ASSIGNMENT NO. 1 MANAGING FINANCIAL

SERVICES

TOPIC – WORKING OF CRISIL , ICRA AND CARE

Functions of Credit rating agencies in India:

The credit rating agencies in India offer varied services like

mutual consulting services, which comprises of operation up gradation, risk management. 

The have special sections to carry on research and development work of the industries.

They provide training to the employees and executives of the companies for better management.

They examine the risk involved in a new project, chalk out plans to fight with the problem successfully and thus ameliorate the percentage of risk to a great extent. For this they carry on thorough research into the respective industry.

They have started offering services to the mutual fund sector through the application of fund utilization services.

major industries currently graded by the credit rating agencies

agriculture,

health care industry,

infrastructure,

and maritime industry

Working of credit rating agencies in India

CRISIL:

CRISIL was set up in the year 1987 in order to rate the firms and then entered into the field of assessment service for the banks. Highly skilled members manage the agency. Ms. Roopa Kudva who acts as the Managing Director and Chief Executive Officer of the company heads it. The company has set up large number of committees to look after dispersal of various services offered by the company for example, investor grievance committee, investment committee, rating committee, allotment committee, compensation committee and so on. The head office of the company is located at Mumbai and it has established offices outside India also. 

NSIC-CRISIL Performance and Credit Ratings for SSIs

In association with National Small Industries Corporation (NSIC), CRISIL rates SSIs on a special rating scale. The government has presently subsidised the fees for this rating by up to 75 per cent, enabling small enterprises to get themselves rated.

Eligibility for NSIC-CRISIL Rating Any enterprise registered in India as a

micro or small enterprise can benefit from this rating. As a proof of eligibility, CRISIL requires a registration certificate issued by the micro and small enterprise registration authority, namely, the District Industry Centre or the Directorate of Industries.

NSIC Rating Scale

NSIC- CRISIL ratings for SSIs will reflect

two components –

Financial Strength

and Performance Capability.

NSIC Rating ScaleFinancial Strength

High Moderate Low

Performance

Capability

Highest SE 1A SE 1B SE 1C

High SE 2A SE 2B SE 2C

Moderate SE 3A SE 3B SE 3C

Weak SE 4A SE 4B SE 4C

Poor SE 5A SE 5B SE 5C

NSIC-CRISIL Performance and Credit Ratings for SSIs - Rating Process

NSIC - List of documents required

SSI Registration Certificate or copy of the Entrepreneur's Memorandum filed with notified authority along with its acknowledgement

Partnership Deed / Memorandum & Article of Association.

Authority letter to sign the application.

List of all partners / directors with their age, address, certified Net Worth / Income Tax returns, qualifications and experience.

Copy of the audited accounts for the last three years (where accounts for the last year have not been audited, provisional accounts

duly certified by a Chartered Accountant, along with two years audited accounts, are to be submitted).

In case of new project/expansion, copy of the project report containing a brief project profile, cost of project, source/means of finance.

Brief write-up about the products manufactured, end users, marketing tie-up and orders in hand.

Details of subsidy, tax concession available to the applicant.

Quality certificates, export awards won, membership of any associations.

Any other information that would enable us to understand your business better.

Details about group companies (names, constitution, net worth, turnover etc.)

Contact details of Bankers, key suppliers & key customers.

Insurance details of plant & machinery.

ICRA:

ICRA was established in the year 1991 by the collaboration of financial

institutions, investment companies, and banks. The company has

formed the ICRA group together with its subsidiaries. The company is

headed by Mr. Piyush G. Mankad and offers products like short-term

debt schemes, Issue-specific long-term rating and offers fund based as

well as non-fund based facilities to its clients

Today, ICRA and its subsidiaries together form the ICRA Group of

Companies (Group ICRA). ICRA is a Public Limited Company, with its

shares listed on the Bombay Stock Exchange and the National Stock

Exchange.

In rating an NBFC, ICRA evaluates the company’s business and financial risks, and uses this evaluation to project the level and stability of its future financial performance in various likely scenarios. The ratings are determined on a “going concern” basis rather than being based on a mere assessment of the company’s assets and debt levels as on a particular date.

Grading of IPO

CRA's five point IPO Grading Scale is as follows:

IPOGrade5   Strongfundamentals

IPOGrade4   Above-averagefundamentals

IPOGrade3   Averagefundamentals

IPOGrade2   Below-averagefundamentals

IPO Grade 1   Poor fundamentals 

ICRA provides rating for- Non banking finance companies Corporate Credit Commercial Papers   Issuer Rating  Passenger Vehicle & Two-Wheeler Industries   Auto Components Suppliers    Commercial Vehicle Manufacturers   Upstream Oil Industry   Downstream Oil Companies   LNG projects    Power Distribution Utilities   Domestic Primary Aluminium Producers   IPPS   Tower Infrastructure Companies   Mobile Service Providers   Toll Road Projects   Ports   Shipping Companies   Fertilizer Industry 

Analytical Framework

As in the case of other manufacturing companies,

for coal companies too, ICRA’s rating methodology

involves an assessment of the business risks,

financial risks and management quality. This note

highlights

the factors that are specifically evaluated while assessing the credit quality of a coal company. For analytical convenience, these factors may be grouped under the following heads:

Industry Risk Issuer’s Competitive Position Operating Efficiency Pricing Flexibility Customer Diversification and Counterparty Risk Reserve Replacement Environmental Compliance Parent-Subsidiary Structure Financial Position Management Quality

CARE-

Rating Criteria/Methodology – CARE undertakes rating exercise based on information provided by the company In-house database and data from other

sources that CARE considers reliable. CARE does not undertake unsolicited ratings.

The primary focus of the rating exercise is to assess future cash generation capability and their adequacy to meet debt obligations in adverse conditions.

The analysis attempts to determine the long-term fundamentals and the probabilities of change in these fundamentals, which could affect the credit-worthiness of the borrower.

The analytical framework of CARE's rating methodology is divided into two interdependent segments. The first deals with the operational characteristics and the second with the financial characteristics.

Besides quantitative factors, qualitative aspects like

assessment of management capabilities play a very

important role in arriving at the rating for an instrument.

The relative importance of qualitative and quantitative

components of the analysis vary with the type of issuer.

Rating determination is a matter of experienced and

holistic judgement, based on the relevant quantitative

and qualitative factors affecting the credit quality of the

issuer.

Rating Process

Symbols used-CARE AAA best credit quality, offering highest safety for timely servicing of debt

obligations. Such instruments carry minimal credit risk.

CARE AA high safety for timely servicing of debt obligations. Such instruments

carry very low credit risk.

CARE A adequate safety for timely servicing of debt obligations. Such instruments carry low credit risk.

CARE BBB moderate safety for timely servicing of debt obligations. Such instruments carry moderate credit risk

CARE BB r inadequate safety for timely servicing of debt obligations. Such

instruments carry high credit risk.

CARE B low safety for timely servicing of debt obligations and carry very high credit risk. Such Instruments are susceptible to default

CARE C very high likelihood of default in the payment of interest and principal.

CARE D lowest category. They are either in default or are likely to be in default soon