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The concept learnt is academics are of no importance until they partially applied. In
todays world it is imperative for the students of any post graduate course to keep pace
with the changing technology innovations taking place across the world. In alignment
with a summer report after my 2nd semester of MBA.
I would like to express my sincere gratitude to Mr. Gurdarshan Singh for giving
me the opportunity to work with his esteemed organization. I would like to thank Mr.
Shivam Khanna for giving me knowledge and their valuable support throughout the
project. It was very enriching and enlightening experience to work under their valuable
guidance without their support this project would not have been possible.
I would also like to thank my parents, friends those who given their support &
contribution whenever required.
Finally and most important I would like to thank to specially Prof. Sukhdev Singh
(H.O.D) to provide me with such an opportunity that has enhanced my learning horizon
last but not least, I thank that almighty and may he stand with all of us.
Anchaldeep Kaur
RESEARCH METHODOLOGY
Data Collection Method : Data are the bricks with which the researcher has to make a
house. While the quality of research findings depend on data, the adequacy of
appropriate data in turn depends upon proper method of data collection. A number of
methods are at the disposal of the researcher of which one has to select the most
appropriate one for visualizing the research objective. Thus he has to see that the method
adopted is compatible with the resources and research study.
The data is collected through secondary Method :
Secondary data, is data collected by someone other than the user. Common sources of
secondary data for social science include censuses, organisational records and data
collected through qualitative methodologies or qualitative research. Secondary data
analysis saves time that would otherwise be spent collecting data and, particularly in the
case of quantitative data, provides larger and higher-quality databases that would be
unfeasible for any individual researcher to collect on their own. In addition, analysts of
social and economic change consider secondary data essential, since it is impossible to
conduct a new survey that can adequately capture past change and/or developments.
SAMPLING PLAN
Type of Research Design : Descriptive Research
Source Of Data
: Secondary Data
Sampling Technique
: Convenience Sampling
Sample Size
: 2
Area Of Research
: Ludhiana
CHAPTER-I
ONICRA
Onicra Credit Rating Agency is one of the leading Credit and Performance Rating
agencies in India. It provides ratings, risk assessment and analytical solutions to
Individuals, MSMEs and Corporates.
India with its varied culture, ethnic background, caste and creed presents a challenge of
recognition and transparency to the world at large. ONICRA has set upon itself a goal to
provide assessment, rating, grading & monitoring services thus creating an impact on
individuals, SMEs and corporates in India. Being one of the leading rating agencies we
believe in creating a unbiased view for various stakeholders and nodal agencies of the
Government of India.
Third party credit and performance rating and assessment helps to create trust between
players in markets that underpins transactions.
ONICRA plays a central and critical role in collecting and analyzing a variety of
financial, operational, industry and market information, synthesizing that information,
and providing autonomous, reliable assessments of the entity, thereby providing
stakeholders with an important input into their decision making process.
To realize our goal we have committed ourselves to providing the stakeholders with
objective, timely, independent and forward-looking credit and performance opinions.
The foundation of that dedication is embedded in several core principles objectivity,
quality, independence, integrity and transparency.
REGISTRATION OF CREDIT RATING AGENCIES
1) Grant of Certificate
Any person proposing to commence any activity as a credit rating agency on or after the
date of commencement of these regulations shall make an application to the Board for
the grant of a certificate of registration for the purpose.
ii) A non- refundable application fee shall accompany an application for the grant of a
certificate.
The applicant in all other respects is a fit and a proper person for the grant of a
certificate.
The grant of certificate to the applicant is in the interest of the investors and the
securities market.
4) Application to Conform to the Requirements
The Board shall reject any application for a certificate, which is not complete in all
aspects or does not confirm to the requirements of regulation or instructions. Providing
that, before rejecting any such application, the applicant shall be given an opportunity to
remove. Within thirty days of the date of receipt of relevant communication, from the
Board such objections as may be indicated by the Board.
Provided further, that the Board may, on sufficient reason being shown, extend the time
for removal of objections by such further time, not exceeding thirty days, as the Board
may consider fit to enable the applicant to remove such objections.
5) Furnishing of Information, Clarification and Personal Representation
The Board may require the applicant to furnish such further information or clarification,
as the Board may consider necessary, for the purpose of processing of the application.
ii) The Board, if it so desires, may ask the applicant or its authorized representative to
appear before the Board, for personal representation in connection with the grant of a
certificate.
6) Grant of certificate
i) The Board. On being satisfied that the applicant is eligible for the grant of a certificate
of registration, shall grant a certificate.
The grant of certificate of registration shall be subject to the payment of the registration
fee specified.
7) Conditions of Certificate and Validity Period
The certificate shall be granted subject to the following conditions, namely; The credit
rating agency shall comply with the provisions of the Act, the regulations made there
under and the guidelines, directives, circulars and instructions issued by the Board from
time to time on the subject of credit rating.
Where any information furnished to the Board by a credit rating agency: is found to be
false or misleading in any material particular; or has undergone change subsequently to
its furnishing at the time of the application for the certificate; the credit rating agency
shall forthwith inform the Board in writing;
The period of validity of the certificate of registration shall be three years.
8) Renewal of certificate
A credit rating agency, if it desires renewal of the certificate granted to it, shall make to
the Board an application for the renewal of the certificate or registration within 3 months
before expiry of the period of the validity of the certificate.
The application for the renewal shall be accompanied by a renewal fee.
TOPIC INTRODUCTION
Project work is a part of our curriculum, which help us to correlate our theoretical
concepts with practical experience. I prepared this report for my two years of Master of
Business Administration.
