FINANCIAL SERVICES AND MARKETS

Class MBA III PUP Date Faculty Maninder Kaur

CREDIT RATING AGENCIES IN INDIA

CRISIL Credit Rating and Information Services of India Limited y y y y y Set up in 1988 jointly by the ICICI, UTI, LIC along with a number of other financial institutions Headquarters are at Mumbai Started with a capital base of Rs. 4 Crores The other participating promoters are GIC, ADB, State Bank of INDIA, HDFC, etc. The rating is at present confined only to the fixed deposits, debentures, preference share capital, short term instruments like commercial paper

Objectives y y To rate the debt obligations of Indian companies on a voluntary basis Providing the investors a guide as to the risk of timely payment of interest and payment by the company

AAA Highest Safety. Surety of paying principal and interest amount in time. Strong position of the firm

AA Higher Safety. Timely payment of principal and interest amount

DEBENTURE RATING SYMBOLS A BBB B Adequate Offer High risk. safety. sufficient Greater Changes in safety of susceptibility circumstances timely to fraud can adversely payment of affect such principal and issue more interest than those in amount but AA and AAA changes in rated circumstances categories are more likely to lead to a weaken capacity to pay interest and principal amount

C Substantial risk. Factors present that make them vulnerable to default

D Either there is already default of interest and / or principal as per terms or expected to default on maturity. Such debentures can be realised only on liquidation of the firm or on reorganisation

Prepared By Maninder Kaur

FIXED DEPOSIT RATING SYMBOLS FAAA FAA Highest Safety. High Safety. Surety of Timely paying payment of principal and principal and interest interest amount in amount. The time. Strong relative degree position of the of safety is not firm as high as for the fixed deposits with FAAA rating

FA Adequate safety. Changes in circumstances can adversely affect such deposits more than those in the high rated categories

FB Inadequate safety of timely payment of interest and principal. Such deposits are suspected to default than fixed deposits rated below this category but the uncertainties that the issuer faces could lead to inadequate capacity to make timely payment of interest and principal

FC High risk. The degree of safety regarding timely payment of interest and principal is doubtful. Factors present that make them vulnerable to default. Adverse business or economic conditions would lead to lack of ability to willingness to pay interest or principal

FD The deposits are either in default or expected to be in default upon maturity

SHORT TERM INSTRUMENTS RATING SYMBOLS P 1 P 2 P 3 Highest Safety. High Safety. Timely Adequate safety. Surety of paying payment of The instrument is principal and principal and more vulnerable to interest amount interest amount. the adverse effects in time. Strong The relative degree of changing position of the of safety is lower circumstances than firm than that for an instrument instruments rated rated in the two P 1 higher categories

P 4 Minimal degree of safety. It is likely to be adversely affected by short term adversity or less favourable conditions

P 5 The instrument is either in default or expected to be in default upon maturity

Prepared By Maninder Kaur

AAA (SO) Highest Safety. Surety of payment of financial obligatio n on the instrume nt in time. Strong position of the firm

STRUCTURED OBLIGATIONS RATING SYMBOLS AA (SO) A (SO) BBB (SO) BB (SO) High Adequate Moderate Inadequat Safety. safety. safety of e safety. Timely Changes in timely Inadequat payme circumstanc payment of e degree nt of es can financial of princip adversely obligations certainity al and affect such o the regarding interest issue more instrument timely amount than those but changes payment in AA and in of AAA rated circumstanc financial categories es are more obligation likely to s on the lead to a instrumen weakend t. Less capacity to susceptibl pay interest e to and default principal than the amount instrumen ts rated below this category

B (SO) High risk. Greater susceptibili ty to default. Any adverse business or economic conditions would lead to lack of ability to willingness to pay interest or principal

C (SO) Substantial risk. The degree of certainity regarding timely payment of financial obligations is doubtful unless circumstanc es are favourable

D (SO) The obligor is in default or expecte d to default

IICRA Investment Information and Credit Rating Agency of India y y y y y y Registered in 1991 Sponsored by the IFCI and a number of financial institutions Headquarters in Delhi It was established as public limited company with an authorised share capital of Rs. 10 Crores Initial paid up capital was of Rs. 3.5 Crores The factors that IICRA takes into consideration for rating depends on the nature of the borrowing entity

Prepared By Maninder Kaur

DEBENTURES, BONDS AND PREFERENCE SHARES

MEDIUM TERM INSTRUMENTS

LAAA (Highest Safety) LAA +, LAA (High Safety) LA +, LA (Adequate Safety) LBBB +, LBBB (Moderate Safety) LBB +, BB (Adequate Safety) LB +, LB (Risk prone) LC +, LC (Substantial risk) LD (Default extremely speculative)

MAAA (Highest Safety) MAA +, MAA (High Safety) MA +, MA (Adequate Safety) MB +, MB (Inadequate Safety) MC +, MC (Risk prone) MD (Default)

SHORT TERM INSTRUMENTS INCLUDING COMMERCIAL PAPERS A1 +, A1 (Highest Safety) A2 +, A2 (High Safety) A3 +, A3 (Adequate Safety) A4 +, A4 (Risk prone) A5 (Default)

BANK LINE OF CREDIT

SMALL SCALE INDUSTRY

CR1 (Very strong capacity) CR2 +, CR2 (Strong capacity) CR3 +, CR3 (Adequate capacity) CR4 +, CR4 (Moderate capacity) CR5 +, CR5 (Inadequate capacity) CR6 +, CR6 (Poor capacity) CR7 (Default)

SS1 (Very strong capacity) SS2 +, SS2 (Strong capacity) SS3 +, SS3 (Adequate capacity) SS4 +, SS4 (Moderate capacity) SS5 +, SS5 (Inadequate capacity) SS6 +, SS6 (Poor capacity) SST (Default)

Prepared By Maninder Kaur