Bharat Rakshak

Suraj wrote:

kit wrote:Why are fiscal ratings not comparative ?.. the gold standard indexes are nowhere near good at this point ., and if they are not comparative in risk assessment what are they for ?..just "ratings" ? .. i am talking about international rating agencies btw

Comparative against what ? Sovereign debt rating standards are a political game. Greece (17% unemployment, 180% debt/GDP) for example has been upgraded to AA- with a positive outlook. Spain (14% unemployment, 98% debt to GDP) is A with a stable outlook. India with lower unemployment, higher growth and lower debt/GDP sits slightly above Greece and much below Spain. All countries have some structural issues . For example, Spain has high structural unemployment that has never fallen below 8-10% even in the best of times.

Sovereign debt ratings are indeed a political game, as you very rightly point out. In fact one civil servant told me that these analysts who represent the global rating agencies are not received with the same pomp and glory as they are accustomed to, elsewhere. Indian finance Ministry officials are polite and receive them with courtesy but nothing more. There is usually a formal brief meeting with the FM. But it is clear to these analysts that the officials simply go through the motions. It doesn't also help that India is not in the foreign currency sovereign debt market for funds. All this grates on the analysts. This reflects in their overly pessimistic analysis. This is all hearsay, of course. So take it for what it is worth.

Uttam wrote:While "artificially low" (my opinion) credit rating for India has not impeded availability of debt, it has been detrimental in keeping interest rates high for govt and corporate borrowers in India. Higher interest rates in turn make project financing more expensive, which reduces the amount of investments and thus GDP growth rate.

Taken over the years this would be a considerable amount.
Hence my query, to you, Suraj and other knowledgeable folk, isn't it worth the risk of going against unfair ratings and setting a more appropriate rate by fiat ?
If the economy's vital signs are ok and well understood to be better than what the ratings suggest, wouldn't would be investors sign up anyway ?
I understand that some investors are bound to follow some rules but we are already at investment grade, right ?
Realistically, what are the chances of such a bond, whose coupon rate is set by fiat remaining unsubscribed ?

Rahul M wrote:

Uttam wrote:While "artificially low" (my opinion) credit rating for India has not impeded availability of debt, it has been detrimental in keeping interest rates high for govt and corporate borrowers in India. Higher interest rates in turn make project financing more expensive, which reduces the amount of investments and thus GDP growth rate.

Taken over the years this would be a considerable amount.
Hence my query, to you, Suraj and other knowledgeable folk, isn't it worth the risk of going against unfair ratings and setting a more appropriate rate by fiat ?
If the economy's vital signs are ok and well understood to be better than what the ratings suggest, wouldn't would be investors sign up anyway ?
I understand that some investors are bound to follow some rules but we are already at investment grade, right ?
Realistically, what are the chances of such a bond, whose coupon rate is set by fiat remaining unsubscribed ?

Ratings would mean nothing if we do not depend on foreign financing/investment and if we do not need to import material or energy for the projects needing the financing. Because the most available financial options are Western and because trade is mainly done in US dollars then yes the ratings will have an impact.

Countries the world over are borrowing more money both in absolute terms as well as in relative terms (as percentage of GDP). Yet paradoxically the cost of such borrowings has come down. I don't have the precise yield rates. But it is safe to say that such indeed is the case. This goes against the conventional wisdom that as States borrow more their costs must go up, too.
Could it be that more and more of the economy is going underground with increasing resort to tax evasion, growth of narcotics and terrorism related activities by players in the system? Their entire value added must be funnelled into the global savings market with more than a little help from tax havens. The lower yields on bonds is more a reflection of the size of the parallel economy than fiscal profligacy?

nandakumar wrote:

Suraj wrote: Comparative against what ? Sovereign debt rating standards are a political game. Greece (17% unemployment, 180% debt/GDP) for example has been upgraded to AA- with a positive outlook. Spain (14% unemployment, 98% debt to GDP) is A with a stable outlook. India with lower unemployment, higher growth and lower debt/GDP sits slightly above Greece and much below Spain. All countries have some structural issues . For example, Spain has high structural unemployment that has never fallen below 8-10% even in the best of times.

