Apply Now
EMI-calcluator

External Rating

  • Home
  • / Advisory /
  • External Rating

External Credit Rating and Industry Research

What is Credit Rating?

Credit rating is an opinion expressed by an independent professional organisation, after making a detailed study of all relevant factors. Such an opinion will be of great assistance to investors in making investment decisions. It also helps the issuers of debt instruments to price their issues correctly and to reach out to new investors. Regulators like Reserve Bank of India (RBI) and Securities & Exchange Board of India (SEBI) often use credit rating to determine eligibility criteria for some instruments. For example, RBI has stipulated a minimum credit rating by an approved agency for issue of Commercial Paper.

Credit ratings are also used for determination of risk weights for calculation of Capital Adequacy for Banks as per Basel II guidelines in India. In general, credit rating is expected to bridge information asymmetry in the market and establish, over a period of time, a more meaningful relationship between the quality of debt and the yield from it.

Credit Rating is also a valuable input in establishing business relationships of various types.

How we can help you

We at iThinkFunds (ITF) have specialised advisors for dealing with credit rating agencies on your behalf. We start our process from initial discussion with our customers, selection of credit rating agency, organising information for credit rating agency, management discussion, analytical discussion with credit rating agency and finally closure of rating.

Rating Process:

The rating process is a fairly detailed exercise. It involves, among other things, analysis of published financial information, visits to the issuer’s office and works, intensive discussion with the senior executives of issuer, discussions with auditors, bankers, etc. It also involves an in-depth study of the industry itself and a degree of environmental scanning. All this takes time and a rating agency may take 2-3 weeks to arrive at a decision, subject to availability of all the solicited information.

Various types of rating

  • Bank Lines Rating – Includes rating for fund based facilities like cash credit, overdraft, term loan and non fund based limits like Letter of credit and Bank Guarantee
  • Non Convertible Debentures Rating
  • Commercial Paper Rating
  • Fixed Deposit Rating
  • Issuer rating
  • Corporate Governance Rating
  • SME ratings
  • Infrastructure Expected Loss Rating
  • Project Finance
  • Public Finance
  • SME ratings
  • Market Linked Debentures Ratings
  • MFI Grading
  • IREDA Grading
  • IPO Grading

Bank Loan Ratings

A. Rating Symbols and Definitions for Long /Medium Term Debt Instruments

Symbols Rating Definition
AAA Instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry lowest credit risk.
AA Instruments with this rating are considered to have high degree of safety regarding timely servicing of financial obligations. Such instruments carry very low credit risk.
A Instruments with this rating are considered to have adequate degree of safety regarding timely servicing of financial obligations. Such instruments carry low credit risk.
BBB Instruments with this rating are considered to have moderate degree of safety regarding timely servicing of financial obligations. Such instruments carry moderate credit risk.
BB Instruments with this rating are considered to have moderate risk of default regarding timely servicing of financial obligations.
B Instruments with this rating are considered to have high risk of default regarding timely servicing of financial obligations.
C

Instruments with this rating are considered to have very high risk of default regarding timely servicing of financial obligations.

D Instruments with this rating are in default or are expected to be in default soon

 

Modifiers {“+” (plus) / “-“(minus)} can be used with the rating symbols for the categories AA to C. The modifiers reflect the comparative standing within the category.

Rating Outlook

The rating outlook can be ‘Positive’, ‘Stable’ or ‘Negative’.

A ‘Positive’ outlook indicates an expected upgrade in the credit ratings in the medium term on account of expected positive impact on the credit risk profile of the entity in the medium term.

A ‘Negative’ outlook would indicate an expected downgrade in the credit ratings in the medium term on account of expected negative impact on the credit risk profile of the entity in the medium term.

A ‘Stable’ outlook would indicate expected stability (or retention) of the credit ratings in the medium term on account of stable credit risk profile of the entity in the medium term.

A. Rating Symbols and Definitions for Short Term Debt Instruments

Symbols Rating Definition
A1 Instruments with this rating are considered to have very strong degree of safety regarding timely payment of financial obligations. Such instruments carry lowest credit risk.
A2 Instruments with this rating are considered to have strong degree of safety regarding timely payment of financial obligations. Such instruments carry low credit risk.
A3 Instruments with this rating are considered to have moderate degree of safety regarding timely payment of financial obligations. Such instruments carry higher credit risk as compared to instruments rated in the two higher categories.
A4 Instruments with this rating are considered to have minimal degree of safety regarding timely payment of financial obligations. Such instruments carry very high credit risk and are susceptible to default.
D Instruments with this rating are in default or expected to be in default on maturity.

 

Modifier {“+” (plus)} can be used with the rating symbols for the categories A1 to A4. The modifier reflects the comparative standing within the category.