My topic of project on CREDIT RATING AGENCIES these days where a lot of
options is present beyond the investors to invest their deposits it is quite difficult to
choose an instrument which can given high safety with good returns. In this time credit
rating agencies comes into the picture which suggest the safest mode. My study
basically depends on the secondary information from various books and other resources.
The project gives the detail on what do we mean by Credit Rating, what are its various
advantages and disadvantages. What are the various credit rating agencies operating in
India and around the world.
Since the project was confined to India only therefore the study is restricted to the
details of India credit rating agencies, Rating process used by them.
OBJECTIVE OF STUDY
In these days where a lot of options are present beyond the investors to invest there
deposit, it is quite difficult to choose an instrument which can give high safety with
good returns. In this time credit rating agencies came into existence which suggests
the safest mode. Thats why I have chosen this Research Topic with in Primary
objective to know more about the agencies provided such services. Some other
objectives are as follows:
A comparative analysis of the operations carried out by the various credit rating agencies
under study, viz. CRISIL, ONICRA, ICRA, CARE and FITCH has been presented in
this chapter. The chapter is divided into two sections. In Section-I provide scope of
operations of credit rating agencies and Section-II describe the process of rating.
SECTION-I
In this section, an attempt has been made to study the various operations conducted by
the rating agencies covering the following dimensions:
1) Activities Undertaken
2) Instruments and Products Rated
ACTIVITIES UNDERTAKEN BY THE CREDIT RATING AGENCIES
Credit rating agencies (subsequently denoted as CRAs) specialize in analysing and
evaluating the creditworthiness of corporate and sovereign issuers of debt securities.
Credit rating agencies are expected to become more important in the wake of various
services/activities being undertaken by various credit rating agencies, along with the
rating services that provide information and guidance to institutional and individual
investors/creditors. These agencies enhance the ability of borrowers/issuers to access
the money market and the capital market for lapping a large volume of resources from a
wider range of the investing public. These services provided by the credit rating
agencies also assist the regulators in promoting transparency in the financial markets. A
comparative view of the activities undertaken by all these agencies is presented in Table
5.1
Table 5.1
Activities Undertaken
ONICRA
Activities
CRISIL
Research Services
__
__
__
__
Information Technology
Services
__
ICRA
CARE
FITCH
practices prevalent in the organization. As the corporate governance practices reflect the
distribution of rights and responsibilities among different participants in the organization
such as the Board, management, shareholders and other financial stakeholders, and the rules
and procedures laid down and followed for making decisions on corporate affairs. Moreover,
rating of structured finance obligations is the opinion of credit rating agencies as an
obligators capacity and willingness to make timely payment, of financial obligations, on the
rated instrument.
Table 5.1a
Rating and Grading Services
Rating/Grading
Rating of long /medium-term debt
CRISIL
ONICRA
ICRA
CARE
FITCH
Bodies
Micro Finance Institution(MFI) Grading
Grading of Maritime Training Course
Grading of Healthcare Institutions
Rating of Subsidiaries & Joint Ventures
__
__
__
__
__
__
__
__
__
__
instrument
Rating of short-term debt instrument
Claims paying ability of insurance
company
Corporate Governance rating
Structured Finance/ Obligation rating
Grading of Mutual Funds/Bond Funds
Grading of real estate/ Project finance
rating
SSI/ SME rating
Issuer credit rating
IPO Grading
Loan/ Bank Loan rating
Assessment of State
of MNCs in India
Solar Energy Grading
Further, all the agencies are involved in Grading of mutual funds/bond funds, real estate or
project finance gradings, SSI/ SME rating and issuer credit rating. Mutual fund grading scale is
used to rate the underlying credit risk of debt funds portfolio or risk associated with investing in
individual mutual fund schemes. The Mutual fund/ Debt Fund rating signifies the likelihood of
schemes to achieve the objectives and meet the obligations to investors. Grading of real estate
developers and projects provides an independent opinion on the relative performance capability
of real estate development entities. For the investor (buyer of property), the gradings
communicate the risks associated with the developers ability to deliver in accordance with the
terms, quality parameters, and time stipulated. For developers, the gradings provide a scientific
assessment of their abilities and risk profiles, serve to assist them in presenting their case to
lenders. SSI/ SME rating signifies the prospect of SSI/ SME of timely servicing of interest and
principle as per terms. Issuer Ratings, on the other hand, provide an opinion on the general
creditworthiness of the rated entities and not specific to a particular debt instrument.
All agencies are also involved in IPO Grading and Bank loan rating. IPO Grade represents
a relative assessment of the
fundamentals of the issue graded in relation to the universe of other listed equity securities
in India. The bank loan ratings provide a uniform benchmark for credit and pricing decisions
in the bank loan market, offering comments on the likelihood of repayment of loans to banks.
The rating agencies focus both on the risk of default, and the likelihood of ultimate recovery
in the event of default.
The grading of microfinance institutions as well as the assessment of State Governments
and rating of Urban Local Bodies is being done by all the agencies. MFI Grading is a
symbolic indicator of credit rating agencys current opinion on the relative capability of the
Microfinance Institution (MFI) concerned to manage its microfinance activities in a
sustainable manner. The rating of State Governments and Urban Local Bodies include the
ratings of those borrowings which
are guaranteed by such bodies including those of State Electricity Boards, Irrigation
Corporations, Road Development Corporation, etc.