Sovereign debt ratings are indeed a political game, as you very rightly point out. In fact one civil servant told me that these analysts who represent the global rating agencies are not received with the same pomp and glory as they are accustomed to, elsewhere. Indian finance Ministry officials are polite and receive them with courtesy but nothing more. There is usually a formal brief meeting with the FM. But it is clear to these analysts that the officials simply go through the motions. It doesn't also help that India is not in the foreign currency sovereign debt market for funds. All this grates on the analysts. This reflects in their overly pessimistic analysis. This is all hearsay, of course. So take it for what it is worth.

i think i am getting the idea, much like how hospitals get the "coveted" JCI accreditation !!.. had a taste of it a few years back !

So either set up your own agency or con/bribe the international agency. We seem to have done neither.

Rahul M wrote:

Uttam wrote:While "artificially low" (my opinion) credit rating for India has not impeded availability of debt, it has been detrimental in keeping interest rates high for govt and corporate borrowers in India. Higher interest rates in turn make project financing more expensive, which reduces the amount of investments and thus GDP growth rate.

Taken over the years this would be a considerable amount.
Hence my query, to you, Suraj and other knowledgeable folk, isn't it worth the risk of going against unfair ratings and setting a more appropriate rate by fiat ?
If the economy's vital signs are ok and well understood to be better than what the ratings suggest, wouldn't would be investors sign up anyway ?
I understand that some investors are bound to follow some rules but we are already at investment grade, right ?
Realistically, what are the chances of such a bond, whose coupon rate is set by fiat remaining unsubscribed ?

It's not that it 'can't be done'. It's that it is very hard to do and takes time and groundwork. The central bank, which actually conducts auctions of treasury paper of various terms, has a significant responsibility to get it done as smoothly as possible. The ratings are established externally of the central bank, and India needs a wholly independent and credible ratings agency - I don't count CRISIL as independent as they are S&P owned, and IMHO GoI should buy them out and retain majority stake - for domestic debt rating.

One can do certain things by fiat - but not others. The foundation of what's needed here is a smoothly running, credible and independent local ratings agency. Clearly the S&P model where the ratings agencies themselves are funded by the asset management companies - is one rife with nepotism. Why else would they rubberstamp junk-rated mortgage backed securities as 'AAA grade', leading to the 2007-08 global meltdown ? How many of those ratings agencies saw their heads resigning in disgrace or facing jailtime ? Zerrow.

You can establish an independent ratings agency - but it needs credibility to be built up over time the hard way, through a very well thought out system of independent operation all parties trust, and even the external Standardly Poor agencies cannot place blame. Implement and show something like that working, and you've fixed ~80% of the problem already. This ratings agency will offer credible ratings that both RBI and buyers of treasury paper are able to trust. The Indian domestic debt market is close to the $1 trillion mark already - getting to the too big to ignore point. Foreign investors currently only have access to approximately $95B of that.

Here's the sovereign credit rating of countries at S&P/Moody/Fitch. For SP/Fitch, the ratings are as follows:
AAA, AA+, AA, AA-, A+, A, A-, BBB+, BBB, BBB- {end of investment grade} | {start of junk grade} BB+, BB, BB- ...
Moodys:
Aaa, Aa1, Aa2, Aa3, A1, A2, A3, Baa1, Baa2, Baa3 {end of investment grade} | {start of junk grade} Ba1, Ba2, Ba3...

India is BBB- on S&P and Fitch, and Baa2 on Moodys, i.e last step before junk grade or the next to last. These ratings are unchanged since 2013-14.

