The Credit Rating Agencies are regulated by mainly SEBI and RBI policies. In fact SEBI through The Securities and Exchange Board of India ( Credit Rating Agencies) Regulations, 1999 was one of the first regulators globally to devise an effective and comprehensive regulatory framework for CRAs
SEBI regulation for CRAs has been designed to ensure the following:
- Only credible players enter and exist in the business
-The regulations are devised in such a way that fair and objective opinions are given by the CRAs
-Investors have widespread access to ratings
- The applicant should be registered as a company under the Companies Act, 1956 and possess a minimum network of Rs.5 crore.
Additionally, the International Organisation of Securities Commissions (IOSCO) has suggested certain changes in its code of conduct to enhance the credibility of the CRAs. The proposals once put in place will have to be adopted by all the national regulatory authorities. The proposed changes include enhancing provisions to safeguard the integrity of the credit rating process in order to avoid conflict of interests and increase transparency and at the same time safeguard public information. (Source: The Economic Times, 10 February, 2014)
Market Performance
Crisil was the first credit rating agency to set up shop in India in 1987. At that time the industry was in nascent stage and faced several hurdles because of the following issues
-Absence of bond market
-Absence of market-determined interest rates
However the liberalization of Indian economy aided the growth of the industry due to rapid economic growth in the country which prompted both private as well as government enterprises to look at the capital market for financing options.
The industry receive...
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... resources as well as having sophisticated analytical methods and facilities. However the industry’s growth depends to a large extent on how the corporate debt and derivative market in India expands. This would need liberalization of capital account and deregulation for increasing demands for debt instruments in not only domestic but also international markets. Also India is facing pressure from international circles in this regard, so far the regulatory authorities have followed a cautious line since it would cause disturbance and fluctuations in the domestic market. However the future is not completely bleak for this industry. The Credit rating industry in India has tremendous growth potential due to the following factors:
-Strong capex cycle in Indian economy
-Lower penetration due to corporate bond market
-Regulatory push due to implementation of Basel II norms
This credit rating is determined at the conclusion of each year or round. It is determined by comparing the current debt interest rates with the prime rate. In general, it determines the company’s ability to pay off its long term debt. This rating is a good indicator to the overall health of the company. Each round, with the exception of round 6, both Andrews and Baldwin had the same credit rating. The reason for this change was due to the fact that Andrews issued more long term debt that round. Baldwin did not incur any additional long term debt from round 5 to 6. Baldwin had an increase in assets and a decrease in debt during that round. This ratio caused the interest rates being charged to the company to decrease which caused the credit rating to increase. Andrews had increasing debt and a growth of assets equal to Baldwin. This increase in debt was the largest factor when assessing the credit rating of each of these
The last step that should be followed is determining the relative value of the bond, in contrast to the agency determined rating. Comparing the credit statistics of the company to those of the industry peers, will result in a true sense of the ratings. Analyze on the indenture (terms and conditions) of the bond: its covenants, corporate structure, security and redemption features. Finally, the company should examine the pricing of the bond in relation to alternatives in the same industry, and to bonds in other industries with comparable ratings and credit statistics.
Originated by John Moody in 1909, the Moody’s rating system provides investors with grades to evaluate the creditworthiness of securities to sell to investors. Like we discussed in class, there are nine grades that range from least risky to most risky (“Ratings Definitions,” 2014). Prior to late 2007, Moody’s was a highly trusted rating company.
The PCAOB has the authorization to provide rules governing the following areas; ethics, independence, and quality control for any registered accounting firm...
The implications of these findings are as follows. The works of these academics highlight the important point that there is higher volatility of capital charges for better quality credits (Goodhart & Taylor, 2004). This is because these credits face a steeper risk curve, as the movement within the ratings scale (from one rating to another) is much greater.
Banks have responded in recent years to these problems by diversifying away from interest sensitive products and services. But interest rates are the fundamental aspect of any financial services. Therefore, I believe the financial services industry will be deeply affected by rising interest rates. Banks have experienced good business factors over the past two years. Interest rates were low, credit quality was good, and inflation was low. These factors are usually predictive of the types of earnings banks should report. But good times can't continue because interest rate hikes cause reduced lending activity, damaged credit quality, and reduced values of bond portfolios.
Credit rating agencies take a wide range of factors – debt raising purpose, industry outlook, corporate profile and financial measures into account when performing corporate bond rating service. Debt is raised to repurchase shares rather than the normal case of capturing expansion opportunities to strengthen cash flow. This is not going to be regarded favorable to debt holders since the debt coverage ability in terms of cash or collateral is not strengthened. UST is characterized positively by commanding market share position in the moist smokeless tobacco market, strong brand name recognition, premium product offering, pricing flexibility; negatively by lack of geographical and product diversification, market share erosion, lackluster non-core investment performance, and recent key executive reshuffle and anti-trust dispute with Conwood Co.. Besides its cash generative nature, smokeless tobacco market still is faced with legal challenges (legislation, litigation, marketing ban), slowing down growth and possibility of future health research negatively influencing customer behavior. Financial measures will be conducted in the form of pro-form income statement, key data and...
