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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 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

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  1. The Changing Face of Credit Rating- D R Dogra, MD & CEO, CARE RatingsASSOCHAM , Delhi – 29th June 2013

  2. 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

  3. 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

  4. 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

  5. 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

  6. 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

  7. 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

  8. Competition • More players would bring in more efficiency • Pricing is getting competitive • Regulation all the more, necessary

  9. 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

  10. Thank You

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