Define Credit Rating Process

Credit Rating Process

The rating process is designed to ensure that all ratings are based on the highest standards of independence and analytical rigour. From the initial meeting with the management to the assignment of the rating, the rating process normally takes three to four weeks. However, the rating agency has sometimes arrived at rating decisions in shorter time frames, to meet urgent requirements. The process of rating starts with a rating request from the issuer, and the signing of a rating agreement. Credit rating agency employs a multi-layered, decision-making process in assigning a rating.

The following picture depicts the CRISIL’s Credit rating process:

The process/ procedure followed by all the major credit rating agencies in the country are almost similar and usually comprises of the following steps.

Receipt of the Request

The issuing company approaches the credit rating agency to rate their instruments which are issued to the public. It is the starting point in the process of rating. The rating agency and Issuer Company enter into an agreement. The general terms and conditions of the agreement are as follows:

To Keep confidential information about the issuing company

Acceptance of the rating is in the hands of issuing company

Providing all information is essential on the part of issuing company

Assignment to Analytical Team

Credit rating agency entrusts the job to its expertise team for investigating the issuing company after entering into the agreement with them. Normally, the team consists of two members and it may vary depending upon jobs.

Obtaining Information

The issuing company must provide all the requisite information to the analytical team. The analytical team analyses the information relating to its financial statements, cash flow projections and other relevant information.

Team Visits and Interacts with Management

The analytical team must visit the issuing company for better understanding of the client’s operations and interact with the company’s executives.

Presentation of Findings

The analytical team presents the report on the issuing company to the internal committee of the credit rating agency.

Rating Committee Meeting

The rating committee conducts meeting with the analytical team to discuss about the assessment of all factors concerned to the issuer. After a deep discussion, the rating committee evaluates the issuing company and rates their instruments. The decision of the rating committee is final. The issuing company cannot be involved directly in the process of rating.

Communication of Decision

The issuing company gets the information from CRA about the rating grade assigned by them. The supported documents or explanations would be furnished to the issuing company. The issuing company may accept or reject the ratings. The rejected ratings are not disclosed by the Credit rating agency.

Broadcasting to the Public

The credit rating agency can broadcast the rating information through printed reports to the public after the acceptance of the issuer.

Continuous Surveillance

The Credit Rating Agency is continuously monitoring the issuing company till the validity period of the ratings.