With the passage of time CRISIL, ONICRA, ICRA and CARE have started
grading of maritime training institutions/courses. Grading of maritime training
institutions/courses depicts the level of consistency of institutions resources and
processes with those required for delivering the best quality of maritime education
and training. The grading of healthcare institutions is done by CRISIL, ONICRA and
ICRA only. Healthcare Grading presents an independent opinion on the quality of care
provided by healthcare entities to their patients.
CRISIL, ONICRA has also pioneered the rating of subsidiaries and joint
ventures of multinationals in India and has rated several multinational entities.
Information and Advisory Services
The information and advisory services are the next very important activity
being undertaken by rating agencies, which include information services, advisory
services, project and infrastructure advisory services, investment and risk
management advisory,
Financial Restructuring advisory, etc. as highlighted in Table 5.1b. A glance at the
table provides that all the agencies provide advisory services and such services are
usually undertaken by the agencies through their advisory arms. Further, all the
agencies are engaged in the information services which primarily focus on addressing
the unique information needs of investors and the capital market community.
Information services promote the efficiency in business and financial markets by
providing proper information to the users as and when required. The Project/
Infrastructure advisory services are undertaken by three agencies except FITCH.
These agencies evaluate the credit risks of the projects in areas such as roads, ports,
power and telecom to advise investors and banks about the regulatory framework, the
specific project risks and the ways of risk mitigation.
Investment and risk management advisory services are undertaken by
CRISIL, ONICRA and ICRA in which risk management advice is offered on the
efficient management of risk to banks and other lenders. Services relating to financial
restructuring advice are provided by ICRA and CARE under which these agencies
give advice to various companies about the optimal capital structure and the financial
restructuring options. ONICRA & CARE are the agencies to perform credit appraisal
services which help banks and other non-banking finance companies to set up or
modify their credit appraisal systems.
Table 5.1b
Information and Advisory Services
Services
Information Services
Advisory Services
Project/ Infrastructure
Advisory
Investment & Risk
Management Advisory
Financial Restructuring
Advice
Credit Appraisal System
CRISIL
ONICRA
ICRA
CARE
FITCH
__
__
__
__
__
__
__
__
Research Activities
Some Indian credit rating agencies have set up research arms to complement their
rating activities. These arms carry out research on the economy, industries and specific
companies, and make the same available to external subscribers for a fee. Research
being done by various agencies present an in-depth analysis into the matter being
researched and helps various users to properly make use of that information in future
planning or some policy formulation. In addition, they disseminate opinions on the
performance of the economy or specific industries. The research is also used internally
by the rating agencies for arriving at their rating opinions.
The research related activities done by various agencies are highlighted in Table 5.1c.
All the agencies are engaged in industry/sector and corporate analysis. Under
industry/sector analysis an in-depth study of the competitive scenario, the
CRISIL
ONICRA
ICRA
CARE
FITCH
__
__
__
Analysis
Corporate Analysis
Customised Research
Equity Research
and
products
of
various
issuers
CRISIL
Long
Medium-Term
ICRA
& Long-Term
Instruments
CARE
Long & MediumTerm
Instruments
Debentures
Bonds
Preference
Shares
Structured
Obligations
Debentures
Bonds
Preference
shares
Loans/Bank
Loans
Instruments
Non-convertible
Debentures
Bonds
Fixed deposits
Certificates
Deposit
Medium-Term
Instruments
Fixed
deposits
Certificates of
Deposit
Structured
Obligations
Convertible
Preference Shares
Redeemable
Preference
Shares
Loans/Bank
Fixed deposits
Certificates
Deposit
Loans/Bank
Loans
of
Short-Term
Instruments
Commercial
Papers
Short-term
Deposits
Loans
Short-Term
Instruments
Commercial
Papers
Loans
Others
Others
IPOs
Mutual funds
IPOs
Mutual funds
FITCH
Long-Term
Instruments
Debentures
Bonds
Loans/Bank
Loans
of
Medium-Term
Notes
Fixed deposits
Certificatesof
Deposit
Commercial
Papers
Preferred Stock
Loans
Loans
Short-Term
Instruments
Commercial
Papers
Loans
Others
IPOs
IPOs
Mutual
Funds
Mutual funds
fall in others category. Among the long-term instruments rated during the given
period, the highest percentage is of Loans/ Bank Loans rating (39.34%) followed by
debentures/bonds (13.31%) and preference shares (6.20%). This is also verified by the
respective mean values of the given instruments. But CV values of Loans/Bank Loans
ratings depict that there is more variation in number of Loans/Bank Loans rated by
CRISIL over the years as compared to other long-term instruments.
The yearly analysis highlights that among the long-term instruments, debentures and
bonds hold the highest percentages during the period 2001-03, whereas during 200409 Loans & Bank Loans ratings hold the highest position. As far as the medium-term
instruments are concerned, the average number of fixed deposits of companies rated is
more than those of Certificates of Deposit. The CV value signifies that there is more
variation in number of Certificates of
Deposit rated during the given period. In the case of short-term instruments the
average number of commercial papers rated during the period is more than double the
number of short-term loans, and there is more stability in rating of commercial papers
during the period as highlighted by CV value. The ratings of other instruments
including mutual funds and IPOs have also picked up after the year
2005 as is evident from the table.
SECTION-II
RATING PROCESS
Rating is a multi-layered decision-making process which requires interactive dialogue with the
issuer. The rating process is a fairly detailed exercise that starts with a rating request from the
issuer, the signing of a rating agreement and continues up to the surveillance of rating. It
involves among other things, analysis of published financial information, visits to issuers
offices and work places, and intensive discussions with issuers auditors, bankers, creditors, etc.
It also involves an in-depth study of the industry itself and a degree of environment scanning.
