PRESENTED BY:Bhavin Ramani Jignesh Sharma Shaurin Mehta

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A Credit rating agency (CRA) is a company that assigns credit ratings for issuers of certain types of debt obligations as well as the debt instruments themselves. In some cases, the servicers of the underlying debt are also given ratings. In most cases, the issuers of securities are companies, special purpose entities, state and local governments, non-profit organizations, or national governments issuing debt-like securities that can be traded on a secondary market. A credit rating for an issuer takes into consideration the issuer's credit worthiness (i.e., its ability to pay back a loan), and affects the interest rate applied to the particular security being issued

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Credit rating agencies (CRAs) play a key role in financial markets by helping to reduce the informative asymmetry between lenders and investors, on one side, and issuers on the other side, about the creditworthiness of companies or countries. CRAs' role has expanded with financial globalization and has received an additional boost from Basel II which incorporates the ratings of CRAs into the rules for setting weights for credit risk.
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The basic objective of credit rating is to provide an opinion on the relative credit risk associated with the instrument being rated. The process, in a nutshell, involves estimating the issuers capacity to generate cash from operations and assessing the adequacy of this estimate vis--vis the issuers debt servicing obligations over the tenure of the instrument. Credit rating agencies specialize in analysing and evaluating the creditworthiness of corporate and sovereign issuers of debt securities. In the new financial architecture, CRAs are expected to become more important in the management of both corporate and sovereign credit risk

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All factors that have a bearing on the issuers ability to generate cash flows are considered while assigning ratings. Conceptually, these factors may be classified as business risk, financial risk drivers, and management related factors. ICRAs rating process places considerable emphasis on evaluating business risks, as it does on evaluating the financial ratios.

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For credit risk evaluation, stable businesses (low industry risk) even with lower level of cash generation are viewed more favourably as compared with businesses with higher cash generation potential but relatively high degree of volatility associated with such cash flows (higher industry risk).
In India these Credit rating agencies are ICRA, CRISIL, CARE and internationally FITCH,S&P and Moddys

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Investor protection via independent, 3rd party opinion on the credit risk or default risk of issuers/issues Distill complex financial structures into userfriendly symbols Provide a common yardstick to evaluate default risk for investment decision making Monitor and disseminate credit opinions on rated issuers/issues in a timely and efficient manner Bridge the information gap between issuers and investors and a source of credit surveillance for investors

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 Strong

regulatory supports
viability

Financial Strong

and supportive shareholder

Independence Innovation

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OIL and GAS Rating System by Moddys

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 Political

Risk Income and economic structure Economic growth prospects Fiscal Flexibility General government burden Offshore and contingent liability Monetary flexibility External flexibility External debt burden

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 Credit

rating agencies do not downgrade companies promptly enough Large corporate rating agencies have been criticized for having too familiar a relationship with company management, possibly opening themselves to undue influence or the vulnerability of being misled While often accused of being too close to company management of their existing clients, CRAs have also been accused of engaging in heavy-handed "blackmail" tactics in order to solicit business from new clients, and lowering ratings for those firms
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 Ratings

agencies, in particular Fitch, Moody's and Standard and Poors have been implicitly allowed by governments to fill a quasiregulatory role, but because they are forprofit entities their incentives may be misaligned. Rating agencies have come under criticism for a narrow-minded view of government default from investors' perspective. It has also been suggested that the credit agencies are conflicted in assigning sovereign credit ratings since they have a political incentive to show they do not need stricter regulation by being overly critical in their assessment of governments they regulat
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THANK YOU.

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