Now here's here's a couple of other lists of countries:

Top foreign exchange reserves holders: In other words, India and Russia comfortably have by far the worst sovereign debt ratings - five grade steps below the rest - of top forex reserves holders, except for #10 Brazil who have junk grade. Russia's earnings are primarily resource extraction gains, but not India's. They're also among the top holders of US treasury debt. Funny that these countries are in such dire fiscal condition that they have only half a trillion in external currency reserves.

nandakumar wrote:Sovereign debt ratings are indeed a political game, as you very rightly point out. In fact one civil servant told me that these analysts who represent the global rating agencies are not received with the same pomp and glory as they are accustomed to, elsewhere. Indian finance Ministry officials are polite and receive them with courtesy but nothing more. There is usually a formal brief meeting with the FM. But it is clear to these analysts that the officials simply go through the motions. It doesn't also help that India is not in the foreign currency sovereign debt market for funds. All this grates on the analysts. This reflects in their overly pessimistic analysis. This is all hearsay, of course. So take it for what it is worth.

This has been true in several domains of governmental interaction over several years. India pays the price of not being sufficiently subservient. However, I wouldn't say we should be. Like China, we are simply bidding our time to get to the point where we set the terms. We are getting there. With a domestic bond market about to hit the $1 trillion mark, it's a matter of time. However, we need at least one fully local credit rating agency. CRISIL under majority S&P control won't do. China has two - DaGong and ChenXing. Even Japan has its own - JCP.

Suraj, bar setting up our own agency, is there any way to basically bypass and show S&P, Moody and Fitch their place? They are basically holding our entire economic growth hostage.

Karan M wrote:Suraj, bar setting up our own agency, is there any way to basically bypass and show S&P, Moody and Fitch their place? They are basically holding our entire economic growth hostage.

I am not as well informed as Suraj, but I'll give it a try.

Ultimately, it depends on who do the investors trust. I can create my own credit rating agency but it will not matter if the investors do not take its words. It will take very long time to establish a credit agency that is trusted.

But we have to start somewhere.

That's why we need a credit rating agency which is not owned by the big ones. Such a credit rating agency can be created using equity consideration from banks and NBFCs, where no one owns more than 5% of its stocks. This credit rating agency will be a private company where the govt. will facilitate only its creation but will not interfere at all in it's functioning. SEBI can issue a regulation that every public debt issue has to be rated by this agency, though not exclusively. There will be hits and misses, but over time it will gain in reputation. That'll depend upon how well this agency is able to forecast default rates among various rating categories. Once it becomes large enough that it starts to rate not just Indian scripts but also securities from other nations that can be listed in India. Well that's just my wish list!

On your question about what can be done barring setting up our own agency - The most important step is fiscal prudence. Reduce fiscal deficits, make govt. finance more transparent, reduce off-balance sheet transactions. Once these three things happen, investors can read your balance sheets (budget in case of govt.) without the help from credit rating agencies and will be willing to bet a lower interest rate than based on the credit rating.

The current govt. have taken many many steps in this direction. GST, Power sector reforms, Revenue sharing between central and state, elimination of a separate railway budget, reduction in fiscal deficit, push for electronic transactions, to name a few.

Karan M wrote:Suraj, bar setting up our own agency, is there any way to basically bypass and show S&P, Moody and Fitch their place? They are basically holding our entire economic growth hostage.

Efficient bond sales require an intermediary that both sides of the transaction find credible. Thousands of crores worth of bonds are sold daily. For smooth operation of these processes, an efficient mechanism of debt pricing is needed. That's the role a ratings agency performs.

In addition to ratings agencies, the government needs to push for a far greater deepening of the Indian domestic debt market. A $1 trillion current debt market size sounds large, but it's only 1/3rd of GDP and is relatively puny. The US debt market is about 3x GDP, for example. India suffers from a very underbanked and illiquid financial system. All kinds of entities - central, state and local governments as well as corporate entities - depend primarily either on taxation, bank borrowings or equity offerings, whereas debt offerings remain quite tiny.