The rating process of various rating agencies is explained below:
CRISIL Rating Process
The process of rating starts with a rating request from the issuer, and the signing of a rating
agreement. CRISILs rating process normally take three to four weeks. However, rating can be
arrived at shorter timeframes, to meet urgent requirements. The CRISIL rating process includes
the following steps:
1. Request for Rating: The rating process starts with the issuers request for rating. Then the
rating agreement is signed between the client and the rating agency. The rating agency assigns a
rating team for the purpose, and the client provides the relevant information to the rating team
along with the rating fees.
2. Analysis of Information: The rating team conducts the preliminary analysis of the information
provided by the client. The team also conducts the site visits for the purpose of analysis.
3. Meeting: Then the meetings between the rating team and management of the issuer are
conducted and the rating team does the final analysis of the information after clarification of
any doubts in the management meeting.
4. Assignment of Rating: The rating team presents its analysis to the rating committee which
assigns the rating to the given instrument and communicates the same to the issuer. The rating
is then accepted by the issuer or the issuer may appeal the rating agency to further refine the
rating.
5. Dissemination of Rating: In case the rating is accepted by the issuer it is disseminated to
CRISIL's subscriber base, and to the local and international news media. Rating information is
also updated on line on the website of rating agency.
6. Continuous Surveillance: All ratings are kept under continuous surveillance throughout its
validity by the rating agency.
Submission of list of the required documents to the applicant for the rating process
Site Visit
Meeting with the applicant along with the structured questionnaire (this questionnaire
includes the basic details of the applicant along with their family background, existing
business, risk taking capacity, synergy in the business)
Factory inspection
Reference Check
Supplier Feedback
Financial Analysis
The Rating involves assessment of a number of qualitative factors with a view to estimating the
future earnings of the issuer. This requires extensive interactions with the issuers management,
specifically on subjects relating to plans, outlook, competitive position, and funding policies.
Thus, the following steps are included in the ICRA rating process:
1.
Formal Request for Rating: ICRAs rating process is initiated on receipt of a formal
request (or mandate) from the prospective issuer.
2. Setting of Rating Team and Analysis of Information: A Rating team, which usually consists
of two analysts with the expertise and skills required to evaluate the business of the issuer, is
involved with the Rating assignment. An issuer is provided a list of information requirements
and the broad framework for discussions. Then the Rating team analyzes that information.
3. Interaction with the Management of the Issuer: Then there are extensive interactions
between Rating Team and the issuers management, specifically on subjects relating to plans,
outlook, competitive position, and funding policies. In some cases where the agency finds it
necessary, the site visits may be done by the rating team for proper analysis of information.
4. Preparation of Rating Report: After completing the analysis, a Rating
Report is prepared by the Rating Team, which is then presented to the
ICRA Rating Committee. A presentation on the issuers business and management is also made
by the Rating Team.
5. Assignment of Rating: The Rating Committee which is the final authority for assigning
Ratings assigns the rating. The assigned Rating, along with the key issues, is communicated to
the issuers top management for acceptance. Non-accepted Ratings are not disclosed and
complete confidentiality is maintained on them unless such disclosure is required under any
laws/regulations.
6. Review of Ratings: If the issuer does not find the Rating acceptable, it has a right to appeal for
a review. Such reviews are usually taken up if the issuer provides certain fresh inputs. During a
review, the issuers response is presented to the Rating Committee. If the inputs and/or fresh
clarifications so warrant, the Rating Committee would revise the initial
Rating decision.
7. Mandatory Surveillance: As part of a mandatory surveillance process, ICRA monitors all
accepted Ratings over the tenure of the Rated instruments. The Ratings are generally reviewed
once every year, unless
the circumstances of the case warrant an earlier review. The Rating outstanding may be
retained or revised (that is, upgraded or downgraded) on surveillance.
1. Rating Agreement Signed: The rating agreement is signed between the rating agency and
the entity wanting to get its instrument rated.
2. Review of Publicly Available Information: FITCHs analysis and rating decisions are based
on information received from sources known to it and believed by FITCH to be relevant to the
analysis and rating decision. This includes publicly available information on the issuer, such as
company financial and operational statistics, reports filed with regulatory agencies, and
industry and economic reports. In addition, the rating process may incorporate data and insight
gathered by analysts in the course of their interaction with other entities across their sector of
expertise.
3. Questions Sent to Issuer: In addition to review of publicly available information the rating
agency needs to ask certain special questions from the issuer in order to get out the information
(that is not available otherwise) about the instrument. The issuers are required to reply within
the stipulated period and that too before the management meeting.
4. Management Meeting: After having received the replies from the issuers, the rating agency
conducts the meeting with the management to discuss the relevance of information collected
about particular instrument.
5. Further Analysis: After having discussions in the management meeting the rating agency goes
for further detailed analysis about the product or instrument to be rated.
6. Credit Committee Presentation and Draft Report: The credit committee (which if formed
specifically for the purpose) gives the presentation of its analysis and a draft report is prepared
for the same.
7. Rating Committee Review and Discussion: After getting the draft report from the credit
committee, the rating committee reviews it. The rating committee considers the relevant
quantitative and qualitative issues, as defined in FITCHs established criteria and
methodologies, to arrive at the rating that most appropriately reflects both the current situation
and prospective performance. Then the rating decision is communicated to the company and
the company accepts that rating.
8. Preparation of Final Rating Report and Press Release: Once the rating is communicated to
the company, it passes comments on the rating decision and after that a final rating report is
prepared and rating is communicated to the public through a press release and full rating report
is made available to the subscribers.
