Question

Please prepare a three-page essay Credit Bureaus (credit reporting agencies - CRAs) and Scoring models in INDIA

To be disclosed:

• General information about top CRAs (history, structure etc)
• Services of chosen CRAs
• Description or compare analyses of scoring models

Answer 1

Credit reporting agencies is also known as credit rating agencies.

Credit ratings refer to na evaluation of the creditworthiness of an institutional debtor in terms of its ability to service the debt and ascertain the risk of default, by taking into account a massive chunks of quantitative and qualitative data available in public and non-public domains.

A poor credit rating reflects the rating agency's opinion about the poor credit quality of the issue, high risk of default on part of the issuer and ultimately the low creditworthiness of the borrower and a good rating reflects just the opposite.

Such evaluation is done by credit rating agencies. The assessment of a government's ability and willingness to repay its public debt both in principal and in interests on time is known as a sovereign rating.

Most commonly rated instruments include bonds/ debentures, commercial paper, structured finance products, bank loans, fixed deposits and bank certificate of deposits, mutual fund debt schemes and IPOs.

In India, credit ratings started with the setting up of the Credit Rating Information Services of India (now CRISIL Limited) in 1987.

Presently, there are six major credit rating agencies operating in India which have been registered with SEBI. These are:

• CRISIL Limited: Promoted by the likes of premier financial institutions like ICICI, HDFC, UTI, SBI ,LIC and Asian Development Bank in its initial years, CRISIL is now an S&P company headquartered in Mumbai, India. CRISIL is India's leading rating agency and a global analytical company providing ratings, research and risk and policy advisory services. On its website, CRISIL has divided its businesses in to four categories which include Ratings, Research & Analytics, Research and CRISIL Risk and Infrastructure Solutions.
• ICRA Limited: Formerly Investment Information and Credit Rating Agency of India Limited, ICRA is India's second largest credit rating agency in terms of customer base. Established shortly after CRISIL in 1991 by a partnership between some of India's premier financial institutions and world leader Moody's, ICRA operates as an Indian independent and professional investment information and credit rating agency. ICRA has six subsidiaries in the form of ICRA Indonesia, ICRA Sri Lanka, ICRA Nepal, ICRA Techno Analytics Limited, ICRA Online Limited and IMaCs.
• CARE Limited: Credit Analysis and Research Limited (CARE) is the third oldest credit rating agency of India. It commenced operations in 1993 and has since emerged as leading agency for covering many diverse rating segments and rating a volume of debt approximately to rs. 70 crores. CARE India provides ratings as well as consulting and research services for its clients.
• India Ratings and Research Limited- A Fitch Group Company: India Ratings & Research limited, popularly known as Ind-Ra is wholly owned subsidiary of Fitch Group, one of the big three credit rating institutions of the world. Presently, Ind-Ra ratings cover corporate issuers, financial institutions, which Includes banks and insurance companies, finance and leasing companies and managed funds, Urban local bodies and Project Finance companies.
• Brickwork Ratings India Private Limited: Brickwork ratings is a young, Bangalore based rating organisation incorporated in 2007. Brickwork is Registered with SEBI, RBI & NSIC and has been successful in expanding its presence to more than 50 cities with in a short span of 8 years, including the likes of Bengaluru, New Delhi, Mumbai, Chennai, Hyderabad, Kolkata, Ahmedabad and Guwahati.
• SME Rating Agency of India Limited: SME Rating Agency of India Limited or SMERA as it is popularly known is a one of its kind Rating Agency, catering specifically to the needs of micro, small and medium enterprises.

Although different credit rating agencies follow different methodologies to evaluate the creditworthiness an associated with a particular security and issuer, a general criteria for assessment includes evaluation on the following parameters:

• Business risk
• Financial Risk
• Strength of promoters or management quality

There are many ways to analyse the scoring model.

Score may be provided in numerical form and judgement is based on certain limit which will be seen as good or bad.

Also, Ratings will be provided as AAA,AA,A,BBB,BB,B,CCC and many more. There are n number ways to provide scoring numerical, ranking, etc.