Significance of Credit Ratings in Funding Options, Kolkata

January 19th 2013

After a power packed last quarter in 2012 IAIP KOLKATA team welcomed 2013 organising year’s first speaker event on the January 19, 2013, wherein Priti Agarwal, Regional Head of Care Ratings for Eastern India, gave insights into credit ratings. It was well attended by our members and candidates.

Agarwal started with discussing the rationale behind the ratings e.g. (AAA, AA, BBB) which they assign to various investment instruments. She explained the rating process, various parameters which a Ratings Analyst evaluates before forming an opinion and assigning any rating to an instrument. Factors include industry risk, quality of the management, financial position of the company, debt servicing capacity, competitive position of the company, track record of the management etc. Other factors were external risk, input cost risk, location risk, political risk, exchange rate risk etc.

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Building from here Agarwal moved into areas of regulations. She apprised all the listeners that since April 2007 Reserve Bank of India have made it mandatory for all loan and bank facilities above Rs5cr to be rated. Under the new guidelines of BASEL 2 where all the loans are priced in accordance to the credit risk embedded in them, credit ratings have become more important. She explained the listeners how the new framework helps the issuers in reducing their cost of borrowing and lenders conserve their capital allocation. She also discussed about the gaining importance of the SSI and MSME Ratings.

Lastly, she discussed about the benefits of credit ratings. She exclaimed that with increasing business and financial complexity credit ratings are gaining more importance in the eyes of all the market participants. Investors put high value on credit ratings before making their investment decision; on the other hand ratings help the issuers by widening their investor base, faster loan approvals, self evaluation etc.

Overall it was quite an interactive session where listeners kept Priti busy with a lot of intellectual and industry related questions.

Contributions from: Abhinav Jaisal

About IAIP

India Association of Investment Professionals (IAIP), which is established April 2005 and located in Mumbai, is an association of local investment professionals. As one of the 136 CFA Institute member societies, IAIP connects members to a global network of investment professionals. Consisting of portfolio managers, security analysts, investment advisors, and other financial professionals, IAIP promotes ethical and professional standards within the investment industry, facilitates the exchange of information and opinions among people within the local investment community and beyond, and works to further the public’s understanding of the CFA designation and investment industry.
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