9. Ongoing Dialogues and Application of Rating to the New Issues: After the completion of the
rating process, the rating assigned is continuously reviewed by the agency and the agency
continues its dialogue with the company for further rating of new issues.
Thus, almost similar steps are followed by all the rating agencies as the Rating process is
initiated on receipt of a formal request and it ends with the continuous review of ratings in all
the cases. Rating decisions are made in accordance with the criteria applicable to that sector.
The methodologies and criteria that determine rating levels are created and revised by the
analytical groups. Each of the analytical group considers the appropriateness of its criteria and
models as individual transactions are rated.
5.8
RATING SYMBOLS
A
credit
rating
compresses
an
enormous
amount
of
diverse
economic
conditions.
Rating
symbols
are
indicators
of
the
rating
nomenclatures
for
long-term
ratings,
short-term
Table 5.4a
Rating Symbols for Long-term Instruments
CRISIL
ICRA
CARE
FITCH
Explanation
AAA
LAAA
CARE AAA
AAA (ind)
Highest safety
AA
LAA
CARE AA
AA (ind)
High safety
LA
CARE A
A (ind)
Adequate safety
BBB
LBBB
CARE BBB
BBB (ind)
Moderate safety
BB
LBB
CARE BB
BB (ind)
Inadequate safety
LB
CARE B
B (ind)
LC
CARE C
C (ind)
LD
CARE D
D (ind)
As depicted in Table 5.4a, for rating long-term debt instruments all the
agencies use similar basic symbols from AAA through D. The long-term debt
instruments are categorized into investment grade and speculative grade.
The symbols from AAA to BBB fall in investment grade whereas symbols
including BB and below fall in speculative grade. (CRISIL categorized these
instruments into three grades including high investment grade, viz. AAA and
AA; investment grade, viz. A and BBB; and speculative grade, viz. BB to D).
Agencies may apply + (plus) or -
(minus) signs for ratings from AAto Cto
reflect the comparative standing within the category. In order to differentiate their
symbols from one another, the agencies use various prefixes/suffixes :
CRISIL uses only the basic symbol,
ICRA uses the prefix of letter Lin every symbol, CARE uses as prefix the word
CAREin every symbol, whereas FITCH uses suffix (ind)in every symbol.
ICRA and FITCH use similar symbols for rating preference shares also, whereas
CRISIL uses the letter pfas a prefix to the rating symbols, for example, pf AAA. On
the other hand, CARE uses the suffix CCPs in
parentheses along with the symbol given above for rating cumulative
convertible preference shares, for example, CARE AAA (CCPs).
Table 5.4b
Rating Symbols for Medium-term Instruments
CRISIL ICRA
CARE
FITCH
Explanation
FAAA
Highest safety
FAA
MAA
CARE AA(FD)/(CD)
tAA (ind)
High safety
FA
MA
CARE A(FD)/(CD)
tA(ind)
Adequate safety
--
--
CARE BBB(FD)/(CD) --
--
--
CARE BB(FD)/(CD)
--
FB
MB
CARE B(FD)/(CD)
tB (ind)
Inadequate
safety(CARE
susceptible to default)
FC
MC
CARE C(FD)/(CD)
tC (ind)
High risk
FD
MD
CARE D(FD)/(CD)
tD (ind)
Default
Table 5.4c
Rating Symbols for Short-term Instruments
CRISIL ICRA CARE
FITCH
Explanation
P1
F1(ind)
A1
PR1
A2
PR2
F2(ind)
safety
P3
A3
PR3
F3 (ind)
P4
A4
PR4
F4(ind)
P5
A5
PR5
F5(ind)
Table 5.4d
Rating Symbols Used for Claims Paying Ability of Insurance Company
CRISIL ICRA CARE
FITCH
Explanation
AAA
(ind)
AAA
iAAA
CARE
AAA(In)
AA
iAA
iA
CARE A (In)
BBB
iBBB
CARE
(In)
BB
iBB
CARE BB(In)
BB (ind)
iB
CARE B(In)
B (ind)
iC
CARE C(In)
C (ind)
__
CARE D(In)
D (ind)
A (ind)
BBB BBB
(ind)
Table 5.4d shows that for rating claims paying ability of insurance
companies, CRISIL uses only the basic symbols ranging from AAA to D,
whereas CARE uses prefix CARE as well as suffix (In), and FITCH uses
suffix (ind) with these basic symbols for the same purpose. On the other
hand, the basic symbols ranging from AAA to C along with the prefix iare
used by
ICRA for rating claims paying ability of insurance companies.
Table 5.4e
Rating Symbols Used for Mutual Funds Grading
CRISIL
ICRA
CARE
FITCH
Explanation
AAAf
mfAAA
CARE AAAf
AAA (ind)
AAf
mfAA
CARE AAf
AA (ind)
Af
mfA
CARE Af
A (ind)
BBBf
mfBBB
CARE BBBf
BBB (ind)
BBf
mfBB
CARE BBf
BB (ind)
Bf
mfB
CARE Bf
B (ind)
Cf
mfC
CARE Cf
C (ind)
It is clear from Table 5.4e that for grading of mutual funds, along with
basic symbols ranging from AAA through C, CRISIL uses suffix f
, ICRA uses
prefix mf
, CARE uses prefix CARE as well as suffix f
, whereas FITCH uses
suffix (ind) for the purpose.
Table 5.4f mentions that for rating the issuers, CRISIL again uses the basic
symbols ranging from AAA to C. ICRA uses the prefix Ir
; CARE prefixes the
word CAREand suffixes (Is) to the basic symbol; and FITCH uses the suffix
(ind). It is also evident from the table that the basic symbols used by CARE
range from AAA to D.