[6] Kripalani, Majeet & Egnardio, Pete. The Rise Of India. Business Week Online. December 8, 2003. http://www.businessweek.com/magazine/content/03_49/b3861001_mz001.htm
Rohan Perera, was unable to submit audit report at dead line given by the Central Bank. He requested to extend the deadline by stating that more time required for conducting the external audit. The bank also did not have customer grading system. Therefore it lost the chance of customer monitoring. When granting a loan to a customer the bank adopted poor policy. The credit department did not have followed the written manual offered by the Central Bank which should follow before granting a loan. The bank has granted loans without proper evaluations about the customers. Loans had granted to the customers who had no any contractual agreement. Granting fresh loans to recover overdue loans was a general practice followed by the
In-appropriate and untimely investments can result in huge losses to the investors. Moody’s potential customers can be those who require economic region assessment. Such customers can be up-coming companies looking for global expansion. For example, Under Armour has been performing well in the North America. However, it has limited global presence resulting in 95% of its revenues from North America1. Moody’s can attract such customers and provide economic evaluation of the regions. This can help companies allocate their budget rationally in their future ventures. This can be easily tracked by observing the global markets and central bank policies of various economies. Moody’s can form strategic relationships with leading banks and credit societies. Such tie-ups can bring in customers who seek credit from these banks to Moody’s for risk
The lifestyle of people across the world is developing rapidly. As there is a growing concern for people about the lifestyle and way of living, the scope for the microfinance industry is also at a growing pace. A large number of people across the world prefer finance for the purpose of purchase of consumer durables as well as lifestyle products. As the credit card EMI options are more expensive, people prefer NBFCs for the purpose of consumer durable loans. The project done in bajaj finserv explains the role of NBFCs in the consumer durable loans and the procedure undertaken in order to disburse the consumer durable loans.
The market for IT industry was huge and expanding at a fast pace. However the market leaders were Accenture and IBM which had a negligent market share and rest was captured by small enterprises. Indian companies also ventured in the industry and due to their competition, IT multinational giants had to increase their base in India. Due to high opportunities, attrition rate was also high in this industry. As a result Indian companies like Wipro, Infosys increased their base level salaries. During this phase, Indian economy was transforming towards an era of information and knowledge. This can be seen from the fact that contribution of services towards the economy’s GDP was higher than 18% in 2001 as against in 1980. No other industry had done better standing against global competition. The annual exports had always been over 50% over a decade. U.S.A. share represents highest with 61% and about a third of Fortune 500 companies outsource their software work to India. To foster development, Indian government has taken a number of steps like liberalization of policies and providing necessary capital and infrastructure to foster growth. Thus Indian environment has been conducive for growth. (Ref: Indian Embassy.org) Competitor analysis- The market for IT industry was fairly competitive with IBM and Accenture as global leaders and rest of the market was pretty diffused. IBM and Accenture had strong brand and a global presence with a large customer base. They also offered panoply of services viz. technology implementation, business consulting, offshore services, customer relationship management etc. Both offered breadth and depth of services. IT market in India offered technical and business consulting with Tata Consultancy Services which was the market leader in IT exports and Wipro Technologies and Infosys being other major market players. TCS offered consultancy services, IT services, asset based solution etc. Wipro was third largest IT provider with service offerings in IT consulting, software solutions, BPO etc. Both had a strong global presence. Intensity of Rivalry: Rivalry amongst competitors was pretty intense as can be seen the Indian competition caused IBM to increase their presence in India. However leaders like IBM and Accenture had a wide range of service offerings so competition was only amongst few sectors. Rivalry was to hire the top talent as human capital is the most important thing in the IT sector. This is the reason that attrition rate lead to a rise in pay packages.
Barra Airways has an interest coverage ratio (ICR) of 18; this means that Barra Airways is not burdened with a large amount of interest payments on existing debts. Therefore, using debt does appear to be an attractive source of finance. This is because Barra Airways existing interest burden is low, meaning that to increase it would have a reduced effect on the company’s net profit. However, EasyJet has an ICR of 30.88, considerably larger than that of Barra Airways [5]. Lenders may look at this data and conclude that Barra Airways is a riskier company to lend too than others in the same industry; this will result in a higher interest rate on any debt taken out.
The fourth largest sector in the Indian economy is all set for 16% growth during 2008-09, from a base of Rs. 85470 crores, as predicted by FICCI. Going forward, as anticipated by CRISIL, FMCG sector will touch around Rs. 140000 crores by 2015 (33.4B$).
Machiraju, H. R. , 2002. International Financial Markets And India. 1st ed. New Delhi: New Age International.