November 30, 2012

MA0036 [Financial Systems and Commercial Banking] Set2 Q2

Q2. Which are the main credit rating agencies in India and the functions performed by each?

Ans. 

In India, commercial credit rating agencies include CRISIL, CARE, ICRA and Brickwork Ratings.

CRISIL
A CRISIL rating reflects CRISIL's current opinion on the relative likelihood of timely payment of interest and principal on the rated obligation. It is an unbiased, objective, and independent opinion as to the issuer's capacity to meet its financial obligations.

So far, CRISIL has rated 30,000 debt instruments, covering the entire debt market.

The debt obligations rated by CRISIL include:

  • Non-convertible debentures/bonds/preference shares
  • Commercial papers/certificates of deposits/short-term debt
  • Fixed deposits
  • Loans
  • Structured debt


CRISIL Ratings' clientele includes all the industry majors - 23 of the BSE Sensex constituent companies and 39 of the NSE Nifty constituent companies, accounting for 80 per cent of the equity market capitalisation, are CRISIL's clients.

CRISIL's credit ratings are

  • An opinion on probability of default on the rated obligation
  • Forward looking
  • Specific to the obligation being rated


But they are not

  • A comment on the issuer's general performance
  • An indication of the potential price of the issuers' bonds or equity shares
  • Indicative of the suitability of the issue to the investor
  • A recommendation to buy/sell/hold a particular security
  • A statutory or non-statutory audit of the issuer
  • An opinion on the associates, affiliates, or group companies, or the promoters, directors, or officers of the issuer


CRISIL ratings are based on a robust and clearly articulated analytical framework, which ensures comprehensiveness, standardisation, comparability, and effective communication of the ratings assigned and of every timely rating action. The assessment is based on the highest standards of independence and analytical rigour.

CRISIL rates a wide range of entities, including:

  • Industrial companies
  • Banks
  • Non-banking financial companies (NBFCs)
  • Infrastructure entities
  • Microfinance institutions
  • Insurance companies
  • Mutual funds
  • State governments
  • Urban local bodies


CARE

CARE Ratings are recognized by Government of India and regulatory agencies in India. CARE is registered with the Securities and Exchange Board of India. CARE Ratings are also recognized by RBI, NABARD, NHB and NSIC. RBI has also recognized CARE Ratings as an eligible external credit rating agency for the purpose of Basel II implementation in India.

CARE is an independent rating agency promoted by major banks and financial institutions in India. The three largest shareholders of CARE are IDBI Bank, Canara Bank and State Bank of India. CARE is a board managed company with eminent professionals on the board. The entire Board comprises of Independent Directors. CARE is the only rating agency in India which operates with an independent rating committee comprising of senior and reputed professionals. 

CARE Ratings endeavor has been to provide investors and risk managers with independent, authentic and insightful credit opinions based on detailed in-depth research, which encompasses detailed analysis of risks that affect credit quality of an issuer. CARE's analyst strength consists of large number of well qualified and multi-faceted professionals from diverse backgrounds such as; financial analysts, economists, sector specialists, chartered accountants, chartered financial analysts and financial risk managers. CARE is a founder member of the Association of Credit Rating Agencies in Asia (ACRAA) and is actively in dialogue with Asian and International rating agencies. This provides access to international know-how on ratings. CARE has a well established rating process and detailed rating methodologies covering various sectors. CARE also follows a well defined Code of Conduct for its Directors, Rating Committee Members and Analysts for professional conduct and for avoidance of conflict of interests.

CARE has over a decade of experience in rating various types of instruments. CARE assigned its first rating in November 1993 and upto March 31, 2010, CARE had completed 7654 rating assignments for an aggregate value of about Rs23121 bn. With a large number of qualified and experienced multi-faceted analyst and presence in all major metros of India, CARE has a unique understanding of the local business, cultural and value systems and factors which affect the Indian economy. 

CARE is a full service rating company offering a wide range of rating and grading services which includes rating debt instruments/enterprise ratings of Corporate, Banks, Financial Institutions (FIs), Public Sector Undertakings (PSUs), State Government bodies, Municipal Corporations, Non-banking Finance Companies (NBFCs), SMEs, Micro finance institutions, Structured finance Securitization transactions. In addition, CARE Ratings undertakes Corporate Governance ratings, Mutual Fund Credit quality ratings, IPO grading, Claims Paying Ability rating of Insurance Companies, Grading of Construction Entities and Issuer ratings. 

CARE has a significant rating coverage of the Indian Banks and Financial Institutions, who are also amongst the major investors in the Indian bond markets. This, acknowledges the confidence of Indian Institutional Investors in CARE Ratings. CARE ratings are also used by a wide range of investors including Mutual Funds, Insurance companies, Provident funds, Corporate and Retail investors. 

ICRA

ICRA information products, Ratings, and solutions reflect independent, professional and impartial opinions, which assist businesses enhance the quality of their decisions and help issuers access a broader investor base and even lesser known  companies approach the money and capital markets.

ICRA strongly believe that quality and authenticity of information are derivatives of an organization’s research base. It has dedicated teams for Monetary, Fiscal, Industry and Sector research and a panel of Advisors to enhance our in-house capabilities.

Research base enables to maintain the highest standards of quality and credibility.
ICRA Ratings Code of Conduct is aligned with the Code of Conduct Fundamentals for 
Credit Rating Agencies issued by the Technical Committee of the International 
Organization of Securities Commissions to the extent it is within the applicable Statutes in India. ICRA also has responsibilities to the investing public and to issuers themselves, including a responsibility to protect the confidentiality of some types of information issuers share with ICRA.

Brickwork Ratings

Brickwork Ratings, a SEBI licensed credit rating agency, founded by bankers, credit rating professionals, former regulators as well as professors, is committed to promoting Financial Literacy, having its corporate office in Bangalore and branches at New Delhi, Mumbai, Chennai, Hyderabad and Pune.. While Indian financial markets have been liberalized in the past two decades, useful information is still scarce.

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