Table 5.4f
Rating Symbols Used for Issuer Credit Rating
CRISIL ICRA
CARE
FITCH
AAA
IrAAA
AA
IrAA
CARE AA(Is)
AA(ind)
IrA
CARE A(Is)
A(ind)
Strong capacity to
financial commitments
BBB
IrBBB
BB
IrBB
CARE BB(Is)
BB(ind)
Inadequate capacity to
financial commitments
IrB
CARE B(Is)
B(ind)
CCC/C
C/C
IrC
CARE C(Is)
CCC(ind)/CC(in
d)/C(ind)
Lowest capacity to
financial commitments
__
__
CARE D(Is)
__
Explanation
Likely to default
meet
meet
meet
Table 5.4g
IPO Grading Symbols
CRISIL ICRA
CARE
FITCH
Explanation
5/5
IPO Grade 5 CARE IPO Grade 5 FITCH IPO Strong Fundamentals of the
Grade 5(ind) issuers concerned
4/5
IPO Grade 4 CARE IPO Grade 4 FITCH IPO Above average fundamentals
Grade 4(ind) of the issuers concerned
3/5
IPO Grade 3 CARE IPO Grade 3 FITCH IPO Average fundamentals of the
Grade 3(ind) issuers concerned
2/5
IPO Grade 2 CARE IPO Grade 2 FITCH IPO Below average fundamentals
Grade 2(ind) of the issuers concerned
1/5
IPO Grade 1 CARE IPO Grade 1 FITCH IPO Poor fundamentals of the
Grade 1(ind) issuers concerned
Table 5.4g reveals that the IPO grades are assigned on a five-point scale
ranging from 5 to 1. CRISIL uses the numerical symbol ranging from 5/5
(denoted as five on five) to 1/5 (denoted as one on five). ICRA
s 5-point IPO
grade ranges from IPO Grade 5to IPO Grade 1
, whereas CARE uses the
prefix of word CAREwith each symbol used by ICRA. Moreover, FITCH also uses
the similar symbols as used by ICRA but with slight modification as it uses
word FITCHas prefix and (ind)as suffix to each grade.
Table 5.4h
Micro Finance Institutions Grading Symbols
CRISIL ICRA CARE
FITCH Explanation
mfR1
M1
MFI1
F1
mfR2
M2
MFI2
F2
mfR3
M3
MFI3
F3
mfR4
M4
MFI4
F4
mfR5
M5
MFI5
F5
mfR6
__
__
__
mfR7
__
__
__
mfR8
__
__
__
Table 5.4h brings out that the basic symbols used by ICRA, CARE and
FITCH for grading the micro finance institutions, include numerals ranging
from 1 to 5, whereas this range is 1 to 8 for CRISIL. In order to differentiate
their symbols from each other CRISIL uses the prefix mfR
, ICRA uses prefix M
,
whereas CARE uses the prefix MFIand FITCH uses prefix Ffor the same.
For rating maritime training course, CRISIL and CARE use similar symbols
including Grade 1 to Grade 5, whereas ICRA uses prefix ICRA to the
symbol used by the other two agencies as shown in Table 5.4i. FITCH has
not yet started rating of maritime training course.
Table 5.4i
Maritime Training Course Grading Symbols
CRISIL ICRA
CARE
FITCH
Explanation
Grade 1
ICRA Grade 1
Grade 1
__
Grade 2
ICRA Grade 2
Grade 2
__
Grade 3
ICRA Grade 3
Grade 3
__
Grade 4
ICRA Grade 4
Grade 4
__
Grade 5
ICRA Grade 5
Grade 5
__
Table 5.4j
Healthcare Institutions
CRISIL
ICRA
CARE
FITCH
Explanation
Grade A
H1
__
__
Grade B
H2
__
__
Grade C
H3
__
__
Grade D
H4
__
__
It is clear from Table 5.4j that only CRISIL and ICRA rate the healthcare institutions.
CRISIL uses symbols ranging from Grade A to Grade D to grade the quality of services
provided by the healthcare institutions. ICRA uses symbols ranging from H1 to H4 for
rating healthcare institutions.
ONICRA:
LIQUIDITY RATIOS
1. CURRENT RATIO
CRISIL
(Amount in Rs.)
Year
Ratio
2009
2010
2011
2012
2013
288.63
323.68
401.57
349.77
444.36
171.01
178.62
246.30
223.64
291.32
1.69
1.81
1.63
1.56
1.53
ICRA
(Amount in Rs.)
Year
Ratio
2009
2010
2011
2012
2013
216.34
132.54
114.13
145.75
140.87
102.95
100.53
82.68
97.08
109.03
2.10
1.32
1.38
1.50
1.28
2.5
1.5
Crisil Ratio
Icra Ratio
0.5
0
2009
2010
2011
2012
2013
ICRAs Current ratio in 2009 is 2.10, current assets is increase from the current liabilities.
Company can easily repay its debts but in 2010 its reduce to the 1.32 and in next 2 years
current ratio increase 1.32 to 1.38 to 1.50 and after this it reduce to the 1.28 .So, ICRAs
liquidity is not satisfactory .Company can increase their liquidity by increasing current assets
or by reducing liabilities.
2. QUICK RATIO
CRISIL
(Amount in Rs.)
Years
Ratio
2009
2010
2011
2012
2013
277.03
303.65
381.77
337.7
428.24
171.01
178.62
246.30
223.64
291.32
1.62
1.70
1.55
1.51
1.47
ICRA
(Amount in Rs.)
