Industry Sheet - Indian Credit Rating Industry - As on 10 June 2021
Customer segments of Indian Credit Rating industry can be divided as:
1. Industry – Finance, Infra, Manufacturing, Oil, etc
2. On the basis of Issuer – Private Companies, Public Companies, Corporate & SME, REITs, INVITs.
Customer Gains and Pains
Products and Services
Activities and Participants
Key Activities to perform while operating a CRA
1. Rating Process
2. Team management – Rating team, analyst team
3. Regulatory Compliance
4. Communication & Information Management
5. Lead Sourcing Activities
6. Brand building & Reputation Building Activities
Key Players that companies in Credit Rating Industry have to deal with:
1. Rating & Analytical Team
2. Government Authorities, Regulators & Associations
3. Financial Institutions & banks
4. Customer Segments
Demand- Supply Scenario
Demand for Credit Rating Industry is directly related to the growth of the overall debt market i.e. growth of the followings:
– Corporate bond market
– Commercial Papers (CPs)
– Bank Credit
The market size of Credit Rating Industry in India is directly related to the size of the overall bond market. The Credit Rating Industry Size should be understood as a percentage of overall bond market.
FY20 Bonds Issued in India – 309,332 (INR Billion)
Revenue of top 3 rating agencies in India from Rating and allied services in FY20 – Rs. 1002 crores.
Reputation and credibility of the rating agency is more important than the price charged by the agency.
Also, Rate Shopping an important factor in Issuer-Pay models. So, High Pricing Power
Competitive Life Cycle
The industry is in Growth Stage. The reasons for the same are-
1. Growth in the overall debt market.
2. Growth in the securities being rated.
3. New Products being introduced in the industry.
Different Disruptive Forces to Traditional Credit Rating Models are –
1. Scenario Planning Methods over outright ratings.
2. Market- Based Methods.
3. Fundamental Analysis of Creditors using consensus models.
4. Third Party Ratings other than typical CRA.
5. Use of new technologies like Blockchain to ascertain credit worthiness.
Porter's Profit Forces
Threat of Substitution
Threat of New Entrants
Threat of Competitive Rivalry
Financial Health of Companies in the Industry
ROE and DuPont Analysis
Trends in Industry
Industry Specific Risks
Growth Factors of Credit Rating Industry are
1. Growth due to increased regulations in the bond market.
2. SME Market to drive volume growth.
3. Growth in real estate sector issues.
4. Growth in Commercial papers and their penetration.
5. Increasing NPA levels beneficial for the Rating Companies.
6. Corporate Borrowers moving from Banks towards Debt Issues.
7. Improved market penetration for corp. debt rating
Variables for success in Industry
Variables for Success in the Industry
1. Reputation & relationship with existing clients
2. Adequate Product mix – Bonds (long-term, Short term, Commercial paper, Zero coupon bond, SME Ratings), BLR & other instruments (like Structured products)
3. De-risked business model (diversified into various geography, various related business etc and product lines.)
4. Deepening of bond markets (including bank credit growth) & pick up in corporate capex
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