the changing face of credit rating d r dogra md ceo care ratings assocham delhi 29 th june 2013 n.
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The Changing Face of Credit Rating - D R Dogra, MD & CEO, CARE Ratings ASSOCHAM , Delhi – 29 th June 2013. The Economic environment has changed for CRAs. Heightened economic uncertainty Higher risk perception Lower interest rates not translating into more lending

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the changing face of credit rating d r dogra md ceo care ratings assocham delhi 29 th june 2013
The Changing Face of Credit Rating- D R Dogra, MD & CEO, CARE RatingsASSOCHAM , Delhi – 29th June 2013
the economic environment has changed for cras
The Economic environment has changed for CRAs..
  • Heightened economic uncertainty
    • Higher risk perception
    • Lower interest rates not translating into more lending
    • Rising NPAs and restructured assets a fallout of low economic performance
  • Credibility of Rating Agencies
  • Regulatory environment is undergoing a change
  • Competition has increased
role and response of the cras
Role and response of the CRAs
  • CRAs more critical today as they bridge gap of information asymmetry
    • Will be looked at by investors for guidance
  • Need to have a thorough understanding of environment and be forward looking
    • Economy/Policies/Politics and impact on sector and company
  • Bring about greater transparency and maintain investor confidence
    • Quality of ratings important as it is sacrosanct for business
    • Merits of having an external rating committee
ratings are progressively even more important today
Ratings are progressively even more important today
  • Our rating movements should be used by banks
    • Ratings capture risks when an initial rating or surveillance is done
    • Provide early warning signals
  • Gives early view of state of economy
    • Strong relation between economic downturn and ratings
    • Government action on policies can be based on these signals
challenges faced by cras
Challenges faced by CRAs
  • Business linked with state of economy
    • Increase in perception of risk
    • Lowered policy rates of the RBI do not translate into lower base rates
    • Few debt issuances
  • Asymmetry in information availability
    • Lack of cooperation (from clients) when lower ratings are given
  • Income impacted when there are downgrades
issue on cras and credibility
Issue on CRAs and Credibility
  • Globally, role of CRAs under discussion after the financial crisis and the sovereign debt crisis
    • Indian performance better due to strong and stringent regulatory structure
  • CDRs robust
    • Need to improve going ahead
  • Processes should be strong
    • Separation of analyst compensation and revenue from issuer
    • Analysts not allowed to trade in shares of rated entities
    • Separation of analytical and business development team
  • Who pays model?
      • Issuer
      • Investor
regulatory environment for cras
Regulatory Environment for CRAs
  • Basel 2 created opportunities
  • Internal rating based approach to set in
  • There will still be dependence on CRAs
    • Consortium lending
    • Need for unbiased opinion
competition
Competition
  • More players would bring in more efficiency
  • Pricing is getting competitive
  • Regulation all the more, necessary
imperatives going ahead
Imperatives going ahead
  • Need to keep breast with latest financial products and hone skills to evaluate them
  • Adherence to regulation
  • Accounting practices viewed more closely
    • Due Diligence by agency and regulator
  • Work on improving the quality of ratings
  • Focus on stress testing