Credit Analysis and REsearch Ltd. (CARE)

Presented by –Megha PareekMBA IV sem

Credit analysis is the method by which one calculates the credit worthiness of a business or organization.

In other words, It is the evaluation of the ability of a company to honor its financial obligations. 

A credit rating is an evaluation of the credit worthiness of a debtor (a business (company) or a government) predicting the debtor's ability to pay back the debt.

The credit rating represents the evaluation of the credit rating agency of qualitative and quantitative information for the debtor; including non-public information obtained by the credit rating agencies' analysts.

There are four Credit Rating agencies in India • CRISIL(Credit Rating Information Services of India Ltd) • ICRA(Information and Credit Rating Services ltd) • CARE (Credit Analysis and Research Ltd) • FITCH India - it is the latest entrant in the credit rating Business in the country as a joint venture between the international credit Rating agency Duff and Phelps and JM Financial and Alliance Group. India Ratings and Research (Ind-Ra) is the100% owned subsidiary of the Fitch Group.

CARE Ratings commenced operations in April 1993 and over nearly two decades, it has established itself as the second-largest credit rating agency in India.

With the rating volume of debt as Rs. 68.08 lakh crore (as of March 31st, 2015), CARE Ratings is proud of its rightful place in the Indian capital market built around investor confidence.

CARE Ratings has also emerged as the leading agency for covering many rating segments like that for banks, and IPO gradings.

Mr. D. R.Dogra is the CEO & MD of CARE. CARE’s registered office and head office, is located at Mumbai.

In addition, CARE has regional offices at Ahmedabad, Bangalore, Chennai, Hyderabad, Jaipur, Kolkata, New Delhi, Pune, Coimbatore and international operation in Male in the Republic of Maldives.

CARE is promoted by IDBI jointly with Financial Institutions, Public/Private Sector Banks and Private Finance Companies.

It offers a wide range of products and Services in the field of Credit Information and Equity Research.

It also provides advisory services in the areas of securitization of transactions and structuring Financial Instruments.

It offers services like Credit rating of debt instruments Advisory services like securitization transactions, structuring financial

instruments, financing infrastructure projects and municipal finances Information services like providing information to companies,

industry and businesses Equity research

Rating Services: the agency carries out rating of the following debt instruments:

• Structured obligations• Commercial paper• Debentures• Fixed deposits• Bonds Credit Reports Valuations Credit Appraisals Reviewing Debt Market

Services Offered

Rating Process

The rating methodology involves an analysis of industry risk, issuer’s business and financial risk.

A rating is assigned after assessing all factors that could affect the credit worthiness of the entity. The industry analysis is done first followed by the company analysis.

Main elements for rating methodology are :• Business risk Analysis• Financial risk Analysis• Management risk Analysis

Rating Methodology

Rating SymbolsSymbols Rating Definition

CARE AAAInstruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry lowest credit risk.

CARE AAInstruments with this rating are considered to have high degree of safety regarding timely servicing of financial obligations. Such instruments carry very low credit risk.

CARE AInstruments with this rating are considered to have adequate degree of safety regarding timely servicing of financial obligations. Such instruments carry low credit risk.

CARE BBBInstruments with this rating are considered to have moderate degree of safety regarding timely servicing of financial obligations. Such instruments carry moderate credit risk.

CARE BB Instruments with this rating are considered to have moderate risk of default regarding timely servicing of financial obligations.

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

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

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

Long term & medium term debt instruments

Symbols Rating Definition

CARE A1Instruments with this rating are considered to have very strong degree of safety regarding timely payment of financial obligations. Such instruments carry lowest credit risk.

CARE A2Instruments with this rating are considered to have strong degree of safety regarding timely payment of financial obligations. Such instruments carry low credit risk.

CARE A3Instruments 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.

CARE A4Instruments 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.

CARE D Instruments with this rating are in default or expected to be in default on maturity.

Short term debt instruments

What Rating do not measure it is important to emphasize the limitations of credit ratings.

They are not recommendations to renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security.

They do not take into account many aspects which influence an investment or lending decision.

They do not, for example, evaluate the reasonableness of the issue price, possibilities for capital gains or take into account the liquidity in the secondary market.

Ratings also do not take into account the risk of prepayment by issuer.

Ratings neither take into account investors’ risk appetite nor the suitability of a particular instrument to a particular class of investors.