CREDIT RATING

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Presentation Transcript

CREDIT RATING :

CREDIT RATING BY-DHARA.PATEL

Introduction:

Introduction Credit rating is the assessment of a borrower’s credit quality. Credit rating performs the function of credit risk evaluation reflecting the borrower's expected capability to repay the debt as per term of issue. Credit rating is not a recommendation to buy , hold or sell. It is a well informed opinion made available to the public, and might influence their investment decisions.

Continue………………………..:

Continue……………………….. It is not a general purpose of evaluation nor overall assessment of credit risk firm. An agency that perform the rating of debt instrument is known as credit rating agency. The scope of a credit rating agency is not limited to rating of debts. Credit rating agency now undertake financial analysis and assessment of financial products.

Importance of credit rating :

Importance of credit rating Credit rating helps in the development of financial market. Credit rating saves the investor's time and enables him to take a quick decision and provides them better choice among available investment opportunities. Credit rating help the market regulators in promoting stability and efficiency in the securities market.

The growth of credit rating industry in India:

The growth of credit rating industry in India The prominent credit rating agency in India are:- 1) CRISIL:-Credit Rating Information Services of India Limited. 2) ICRA:- Investment Information and Credit Rating Agency of India Limited. 3) CARE:-Credit Analysis & Research Ltd. 4) Fitch Rating India Private Limited.

Rating Methodology:

Rating Methodology The rating exercise start at the request of the company. the process is quiet lengthy and time consuming. Rating are assigned after an in-depth study of both objective and subjective factors related to bussines,finance management and so on. Rating are based on in-depth study of the industry and SWOT analysis of the company or industry.

The analytical frame work for rating consist of the following 4 broad areas:-:

The analytical frame work for rating consist of the following 4 broad areas :- Business Analysis Financial Analysis Management Evaluation Fundamental Analysis

Rating Symbols:

Rating Symbols AAA:-Highest safety AA:-High safety BBB:-Moderate safety B:-Denotes high risk C:- Denotes substantial risk D:- Denotes default in terms of timely payment of interest and principal.

SEBI regulation for credit rating agencies-1999.:

SEBI regulation for credit rating agencies-1999 . Only commercial banks , public financial institutions, foreign banks operating in India, foreign credit rating agencies, and companies with a 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 net worth of Rs. 5 crore. Rating agencies cannot asses financial instrument of their promoters who have more than 10 % stake in them.

Limitations of credit rating:

Limitations of credit rating Credibility of rating is questionable. A frequent revision of grading by credit rating agencies, that is sometimes upgrading and sometimes downgrading, creates a confusion among investors questioning again the credibility of the expertise of rating agencies. The rating agencies do not perform an audit but rely solely on information provided by the issuer. process is compromised.

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Thank you