Years
Ratio
2009
2010
2011
2012
2013
215.16
130.69
111.62
143.68
138.47
102.95
100.53
82.68
97.08
109.03
2.09
1.30
1.35
1.48
1.27
2.5
2
1.5
Crisil Ratio
Icra Ratio
1
0.5
0
2009
2010
INTERPRETATION :
2011
2012
2013
liquidity. It measures the ability to use its quick assets (cash and cash equivalents,
marketable securities and accounts receivable) to pay its current liabilities. Quick
ratio specifies whether the assets that can be quickly converted into cash are sufficient
to cover current liabilities.
Ideally, quick ratio should be 1:1.
CRISILs quick ratio is generally more than 1:1. In 2009 quick ratio is 1.62 and in
next year 2010 it increase to 1.70 and after this quick ratio of the company is reduced
to 1.55, 1.55 to 1.51, 1.51 to 1.47. But its not low from the ideal ratio. A quick ratio
higher than 1:1 indicates that the business can meet its current financial obligations
with the available quick funds on hand.
ICRAs quick ratio in 2009 is 2.09, in 2009 company has high quick fund on hand.
Quick assets is more than the liabilities. Company can pay its liabilities easily but in
2010 it reduce to the 1.30 it is not reduce from the ideal ratio i.e. 1:1
Sale (cr.)
Ratio
2009
2010
2011
2012
2013
441.62
528.71
639.16
736.60
789.28
74.85
82.96
91.11
97.1
130.67
5.90
6.37
7.01
7.59
5.90
ICRA
(Amount in Rs.)
Years
2009
2010
2011
2012
2013
Sale (cr.)
106.16
129.31
139.36
148.59
162.90
Ratio
13.01
14.96
14.38
14.05
11.86
8.16
8.64
9.69
10.58
13.73
16
14
12
10
Crisil Ratio
Icra Ratio
6
4
2
0
2009
2010
2011
2012
2013
Ratio
1.16
1.36
1.76
1.80
1.48
ICRA
(Amount in Rs.,)
Years
2009
2010
2011
2012
2013
Average Assets(cr.)
27.28
30.79
188.32
190.5
214.34
Ratio
3.89
4.20
0.74
0.78
0.76
4.5
4
3.5
3
2.5
Crisil Ratio
Icra Ratio
1.5
1
0.5
0
2009
2010
INTERPRETATION :
2011
2012
2013
measures a company's ability to generate sales from its assets by comparing net
sales with average total assets. In other words, this ratio shows how efficiently a
company can use its assets to generate sales.
CRISILs asset turnover ratio in 2009 is 1.16 the company utilize its assets
to increase their sales but in 2010, 2011 and 2012 ratio is increase i.e. 1.36, 1.76
and 1.80. In 2012 ratio is high in this year asset utilize efficiently but in next year
this ratio decrease to 1.48.
ICRAs asset turnover ratio in 2009 is 3.89and 2010 is 4.20, in 2010 the
assets is efficiently used after this year next 3 years ratio is decreases.
PROFITABILITY RATIOS
1. NET PROFIT MARGIN RATIO
CRISIL
(Amount in Rs.)
Years
Sale
Ratio (%)
2009
2010
2011
2012
2013
150.34
195.75
186.51
192.86
281.81
441.62
528.71
639.16
736.60
789.28
33.05
37.02
29.18
26.18
35.70
ICRA
(Amount in Rs.)
Years
Sale
Ratio (%)
2009
2010
2011
2012
2013
50
44.91
50.90
60.38
58.73
162.90
148.59
139.36
129.31
106.16
30.7
30.22
36.52
46.57
55.32
60
50
40
Crisil Ratio
30
Icra Ratio
20
10
0
2009
2010
2011
2012
2013
EBIT
Ratio (%)
2009
2010
2011
2012
2013
190.33
251.71
247.57
270.29
388.71
412.23
362.51
365.22
454.44
608.84
46.17
69.43
67.73
59.48
63.84
ICRA
(Amount in Rs.)
Years
EBIT
Ratio (%)
2009
2010
2011
2012
2013
74.1
68.82
75.73
72.87
81.93
209.60
242.34
282.92
322.37
355.65
35.35
28.4
26.77
22.60
23.04
80
70
60
50
Crisil Ratio
40
Icra Ratio
30
20
10
0
2009
2010
2011
2012
2013
INTERPRETATION : CRISILs return on long term fund in 2009 is 46.17 and in 2010 is
increases company get good return from long term fund. But in 2011-12 is start decline and in
this period return is low but in 2013 its start increasing 63.84.
ICRAs return rate is fluctuating in 2009 return is 35.35 after this year next 3 year i.e. 2010,
2011 and 2012 ratio is 28.4, 26.77 and 22.60 is less from the previous year. Company has low
return on long term funds. In 2013 ratio increases to 23.04 but it is not satisfactory.
CRISIL
(Amount in Rs.)
Years
Net Income
Outstanding Shares
Ratio
2009
2010
2011
2012
2013
462.16
599.38
682.17
759.25
931.53
2.22
2.17
25.95
27.65
23.41
208.08
275.83
26.28
27.46
39.80
ICRA
(Amount in Rs.)
