CREDIT RATING Consultants for improved score of CRISIL, CARE & ICRA  - India

Credit Rating Consultants

Credit Rating Methodologies

In India, rating exercise is initiated at the behest of the company to be rated. It is mostly required to avail bank loans. It is also done in case of issuance of bonds, debenture, Commercial Papers (CP) by the company. They also now rate Banks, insurance companies, other Financial Institutions.

Rating Rationale: Thorough analysis of factors that affect credit worthiness of the issuer. These factors are both subjective and objective. The analytical framework consists of 4 broad areas --

Business Analysis industry risk - actual & estimated demand & supply, no. of existing firms, potential entrants in the industry, govt. policies on the specific industry, performance of industry as a whole and its future.
  market position in the country - market share of the firm, strength & weakness vis-à-vis competitors, marketing arrangements, products and customer acquisition, retention policy
  operating efficiency of the company - production process of the firm, cost structure, locational advantage, labour relations, input availability and prices
  legal position- filing of forms,returns and regulatory compliance, accuracy of information, legal framework of business and follow up.
Financial Analysis accounting quality - method of income recognition, inventory valuation, depreciation policies, off-balance sheet liabilities, auditor's remarks
  earnings protection- profitability ratios, earning growth, projection assessment
  adequacy of cash flow- study of future cash flow, working capital needs, capital budgeting
  financial flexibility - development of alternative financial plans and their feasibility
Management Evaluation track record of management
  management's capacity to overcome adverse situations
  goals, philosophies
Fundamental Analysis liquidity management - composition of capital, management of liquid assets, asset-liability matching
  asset quality - companies credit management, policies for monitoring credit, composition of assets, sector risk
  profitability - study of profitability ratios, spread, reserves, non-business income
  interest & tax sensitivity - exposure to interest rate changes, tax provision, impact of tax rate changes
Rating fee * 0.1% of the issue, 0.03% more for surveillance.

SEBI Regulation on Credit Rating Agencies

* governed by Securities and Exchange Board of India (Credit Rating Agencies ) Regulations, 1999
* only commercial banks, public financial institutions, foreign banks operating in India, foreign credit rating agencies, companies with minimum net worth of Rs. 100 crore as per its audited annual accounts for the previous 5 years are eligible to promote rating agencies in India.
* rating agencies are required to have a minimum net worth of Rs. 5 crore.
* rating agencies cannot access financial instruments of their promoters who have more than 10% stake in them.
* rating agencies cannot rate a security issued by an entity which is a borrower of its promoter or a subsidiary of its promoter or an associate of its promoter, if (i) there are common chairmen, directors between credit rating agency and these entities; (ii) there are common employees; (iii) there are common directors, chairmen, employees in the rating committee.
* rating agencies cannot rate a security issued by its associate or subsidiary, if the credit rating agency or its rating committee has a chairman, director, or employee, who is also a chairman, director or employee of any such entity.
* a penalty of suspension of the certificate of registration or a penalty of cancellation of registration may be imposed on the rating agency if it fails to comply with any condition or contravenes any of the provisions of the act.

The Indian credit rating industry is next to USA in terms of number of ratings issued and in the number of agencies. Between the 4 rating agencies in India, CRISIL is the market leader with 65% market share.