Credit rating:
A credit rating evaluates the credit worthiness of an issuer of specific types of debt, specifically, debt issued by a business enterprise such as a corporation or a government. It is an evaluation made by a credit rating agency of the debt issuers likelihood of default.[3] Credit ratings are determined by credit ratings agencies. The credit rating represents the credit rating agency's evaluation of qualitative and quantitative information for a company or government; including non-public information obtained by the credit rating agencies analysts. Credit ratings are not based on mathematical formulas. Instead, credit rating agencies use their judgment and experience in determining what public and private information should be considered in giving a rating to a particular company or government. The credit rating is used by individuals and entities that purchase the bonds issued by companies and governments to determine the likelihood that the government will pay its bond obligations. A poor credit rating indicates a credit rating agency's opinion that the company or government has a high risk of defaulting, based on the agency's analysis of the entity's history and analysis of long term economic prospects.
What Makes up Your Credit Score?
When you borrow money, your lender sends information to a credit bureau which details, in the form of a credit report, how well you handled your debt. From the information in the credit report, the bureau determines a credit score based on five major factors: 1) previous credit performance, 2) current level of indebtedness, 3) time credit has been in use, 4) types of credit available, and 5) pursuit of new credit.
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Why Your Credit Rating Is Important :
When you apply for a credit card, mortgage or even a phone hookup, your credit rating is checked. Credit reporting makes it possible for stores to accept checks, for banks to issue credit or debit cards and for corporations to manage their operations. Depending on your credit score, lenders will determine what risk you pose to them. According to financial theory, increased credit risk means that a risk premium must be added to the price at which money is borrowed. Basically, if you have a poor credit score, lenders will not shun you (unless it is utterly awful); instead, they'll lend you money at a higher rate than the one paid by
someone with a better credit score.
Benefits of credit rating to an investor
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Helps in Investment Decision : Credit rating gives an idea to the investors about the credibility of the issuer company, and the risk factor attached to a particular instrument. So the investors can decide whether to invest in such companies or not. Higher the rating, the more will be the willingness to invest in these instruments and vise-versa. 3. Benefits of Rating Reviews : The rating agency regularly reviews the rating given to a particular instrument. So, the present investors can decide whether to keep the instrument or to sell it. For e.g. if the instrument is downgraded, then the investor may decide to sell it and if the rating is maintained or upgraded, he may decide to keep the instrument until the next rating or maturity. 4. Assurance of Safety : High credit rating gives assurance to the investors about the safety of the instrument and minimum risk of bankruptcy. The companies which get a high rating for their instruments, will try to maintain healthy financial discipline. This will protect them from bankruptcy. So the investors will be safe. 5. Easy Understandability of Investment Proposal : The rating agencies gives rating symbols to the instrument, which can be easily understood by investors. This helps them to understand the investment proposal of an issuer company. For e.g. AAA (Triple A), given by CRISIL for debentures ensures highest safety, whereas debentures rated D are in default or expect to default on maturity. 6. Choice of Instruments : Credit rating enables an investor to select a particular instrument from many alternatives available. This choice depends upon the safety or risk of the instrument. 7. Saves Investor's Time and Effort : Credit ratings enable an investor to his save time and effort in analyzing the financial strength of an issuer company. This is because the investor can depend on the rating done by professional rating agency, in order to take an investment decision. He need not waste his time and effort to collect and analyse the financial information about the credit standing of the issuer company.
Benefits of credit rating to company
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Improves Corporate Image : Credit rating helps to improve the corporate image of a company.
High credit rating creates confidence and trust in the minds of the investors about the company. Therefore, the company enjoys a good corporate image in the market. 2. Lowers Cost of Borrowing : Companies that have high credit rating for their debt instruments will get funds at lower costs from the market. High rating will enable the company to offer low interest rates on fixed deposits, debentures and other debt securities. The investors will accept low interest rates
because they prefer low risk instruments. A company with high rating for its instruments can reduce the cost of public issue to raise funds, because it need not spend heavily on advertising for attracting investors. 3. Wider Audience for Borrowing : A company with high rating for its instruments can get a wider audience for borrowing. It can approach financial institutions, banks, investing companies. This is because the credit ratings are easily understood not only by the financial institutions and banks, but also by the general public. 4. Good for Non-Popular Companies : Credit rating is beneficial to the non-popular companies, such as closely-held companies. If the credit rating is good, the public will invest in these companies, even if they do not know these companies. 5. Act as a Marketing Tool : Credit rating not only helps to develop a good image of the company among the investors, but also among the customers, dealers, suppliers, etc. High credit rating can act as a marketing tool to develop confidence in the minds of customers, dealer, suppliers, etc. 6. Helps in Growth and Expansion : Credit rating enables a company to grow and expand. This is because better credit rating will enable a company to get finance easily for growth and expansion.