Years
Net Income
Outstanding Shares
Ratio
2009
2010
2011
2012
2013
127.91
141.76
159.06
164.83
180.19
2.18
2.35
3.12
3.67
3.60
58.73
60.38
50.90
44.91
50
300
250
200
Crisil Ratio
150
Icra Ratio
100
50
0
2009
2010
2011
2012
2013
these two years shareholders of equity shares get high return in the form of
dividend .But after this 2 years earning per share decreases in next 2 years in 2011
and 2012 i.e. 26.28, 27.46 in this years return is very low according to the past 2
years. In 2013 earning per share increases to39.80 but its not better in comparison
to the 2009, 2010. Earning per share is not consistent its highly fluctuate.
ICRAs earning per share is not highly fluctuate minor change in the ratio.
In 2009 earning per share is58.73 in next year it increase to 60.38 in this year
earning per share is in highest point in 5 years after this year ratio goes down in
2011 and 2012 i.e. 50.90 and 44.91 , in 2012 shareholder get minimum return. In
2013 minor change in the ratio it increase to the 50. In every year shareholder
does not receive consistent return.
Dividend
No. of Shares
Ratio
2009
2010
2011
2012
2013
723
1675.6
77.11
112.32
134.33
7.23
7.10
7.01
7.02
7.07
100
236
11
16
19
ICRA
(Amount in Rs.)
Years
Dividend
No. of Shares
Ratio
2009
2010
2011
2012
2013
170
170
200
220
230
10
1`0
10
10
10
17
17
20
22
23
250
200
150
Crisil Ratio
Icra Ratio
100
50
0
2009
2010
2011
2012
2013
CRISILs dividend per share is very high in 2009 and 2010 i.e. 100 and 236
in this 2 years company actually give high return to the shareholders. In next year
2011 its fall down to the 11, this years dividend is highly low in comparative to
the past 2 years. In 2012 and 2013 it increase to 16 and 19 but its not as good as
2009 and 2010.
ICRAs dividend per share is constant in 2009 and 2010 i.e. 17 but after this
year dividend per share is increasing in ever year in 2011, 2012 and 2013 i.e.
20.22 and 23. Companies dividend per share is mostly consistent.
CRISIL
(Amount in Rs.)
Years
Operating Profit
No. of Shares
Ratio
2009
2010
2011
2012
2013
183.67
201.25
226.24
271.56
269.67
7.23
7.10
7.01
7.02
7.07
25.42
28.36
31.88
38.66
38.17
ICRA
(Amount in Rs.)
Years
Operating Profit
No. of Shares
Ratio
2009
2010
2011
2012
2013
54.32
58.39
57.92
58.74
67.08
10
10
10
10
10
54.32
58.39
57.92
58.74
67.08
80
70
60
50
Crisil ratio
40
Icra Ratio
30
20
10
0
2009
2010
2011
2012
2013
EPS
Ratio (%)
2009
2010
2011
2012
2013
100
236
11
16
19
208.05
275.83
26.28
27.46
39.80
48.05
85.85
41.72
58.23
47.71
ICRA
(Amount in Rs.)
Years
EPS
Ratio (%)
2009
2010
2011
2012
2013
17
17
20
22
23
50
44.91
50.90
60.38
58.73
33.99
37.85
39.29
36.43
39.16
100
90
80
70
60
Crisil Ratio
50
Icra Ratio
40
30
20
10
0
2009
2010
2011
2012
2013
FINDINGS
1. There are two main reasons that the information about credit rating are not
available to the investors a) As per the SEBI guidelines a company does not
required a credit rating if the maturity period of the debt is less than 18 months.
A company can therefore avoid a rating by issuing bonds with shorter
maturities and rolling them over if necessary b) A company does not need a
credit rating if it borrows money from the banks of the financial institutions.
2. In these days it is important for a company to gain a rating because they can
use it as a marketing tool.
3.
4.
Rating procedure of the different rating agencies is similar because its all
register under the NSIC (National small Industries Corporation).
5.
Rating agencies also perform other functions except from rating or grading i.e.
information technology services, research services, information advisory services etc.
6.
Rating agencies rate or grade long term / medium term / short debt instrument,
Claims paying ability of insurance company, Corporate Governance rating,
Grading of Mutual Funds/Bond Funds, Grading of real estate, SSI/ SME rating,
Issuer credit rating, Issuer credit rating etc.. but Grading of Healthcare Institutions is
not rated by the CARE and FITCH, Rating of Subsidiaries & Joint Ventures of MNCs
in India is not rated by the ICRA, CARE and FITCH it is only rated by the CRISIL
and ONICRA, Solar Energy Grading is only rated by the ONICRA.
7.
In analysis, the financial position of the rating companies is clear. It shows the
performace of the companies and compare their performance.
SUGGESTIONS
1. Rating should be accurate and based on facts. Rating of the same company by different
agencies should be similar.
2. Rating should be reliable because other companies or other persons dealing with those
company is also affected by rating.
C ON C LU SI ON S
India is a developing country and in developing countries they are short of financial resources.
Therefore, they are more dependent on the deposits of public. Credit rating agencies fulfill the
requirement of those companies by giving rating to them. This helps the investors to help
them to invest in safe securities and they can earn good return. Although these credit rating
agencies having some disadvantages but these can be control by proper check by the
government and then it can really be useful for the investors. Rating companies deal with the
different securities , rating give benefits to the person who rate his business himself like they
get loan easily from the financial institution because the lender know about his position or
rating. So, its shows that the rating provide benefits to the owner of the rated business and also
to the investors.
BIBLIOGRAPHY
(a) Recommended websites:
www.indiainfoline.com
www.crisil.com
www.carerrating.com
www.icra.com
www.onicra.com
www.moneycontrol.com
(b)Books:
C.Mohan Juneja, Rajesh Bagga - Accounting For Managers