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Importance of Credit Rating Agencies Critical to India’s growth story & economic targets
Importance of Credit Rating Agencies
Lenders
Effective risk management
Informed decisions
Informed decisions
Borrowers
Debt & Capital market access
Foreign investments & Govt. borrowing
Cost optimization through rating
Foreign investments & Govt. borrowing
Cost optimization through rating
Investors
Investor Confidence through reliable ratings
Markets
Transparency & fairness
Efficient capital allocation
Efficient capital allocation
Regulators & Government
Effective regulations & oversight
Analytical independence for quality control
Analytical independence for quality control
Need for a homegrown agency to complement India’s growth story
A homegrown credit rating agency will be required to complement India’s growth ambitions and policy independence.
- Growth: Indian government has set a target of a $5 trillion economy in the next 3years and a $7 trillion economy by 2030; growth will require mobilization of vastamounts of domestic and international capital
- Sectoral Expertise: Indian economy has unique characteristics and nuances; alocal agency will be able to grasp sectors such as IT, NBFC’s, InfrastructureCompanies, and startups
- Gaps in the Market: Indian market relies heavily on international rating agenciesthat utilize global standards which might not fully capture market dynamics,regulatory environment, and economic indicators specific to India
- Policy Independence: Policy Independence: A homegrown agency will be able to offer a synergetic mixof a global outlook and a deep understanding of domestic policy; a local agencywill not be disproportionately influenced by external economic pressures orbiases
ACER A new homegrown Credit Rating Agency
Value Proposition
Established Connections
Ability to leverage a large pool of industry connections for Business Development
Regional Models
India specific models to be built under the Indian context with deep sectoral expertise and experience
Process Efficiency
Integrated rating models using macro-economic variables and stress testing for shorter lead times
Expertise
Experienced Leadership
ACER is promoted by a leading public sector bank and led by former senior officials of banks, SEBI, RBI, and the government of India
Sector Expertise
ACER will build models with local context and deep regional expertise as an improvement over current models that over-generalize certain sectors
Opportunities
Digital Operations Compliance
ACER aims to be a market leader in facilitating highly compliant operations that are orchestrated through high tech internal digital tools.
Artificial Intelligence (AI)
ACER will be powered by the latest AI frameworks, enabling real-time monitoring & updates and stronger predictive analytics than traditional credit rating agency models
Board of DirectorsStrong Team of Bankers, Regulators, and Industry Experts
Sunil Mehta
Chairman
Ex-CEO IBA, Ex-MD & CEO PNB
Dr. M.S Sahoo
Independent Director
Ex-Chairman IBBI, Ex-SEBI Whole Time Member
Ajay Kumar Chaudhary
Independent Director
NPCI Chairman, Ex-ED, RBI
Dr. Girraj Prasad Gupta
Independent Director
Ex-CGA, Ministry of Finance
Kamlesh Taneja
Whole-time Director
Ex-GM CBoI
Board Level Committees ARC, NRC, and RSC per SEBI guidelines
Audit & Risk Committee(ARC)
Dr. Girraj Prasad Gupta
ARC Committee Chairman
Ajay Kumar Chaudhary
Member (Independent Director)
Kamlesh Taneja
Member (Whole-time Director)
Nomination & Remuneration Committee (NRC)
Dr. M.S Sahoo
NRC Committee Chairman
Sunil Mehta
Member (Board Chairman)
Rating-Sub-committee (RSC)
Ajay Kumar Chaudhary
RSC Committee Chairman
Dr. M.S Sahoo
Member (Independent Director)
Rating Verticals 5 primary verticals
1
Corporate & MSME
- Large corporates
- MSMEs
2
Financial Services
- Banks
- NBFCs
- Microfinance Institutions (MFI)
- Housing Finance
- Infrastructure Debt Funds (IDFs)
3
Infrastructure
- Transportation
- Energy
- Water & Sanitation
- Telecom
- Social & Commercial Infra
4
Structured Finance
- Credit Enhancement (CE)
- INVIT
- REIT
- Commercial Mortgage Backed Securities (CMBS)
5
Public Sector
- State Public Sector Undertakings
- Central Public Sector Undertakings
Credit Rating Process
1
Application
Issuer Approaches ACER for rating
2
Agreement & Fees
Issuer signs rating agreement specifying amount, instruments, and fee
3
Information Gathering
ACER gathers detailed information such as financial statements, business plans, market position, industry risks, management quality
4
Management Meeting
Analysts meet with senior management of the company to discuss company's strategy, corporate governance, risk management practices, and future outlook
5
Analysis
The collected information is analyzed to assess the company's creditworthiness. Proprietary models and AI are extensively leveraged.
6
Rating Committee Process
The analysis is reviewed by a rating committee; a credit rating is assigned based on rating criteria
7
Publication
Issuer Approaches ACER for rating
8
Agreement & Fees
The rating is initially communicated to the issuer to seek any further info that might influence rating; the rating is then published with the rationale behind it
9
Review/Appeals
If the issuer disagrees with the rating, it can appeal to ACER by providing additional information or clarification to address the reasons for the rating decision
Credit Rating Scales (Long Term) 8 Rating Levels for 5 different types of securities
Highest
Rating
Lowest
Rating
Rating
Rating
| # | Safety Level | Long Term Securities | Long Term Structured Finance Securities |
Long Term Mutual Fund Schemes |
Long Term Debt Exposure |
Long Term Credit Enhancement Securities |
|---|---|---|---|---|---|---|
| 1 | Highest Degree of Safety | AAA | AAA(SO) | AAAmfS | AAA | AAA(CE) |
| 2 | High Degree of Safety | AA | AA(SO) | AAmfS | AA | AA(CE) |
| 3 | Adequate Degree of Safety | A | A(SO) | A mfS | A | A (CE) |
| 4 | Moderate Degree of Safety | BBB | BBB (SO) | BBBmfS | BBB | BBB (CE) |
| 5 | Moderate Risk of Default | BB | BB (SO) | BBmfS | BB | BB (CE) |
| 6 | High Risk of Default | B | B (SO) | BmfS | B | B(CE) |
| 7 | Very High Likelihood of Default | C | C (SO) | CmfS | C | C (CE) |
| 8 | In default or expected to be in default | D | D (SO) | DmfS | D | D (CE) |
Credit Rating Scale (Short Term) 5 Rating levels for 5 different types of securities
Highest
Rating
Lowest
Rating
Rating
Rating
| # | Safety Level | Short Term Securities | Short Term Structured Finance Securities |
Short Term Mutual Fund Schemes |
short Term Debt Exposure |
Short Term Credit Enhancement Securities |
|---|---|---|---|---|---|---|
| 1 | Very Strong Degree of Safety | A1 | A1 (SO) | A1mfs | A1 | A1 (CE) |
| 2 | Strong Degree of Safety | A2 | A2(SO) | A2mfS | A2 | A2(CE) |
| 3 | Moderate Degree of Safety | A3 | A3(SO) | A3mfS | A3 | A3(CE) |
| 4 | Minimal Degree of Safety | A4 | A4(SO) | A4mfS | A4 | A4(CE) |
| 5 | In default or expected to be in default | D | D(SO) | NA | D | D(CE) |
