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CREDIT RATING :
MEANING,FUNCTION AND BENEFIT OF CREDIT RATING
FINANCIAL SERVICES
FINANCIAL SERVICES
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MEANING AND
DEFINITION OF CREDIT RATING
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CREDIT RATING IS AN ANALYSIS OF THE CREDIT RISK
ASSOCIATED WITH A FINANCIAL INSTRUMENT OR A FINANCIAL ENTITY. IT IS RATING
GIVEN TO PARTICULAR ENTITY BASED ON THE CREDENTIALS AND EXTENT TO WHICH THE
FINANCIAL STATEMENTS OF THE ENTITY ARE SOUND IN TERMS OF BORROWING AND LENDING
THAT HAS BEEN DONE IN THE PAST.
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IS SIMPLY OPINION ON THE FUTURE ABILITY AND
LEGAL OBLIGATION OF AN ISSUER TO MAKE TIMELY PAYMENTS OF PRINCIPAL AND INTEREST
ON SPECIFIC FIXED INCOME SECURITY,
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DEFINITION
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CRISIL CREDIT RATING IS AN UNBIASED AND
INDEPENDENT OPINION AS TO ISSUER’S CAPACITY TO MEET ITS FINANCIAL
OBLIGATIONS.IT DOES NOT CONSTITUTE A RECOMMENDATION TO BUY R SELL OR HOLD A
PARTICULAR SECURITY.
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ICRA RATINGS ARE OPINIONS ON THE RELATIVE
CAPABILITY OF TIMELY SERVICING OF CORPORATE DEBT AND OBLIGATIONS. THESE ARE NOT
RECOMMENDATIONS TO BUY AND SELL NEITHER
THE ACCURACY NOR THE COMPLETENESS OF INFORMATION IS GUARANTEED.
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FEATURES
I.
IS AN ASSESSMENT OF THE CAPACITY OF AN ISSUER
OF DEBT SECURITY BY AN INDEPENDENT
II.
RATINGS ARE EXPRESSED IN THE CODE WHICH CAN BE EASILY UNDERSTOOD BY LAY THE INVESTOR
III.
IN INDIA IT IS DONE FOR SPECIFIC DEBT SECURITY
AND NOT FOR THE COMPANY AS WHOLE
IV.
IT IS NOT ONE TIME EVALUATION OF CREDIT RISK.
NOT VALID FOR ENTRE LIFE OF THE SECURITY
V.
NO FIDUCIARY RELATIONSHIP BETWEEN THE RATING
AGENCY AND USERS
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IMPORTANT CREDIT RATING AGENCIES IN INDIA
I.
CREDIT ANALYSIS AND RESEARCH LIMITED(CARE)
II.
INVESTMENT INFORMATION AND CREDIT RATING AGENCY
OF INDIA LIMITED(ICRA)
III.
CREDIT RATING AND INFORMATION SERVICES( INDIA )
LIMITED
IV.
FITCH CREDIT RATING INDIA PRIVATE LIMITED
V.
STANDARD AND POOR’S CORPORATION
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REGISTRATION
OF CRA
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AS PER SECTION 12 OF THE SEBI ACT 1992 A PERSON
HAS TO GET REGISTERED WITH SEBI UNDER SEBI( CREDIT RATING AGENCIES) REGULATIONS TO CARRY ON THE ACTIVITIES ON CREDIT RATING.
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HAS TO
FOLLOW THE CODE OF CONDUCT IN THIRD SCHEDULE
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SEBI ( CREDIT RATING AGENCIES REGULATIONS 1999
COVERS RATING OF SECURITIES ONLY AND NOT
RATING OF FIXED DEPOSITS,FOREIGN
EXCHANGE.COUNTRY RATING AND REAL ESTATE
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PROMOTERS OF
A CRA
I.
PUBLIC FINANCIAL INSTITUTION
II.
SCHEDULED COMMERCIAL BANK
III.
A FOREIGN BANK
IV.
A FOREIGN CREDIT RATING AGENCY( MINIMUM FIVE
YEARS EXPERIENCE)
V.
A BODY CORPORATE HAVING NET WORTH CRORES IN
EACH OF THE IMMEDIATELY PRECEDING 5 YEARS
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PROCEDURES
FOR CREDIT RATING
I.
TAKING REQUIRED INFORMATION FROM THE COMPANY
II.
DISCUSSION WITH MGMT AND VISITING THE COMPANY’S
OPERATING LOCATIONS IF REQUIRED
III. PREPARATION OF AN ANALYTICAL ASSESSMENT REPORT
IV.
PRESENTING THE REPORT TO SENIOR EXECUTIVE OF
CRA COMMITTEE
V. DISCUSSION BY THE COMMITTEE AND ASSIGN RATING
VI.
COMMUNICATING THE RATING
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FUNCTIONS OF CREDIT RATING
I.
SUPERIOR INFORMATION: UNBIASED OPINION,GREATER
ABILITY TO ASSESS RISKS,HAS ACCESS TO LOTS OF INFORMATION
II.
LOW COST INFORMATION
III.
BASIS FOR A PROPER RISK RETURN TRADE OFF
IV.
HEALTHY DISCIPLINE ON CORPORATE BORROWER
V.
FORMULATION OF PUBLIC POLICY GUIDELINES ON
INSTITUTIONAL INVESTMENT
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BENEFIT TO THE CREDIT RATING TO THE INVESTOR
A. ASSESSMENT OF
CREDIBILITY
B. RISK
INDICATOR
C. PROTECT
AGAINST
D. HELP IN
TAKING QUICK
E. INDEPENDENT
F. RATING
G. OTHER SERVICES
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BENEFITS TO THE ISSUERS
1. LOWERS THE
COST OF BORROWING
2. WIDENS
INVESTOR BASE
3. FOSTERS A
BETTER IMAGE
4. INDUCES SELF
DISCIPLINE
5. LOWERS THE
COST OF THE ISSUE
6. MOTIVATES THE
GROWTH
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BENEFITS TO THE INTERMEDIARIES
1. RATING HELP
THE MERCHANT BANKERS AND OTHER CAPITAL MARKET INTERMEDIARIES IN PROPER
PLANNING,PRICING,UNDERWRITING ETC
2. MONITOR THE
RISK EXPOSURE
3. IN
SECURITIZATION OF ASSETS ETC
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