, number of properties built by the builder,
DEBT INSTRUMENTS •
financial strength, time taken for completion
Chit Funds
• Rated on the ability to make timely payment of prize money to subscribers.
• The rating helps in better marketing of their fund
• Helps in widening of the subscriber's base.
• This service is provided by CRISIL.
• Rating of States
• Helps the State to attract investors both from India and abroad to make investments
• Foreign companies set up projects in states with positive rating.
• Economic parameters considered are industrial and agricultural growth of the State,
availability of raw material, labor etc. and political parties' agenda with respect to industry,
labor etc., relation between Centre and State and freedom
• States like Maharashtra, Madhya Pradesh, Tamil Nadu, Andhra Pradesh and Kerala have
already been rated by CRISIL.
• Rating (Recommendation) for Equities
• Analysts specialise in equity ratings
• A forecast of the stock prices of a company.
• Trend of sales, operating profits considered for a forecast of the earning capacity and profitability position
• Financial statement analysis tools like ratio analysis, trend analysis, fund flow analysis and cash flow analysis
• Analysts suggests a target price
The following are some of the recommendations made by the equity analysts for its investors:
• Buy:
• Buy on Declines
• Long-term Buy
• Strong Buy
• Out-performer
• Overweight
• Hold
• Sell/Dispose/Sub-Standard/Under-weight
• Grading of health care institutions:
• The grading is an opinion on the relative quality of health care delivered to the patients.
• Grading is done taking into account facilities, quality , consistency in delivering the service etc.
• Bank loan rating:
• The creditworthiness of bank’s borrower is assessed
• Likelihood of repayment of loans
• Considers the borrowers underlying assets liquidity
• Risk management initiative
• For NBFC quality of assets , loans and investment.
• Infrastructure Sector Ratings
• Debt programmes of issuers in the power, roads, telecommunications
• Huge funding requirement
• Private sector initiatives given the growing inability of the Government.
• Infrastructure projects are capital intensive highly leveraged
• Long gestation period
• Projects require innovative structuring to make them bankable
• Assessment of the fundamental viability of the project
• Analysis of political, legal, regulatory environment affecting the sector
• credit enhancement by issuer for a higher Rating compared with the one that would have otherwise achieved.
• Rating of Banks
• CRISIL and ICRA
• A - A stands for asset quality.
• M - M stands for management evaluation.
• L - L indicates liquidity position
• S - S stands for Systems and Control.
• Ratings vary from A to D. A denotes financial, managerial and operational soundness of a bank
• D denotes financial crisis and lacks managerial expertise, facing operational problems.
• The security issuer’s ability to service its debt. In order, they
calculate the past and likely future cash flows and compare with
fixed interest obligations of the issuer.
• The volume and composition of outstanding debt.
• The stability of the future cashflows and earning capacity of
company.
Factors Affecting Assigned
• Their interest coverage ratio i.e. how many number of times the
issuer can meet its fixed interest obligations.
Ratings • Ratio of current assets to current liabilities (i.e. current ratio (CR)) is
calculated to assess the liquidity position of the issuing firm.
• The value of assets pledged as collateral security and the security’s
priority of claim against the issuing firm’s assets.
• Market position of the company products is judged by the demand
for the products, competitors market share, distribution channels
etc.
• Operational efficiency is judged by capacity utilisation, prospects of
expansion, modernisation and diversification, availability of raw
material etc.
• Track record of promoters, directors and expertise of staff also
affect the rating of a company.