But this is changing - the corporate bond market grew 400% between 2014-2018 (see the FTSE report quoted a few posts ago). Both the state and central government bond markets are getting bigger. However, all of these will take time to grow, and we might as well develop a credible domestic ratings regime in parallel since that's a corresponding requirement for the bond market to grow effectively.

For what it's worth, Dagong rates India and USA on par at BBB rating for sovereign debt

https://en.wikipedia.org/wiki/Bond_credit_rating
Definitions of ratings. Kind of agree with India's BBB-

An obligor has ADEQUATE capacity to meet its financial commitments. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitments.

However I think BBB- is a bit harsh perhaps BBB+

I think the key to India's lower rating is political risk and high deficit.

Russia (multiple times in the 1990s) and Brazil (multiple times between the 1980s and late 2000s) have had multiple domestic and external debt defaults. India has never had one. What's more, India has no history of hyperinflation and near economic collapse. What we have is a chronically high structural deficit, but which has never impeded economic operation or precipitated a crisis. However this is almost entirely in domestic currency, so technically the government can never fail to pay its obligations.

Yet we're rated on par with Russia and just above Brazil. A to BBB+ is about the ratings band India should typically occupy, including right now.

Vips wrote:Fitch Affirms Bank of India at 'BBB-'; Outlook Stable.

Ratings procedure:
Ctrl-C previous statement
Ctrl-V
Hit send

Uttam wrote:I am not as well informed as Suraj, but I'll give it a try.

Ultimately, it depends on who do the investors trust. I can create my own credit rating agency but it will not matter if the investors do not take its words. It will take very long time to establish a credit agency that is trusted.

But we have to start somewhere.

That's why we need a credit rating agency which is not owned by the big ones. Such a credit rating agency can be created using equity consideration from banks and NBFCs, where no one owns more than 5% of its stocks. This credit rating agency will be a private company where the govt. will facilitate only its creation but will not interfere at all in it's functioning. SEBI can issue a regulation that every public debt issue has to be rated by this agency, though not exclusively. There will be hits and misses, but over time it will gain in reputation. That'll depend upon how well this agency is able to forecast default rates among various rating categories. Once it becomes large enough that it starts to rate not just Indian scripts but also securities from other nations that can be listed in India. Well that's just my wish list!

On your question about what can be done barring setting up our own agency - The most important step is fiscal prudence. Reduce fiscal deficits, make govt. finance more transparent, reduce off-balance sheet transactions. Once these three things happen, investors can read your balance sheets (budget in case of govt.) without the help from credit rating agencies and will be willing to bet a lower interest rate than based on the credit rating.

The current govt. have taken many many steps in this direction. GST, Power sector reforms, Revenue sharing between central and state, elimination of a separate railway budget, reduction in fiscal deficit, push for electronic transactions, to name a few.

Your posts on these have been great! Please keep adding further.

Right now there are three ratings agencies in India:
CRISIL : Majority owned by S&P
ICRA : Majority owned by Moody's
CARE : apparently independent, created the ARC Ratings along with consortium of G20 nations as an alternative to the Big 3. They don't offer sovereign credit ratings , as far as I can tell.

In addition, there are credit information bureaux :
Transunion CIBIL
CRIF HighMark
Equifax and Experian
Once again, except for one, the others are owned by foreign credit bureaux, something I think is not just a problem from a financial perspective, but has a major national security and data privacy consequence, despite data localization requirements imposed by India.

In my opinion, the government needs to mandate that foreign shareholdings in both credit information bureaus and ratings agencies needs to be below 50%, and that the government itself must be the single largest shareholder in these.

Excl: March GST collection sinks to Rs 28,309 cr vs Rs 1.13 lakh crore last year
Updated : May 01, 2020 09:37 AM IST

In what could be just a tip of the iceberg when it comes to the impact of COVID-19 pandemic, the Goods and Services Tax (GST) collections of March recorded in April reached a record low of Rs 28,309 crore as on April 29, sources told CNBC-TV18.

