Credit Banking

Credit Banking - Credit Rating (CR) (Lesson-7: IBFS) Prof....

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1 Credit Rating (CR) (Lesson-7: IBFS) Prof. C. Anand Faculty – IBS, Hyderabad
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2 Contents This deals with:- 1. Introduction to CR 2. Types of CR 3. Classification of CR Services 4. 5. Regulatory Framework of CRAs 6. Key parameters for Rating Debt Instruments 7. Indian CRAs 8. International Credit Rating
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3 1. Introduction to Credit Rating Credit rating is essentially a symbolic indicator of the relative Grading of the investment/or credit qualities of financial instruments and reflects the relative ability of the issuers of such instruments to meet the servicing obligations as and when they arise. As per SEBI, rating is an opinion regarding securities, expressed in the form of standard symbols or in any other standard form, assigned by a Credit Rating Agency (CRA) and used by the issuer of such securities to comply with a requirement specified by SEBI regulations.
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4 2. Types of CR 1. Shadow Rating: This is an indicative rating and will give the issuer an idea of its formal rating and suggests if it would be beneficial to go for formal rating. The issuer will not have to disclose the rating to the public. This will be in a range. 2. Formal Rating: The issuer has to announce the formal rating to the public. The rating shall be more detailed than shadow rating, involves plant visits, requires annual fees to be paid and meetings and constant monitoring. Formal rating involves financial data, projections, strength of parent companies, assessment of market position, role of management, industry outlook and overall business environment.
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5 3. Classification of CR Services Security Rating: (a) Debt/Bond Rating (Rating the bonds/debentures issued by a Company, Govt. This can be Long-term Debt Instruments like Debentures, Bonds or Preference Shares; Medium-term Debt Instruments between 1-3 years like Fixed Term Deposits; or Short-Term Instruments of 1 or less than 1 year like CPs or CDs); (b) Equity Rating (Rating of Equity issued in the capital market). Individual/Borrower Rating: Rating a borrower to whom loan or credit facility may be sanctioned. Sovereign Rating: Rating a country or a State as to its creditworthiness, probability of default, etc.
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6 A. Advantages : CR serves as a bench mark to the risk involved in a Besides
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Credit Banking - Credit Rating (CR) (Lesson-7: IBFS) Prof....

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