Commerce III Sem. Management of Financial Services Credit Rating: Merits, Demerits, Process, Factors Analyzed For Rating Credit Rating, Process

Subject: Commerce
Class: M .Com.
Year : III Sem.
Name of the Paper: management Of Financial Services
Topic: Credit Rating : Merits ,Demerits ,Process ,Factors Analyzed for Rating
Sub-Topic: Short term and long term Rating
Key-words: Credit Rating , Process
Name: Dr. Dhananjay Vishwakarma

Department of Commerce
Faculty of Commerce and Management Studies
Mahatma Gandhi Kashi Vidyapith,Varanasi-02
E-mail: dhananjayvish@mgkvp.ac.in
Credit Rating
In today’s Indian economy, due to an increase in market
orientation the investors assess two types of risk such as
business risk and the other payment risk. The main target for
the unlisted corporate debt is the small investors so in order to
protect the interest of small investors’ credit rating concept
was introduced.
Credit rating plays a pivotal role in today’s economy. It is

beneficial from the investor point of view as well as company
point of view .
Benefits of Rating
Disadvantages of Credit Rating
s
Credit Rating Process
1. Receipt of Request 4. Communication of 7. Dissemination to

from the company decision to the issuer the Public
2. Assignment to 5. Presentation of 8. Continuous

Analytical Team Findings Monitoring
3. Collecting
6. Site visits and
Information and
interaction with
conducting
Management
Preliminary Analysis
1. Receipt of the request
• The process begins with the receipt of formal request
for rating from a company
• Afterwards the rating agency and the issuer company
enter into an agreement which is signed by both
• Agreement covers
- Company will provide all material information to
agency
- Agency promises to keep the informational
confidential.
- The agreement gives to co. to accept or not the
rating.
2. Assignment to Analytical team
• Credit rating agency assigns the rating

task to an analytical team
• Team comprises of to analysts who have
expertise in the relevant business area
• These analysts are responsible for
carrying out the rating assignment
3. Obtaining Information
• The analytical team obtain the information from issuer company
.
• The analytical team analyses the information relating to the
issuer financial statement , cash flow etc
• Analytical team then proceeds to have the detail meeting with
the company’s management .
4.Presentation of finding to rating
committee
• An opinion on the rating is formed and
the finding are ultimately presented to
the rating committee which then decides
on the rating
• The rating committee meeting is only
aspect of the process in which the issuer
does not participate directly
5. Communication of decision to
the issuer
• The assigned rating grade is finally communicated to
the issuer along with the reasons
• In case the issuer is not satisfied with the rating
assigned he can appeal against the assigned rating
• The rating which are not accepted are rejected and
are not disclosed
6.Dissemination to the public
• Once the issuer accept the rating , the
rating agency disseminate the
information through printed reports the
public
7. Monitoring
• The credit rating agency constantly monitors on
rating with reference to new political , economics &
financial development etc.
• All this information is reviewed regularly .
• Any changes in the rating are made public through
published reports by credit rating agency .
Factors Analyzed for Rating
1. Business Risk Analysis
i. Country and macroeconomic Risk
ii. Industry Risk
iii. Competitive Position
- Market Position
- Diversification
- Operating Efficiency
- Ownership/governance
- Profitability
2. Financial Analysis
i. Accounting
ii. Cash flow adequacy
iii. Financial Governance and policies/risk
tolerance
iv. Liquidity/Short term Factors
3. Management Evaluation
i. Management Goals, plans and
strategies
ii. Capacity to overcome unfavorable
conditions
iii. Staff’s own experience and skills,
planning and control system
4. Geographical Analysis
i. Diversification
ii. Subsidies from the
government
iii. Undertaken to determine the
locational advantages
5. Regulatory and Competitive
Environment
i. Evaluate the impact of
regulation/deregulation on the
issuer company
6. Fundamental Analysis
Includes Analysis of-
i. Liquidity Management
ii. Profitability & Financial Position
iii. Interest and tax rates sensitivity of
the company
Questions
Short Type Questions
1. What are the merits and demerits of Credit Rating.
2. Discuss about short term and long term Rating.
Long Type Questions
1. Explain in detail the various process of Credit Rating.

2. Discus the factors analyzed for Credit Rating.
References
 Gupta K. Shashi and Aggarwal Nisha “Financial Services”,Kalyani Publishers.
 Khan M.Y “Indian Financial System”.
 Macchiraju, H.R, “Merchant Banking”.
 Bhola L.M “Financial Market and Institutions”.
 Bhalla V.K, “Financial Market and Services”.
 Wallstreetmojo.com
 Brainkart.com
 Kav.edu.sa/files/6056979
 Authorstream.com
 Freeonlinenotes.net
 https://www.slideshare.net/ramusakha/financial-services-20245118
 https://www.slideshare.net/9459334596/
 https://www.ilearnlot.com/financial-services
 www.moodys.com
 https://www.crisil.com
 https://www.care.com
 www.standardpoor.com
DECLARATION
“The content is exclusively meant for academic purposes

and for enhancing teaching and learning. Any other use
for economic/commercial purpose is strictly prohibited.
The users of the content shall not distribute, disseminate
or share it with anyone else and its use is restricted to
advancement of individual knowledge. The information
provided in this e-content is authentic and best as per my
knowledge.”
Dr. Dhananjay Vishwakarma

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Subject: Commerce

Name: Dr. Dhananjay Vishwakarma

Credit rating plays a pivotal role in today’s economy. It is

1. Receipt of Request 4. Communication of 7. Dissemination to

2. Assignment to 5. Presentation of 8. Continuous

• Credit rating agency assigns the rating

2. Discuss about short term and long term Rating.

Long Type Questions

1. Explain in detail the various process of Credit Rating.

“The content is exclusively meant for academic purposes

Dr. Dhananjay Vishwakarma

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