This compares with Rs 1.13 lakh crore recorded in the same month last year. GST is a consumption based tax and is considered to be the first indicator of economic slowdown by economists.

.
."Both the revenues from the central government and states are under huge pressure as per the break up of the GST numbers. Both Central Goods and Services Tax (CGST) and State Goods and Services Tax (SGST) collections are at record lows of around Rs 5,000 crore," sources quoted earlier added.

West Bengal, Gujarat and Andhra Pradesh have seen GST collection slip by 80 percent in April.

.
.However, government is hopeful that the collections might soon improve. "Collections are likely to improve as last date to file returns for March have been extended till May 5 without any interest and can be paid till June 30 with 9 percent interest if the returns are filed after May 5," government officials said.
.
.Pratik Jain, national leader, indirect tax at PWC said, "Since the second half of March was entirely under lockdown and many businesses may have opted for deferment of GST payment,


https://www.cnbctv18.com/finance/excl-m ... 815521.htm

Thanks guys, this has been an extremely educative series of posts, even by BR's standards.

Suraj wrote:

Uttam wrote:I am not as well informed as Suraj, but I'll give it a try.

Ultimately, it depends on who do the investors trust. I can create my own credit rating agency but it will not matter if the investors do not take its words. It will take very long time to establish a credit agency that is trusted.

But we have to start somewhere.

That's why we need a credit rating agency which is not owned by the big ones. Such a credit rating agency can be created using equity consideration from banks and NBFCs, where no one owns more than 5% of its stocks. .

Your posts on these have been great! Please keep adding further.

Right now there are three ratings agencies in India:
CRISIL : Majority owned by S&P
ICRA : Majority owned by Moody's
CARE : apparently independent, created the ARC Ratings along with consortium of G20 nations as an alternative to the Big 3. They don't offer sovereign credit ratings , as far as I can tell.

In addition, there are credit information bureaux :
Transunion CIBIL
CRIF HighMark

Equifax and Experian
Once again, except for one, the others are owned by foreign credit bureaux, something I think is not just a problem from a financial perspective, but has a major national security and data privacy consequence, despite data localization requirements imposed by India.

In my opinion, the government needs to mandate that foreign shareholdings in both credit information bureaus and ratings agencies needs to be below 50%, and that the government itself must be the single largest shareholder in these.

Not from economics or finance background. But in the year 2016-17 while taking decision to invest in stocks of credit rating agency (CRISIL/ ICRA/CARE) did good amount of reading about them & subsequently made some money also.

In fact big bull Rakesh Jhunjhunwala made considerable money from CRISIL stock & in one of his old interviews he spoke on depth why he is bullish on Credit Rating Agencies. In his words "As economy progresses & becomes more big & complex/sophisticated more such institutions are required. No economy have progressed from 2 tn$ to 8 or 10 tn$ economy without proper financial market & Independent Credit Rating agencies are a fundamental building block for that." (if I remember correctly he briefly spoke & given example of China also)..
That time this statement of RJ encouraged me to read about them............
So knew a bit & the topic attracted me. In fact I was about to post this yesterday night itself but due to internet speed problem & tantrums of SHQ saved the daft. Anyway.........

Though the gist is mostly covered previously by Suraj sir & other member's posts, still...... Here are they........


1. Credit Rating Information Services of India Limited (CRISIL)
CRISIL is one of the oldest credit rating agencies in India. It was launched in the country in 1987 following which the company went public in 1993. Headquartered in Mumbai, CRISIL ventured into infrastructure rating in 2016 and completed 30 years in 2017. CRISIL is a subsidiary of American company S&P Global. In 2005, S&P acquired the majority shares of company.


