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Credit Rating Services - Coggle Diagram
Credit Rating Services
Objectives of Credit Rating
•To provide superior information to investors at a low cost;
• To provide a sound basis for proper risk-return structure,
• To Subject borrowers to a healthy discipline, and
• To Assist in framing of public policy guidelines on institutional investment.
Uses
Investors:
Issuers:
Intermediaries:
Regulators:
Methodology of Credit Rating
Business Analysis or Company Analysis
Economic Analysis
Financial Analysis
Management Evaluation
Geographical Analysis
FundamentalAnalysis
Credit rating for financial service sector - Factors
•Regulatory and competitive environment
•Fundamental analysis
•Liquidity management
•Profitability and financial position
•Interest and tax sensitivity
•Capital adequacy
•Asset quality
Credit Rating Agencies in India
Credit Rating and Information Services of India Ltd. (CRISIL)
Credit Rating Agency of India Ltd. (ICRA)
Credit Analysis and Research Ltd. (CARE)
CRISIL’s Rating symbols/Grades
Rating symbols for Debentures
High Investment Grade
•AAA- Highest security
•AA- High Safety
•A- Adequate safety
•BBB - Moderate safety
Speculative Grades
•BB- Inadequate safety
•B - High risk for default
•C - Substantial risk
•D (Default) default risk is highest
Rating symbols for Fixed deposits
•FAAA- Highest safety
•FAA- High safety
•FA- Adequate safety
•FB- Inadequate safety
•FC- High Risk •FD- Default
Ratings for bond funds
•AAAf – Very Strong Protection against losses
•AAf - Strong Protection against losses
•Af- Adequate Protection against losses
•BBBf- Moderate Protection against losses
•BBf - Inadequate Protection against losses
•Cf – vulnerable to credit defaults.
Bank Loan Ratings
•BLR-1: strong likelihood of repayment of interest and principal on bank loan
•BLR-2: good likelihood of repayment of interest and principal on bank loan
•BLR-3: satisfactory likelihood of repayment of interest and principal on bank loan
•BLR-4: moderate likelihood of repayment of interest and principal on bank loan •BLR-5: sub standard , vulnerable to loss •BLR-6: High likelihood of loss