Crisil:
Who We Are CRISIL Ratings is India's leading rating agency. We pioneered the concept of credit rating in India in 1987. With a tradition of independence, analytical rigour and innovation, we have a leadership position. We have rated over 49,000 entities, by far the largest number in India. We are a full-service rating agency. We rate the entire range of debt instruments: bank loans, certificates of deposit, commercial paper, nonconvertible debentures, bank hybrid capital instruments, asset-backed securities, mortgagebacked securities, perpetual bonds, and partial guarantees. CRISIL sets the standards in every aspect of the credit rating business. We have instituted several innovations in India including rating municipal bonds, partially guaranteed instruments and microfinance institutions. We pioneered a globally unique and affordable rating service for Small and Medium Enterprises (SMEs).This has significantly expanded the market for ratings and is improving SMEs' access to affordable finance. We have an active outreach programme with issuers, investors and regulators to maintain a high level of transparency regarding our rating criteria and to disseminate our analytical insights and knowledge. Who We Serve CRISIL Ratings serves lenders, investors, issuers, market intermediaries and regulators by improving information availability and providing benchmarks. We rate most of India's largest companies and several of the smallest. We have rated 15,000 large and mid-corporates and financial institutions, and 31,000 small and medium enterprises across 190 industry sectors. Our ratings cover manufacturing companies, banks, nonbanking finance companies, public sector undertakings, financial institutions, state governments, urban local bodies, mutual funds. How We Add Value CRISIL's ratings assist issuers and borrowers in enhancing their access to funding, widening the range of funding alternatives, and optimising the cost of funds. Investors and lenders use our ratings to supplement their internal evaluation process and to benchmark credit quality across investment options. For the markets at large, our ratings act as a market benchmark for pricing and trading of debt instruments. We help regulators in measurement and management of credit risks at a systemic level. CRISIL's ratings are used in the computation of capital adequacy in the banking sector. Our ratings are also used to determine the eligible investment pool for insurance companies, pension funds, and provident funds.
A CRISIL rating reflects CRISIL's current opinion on the relative likelihood of timely payment of interest and principal on the rated obligation. It is an unbiased, objective, and independent opinion as to the issuer's capacity to meet its financial obligations. So far, CRISIL has rated 30,000 debt instruments, covering the entire debt market. The debt obligations rated by CRISIL include:
Non-convertible debentures/bonds/preference shares Commercial papers/certificates of deposits/short-term debt Fixed deposits Loans Structured debt
CRISIL Ratings' clientele includes all the industry majors - 23 of the BSE Sensex constituent companies and 39 of the NSE Nifty constituent companies, accounting for 80 per cent of the equity market capitalisation, are CRISIL's clients. CRISIL's credit ratings are
An opinion on probability of default on the rated obligation Forward looking Specific to the obligation being rated
But they are not
A comment on the issuer's general performance An indication of the potential price of the issuers' bonds or equity shares Indicative of the suitability of the issue to the investor A recommendation to buy/sell/hold a particular security A statutory or non-statutory audit of the issuer An opinion on the associates, affiliates, or group companies, or the promoters, directors, or officers of the issuer
CRISIL ratings are based on a robust and clearly articulated analytical framework, which ensures comprehensiveness, standardisation, comparability, and effective communication of the ratings assigned and of every timely rating action. The assessment is based on the highest standards of independence and analytical rigour. CRISIL rates a wide range of entities, including:
Industrial companies Banks Non-banking financial companies (NBFCs) Infrastructure entities Microfinance institutions Insurance companies Mutual funds State governments
Care ratings:
Overview 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.40,459 bn (as on March 31, 2012) , CARE Ratings is proud of its rightful place in the Indian capital market built around investor confidence. CARE Ratings has also emerged as the leading agency for covering many rating segments like that for banks, sub-sovereigns and IPO gradings. 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. Our rating and grading service offerings leverage our domain and analytical expertise backed by the methodologies congruent with the international best practices. With majority shareholding by leading domestic banks and financial institutions in India, CAREs intrinsic strengths have also attracted many other investors. CAREs registered office and head office, is located at 4th floor, Godrej Coliseum, Somaiya Hospital Road, Sion (East), Mumbai 400 022. In addition, CARE has regional offices at Ahmedabad, Bangalore, Chennai, Hyderabad, Jaipur, Kolkata, New Delhi, Pune and international operation in Male in the Republic of Maldives. With independent and unbiased credit rating opinions forming the core of its business model, CARE Ratings has the unique advantage in the form an External Rating Committee to decide on the ratings. Eminent and experienced professionals constitute CAREs Rating Committee
OUR VISION:
To be a company preferred for providing services recognised to be the best value-added offerings in its field.
OUR MISSION:
To offer a range of high-quality services to all the stakeholders in the capital market. To build a pre-eminent position for ourselves in India in securities analysis, research and information services and to be an international credit rating agency. To earn customer satisfaction and investor confidence through fairness and professional excellence. To remain deeply committed to our internal and external stakeholders. To apply the best possible tools & techniques for securities analysis aimed to ensure efficiency and top quality.
To ensure globally comparable quality standards in our rating, research and information services. OUR VALUES:
Integrity & Transparency : A commitment to be ethical, sincere and open in our dealings. Pursuit of Excellence: A commitment to strive relentlessly to continuously improve ourselves. Fairness: Treat clients, employees and other stakeholders fairly. Independence: Independent and fearless approach in expressing our unbiased opinions. Thoroughness: Rigorous analysis and in-depth research form the foundation of our every assignment.