2. ICRA Limited
ICRA Limited is a public limited company that was set up in 1991 in Gurugram. The company was formerly known as Investment Information and Credit Rating Agency of India Limited. Before going public in April 2007, ICRA was a joint venture between Moody’s and several Indian financial and banking service organisations. The ICRA Group currently has four subsidiaries - Consulting and Analytics, Data Services and KPO, ICRA Lanka and ICRA Nepal. At present, Moody’s Investors Service, the international Credit Rating Agency, is ICRA’s largest shareholder.As of 2014, Moody's Corporation owns a 50.06% majority stake.


3. Credit Analysis and Research limited (CARE)
Launched in 1993, CARE offers credit rating services to areas such as corporate governance, debt ratings, financial sector, bank loan ratings, issuer ratings, recovery ratings, and infrastructure ratings. Headquartered in Mumbai, CARE offers two different categories of bank loan ratings, long-term and short-term debt instruments. The company also offers ratings for Initial Public Offerings (IPOs), real estate, renewable energy service companies (RESCO), financial assessment of shipyards, Energy service companies (ESCO) grades various courses of educational institutions. CARE Ratings has also ventured into valuation services and offers valuation of equity, debt instruments, and market linked debentures. Moreover, the company has launched a new international credit rating agency ‘ARC Ratings’ by teaming up with four partners from South Africa Brazil, Portugal, and Malaysia. ARC Ratings has commenced operations and completed sovereign ratings of countries, including India. CRISIL acquired 8.9% stake in CARE credit rating agency in 2017.


4. Brickwork Ratings India Pvt Ltd:
Brickwork Rating was established in 2007 and is promoted by Canara Bank, in fact Canara Bank was strategic planner for Brickwork. It offers ratings for bank loans, SMEs, corporate governance rating, municipal corporation, capital market instrument, and financial institutions. It also grades NGOs, tourism, IPOs, real estate investments, hospitals, IREDA, educational institutions, MFI, and MNRE. Brickwork Ratings is recognised as external credit assessment agency (ECAI) by Reserve Bank of India (RBI) to carry out credit ratings in India. In addition to registering with SEBI, Brickwork Ratings (BWR) is accredited by RBI and empanelled by NSIC, NCD, MSME ratings and grading services. It has received accreditation from NABARD for MFI and NGO grading. Brickwork is also authorised to grade companies seeking credit facilities from IREDA, Renewable Energy Service Providing Companies (RESCOs) and System Integrators (SIs).

5.Small and Medium Enterprises Rating Agency of India (SMERA)
Established in 2005, SMERA is a joint initiative of SIDBI, Dun & Bradstreet India and leading banks in India. SMERA has joined hands with prominent institutions such as IIT Madras, The Bangladesh Rating Agency Limited, CAFRAL, CoinTribe, and SIES. Apart from its shareholder banks, SMERA has also entered into MoUs with over 30 Banks, Financial Institutions and Trade Associations of the country. SME Rating Agency of India (SMERA) is a ratings and research agency exclusively set up for micro, small and medium enterprises (MSME) in India. It provides ratings which enable MSME, SMEs, to raise bank loans at competitive rates of interest.[2]. SMERA now operates as a separate division of Acuité Ratings & Research Limited. Acuité Ratings is a full service credit rating agency approved by Reserve Bank of India (RBI) and registered with Securities Exchange Board of India (SEBI).


6.Infometrics Valuation and Rating Pvt Ltd:
This SEBI-registered, RBI-accredited credit rating agency was founded by finance professionals, former bankers, and administrative services personnel. It evaluates entities such as banks, non-banking financial companies, large corporates, and small and medium scale units (SMUs).


7.India Rating and Research Pvt. Ltd. (FITCH India)
India Ratings and Research (Ind-Ra) is a credit rating agency that provides time-bound, accurate and prompt credit opinions. It is 100% owned subsidiary of the Fitch Group. Ind-Ra covers corporate issuers, financial institutions, banks, insurance companies, urban local bodies, structured finance and project finance. Fitch‘s Ind-Ra is headquartered in Mumbai and has branch offices in Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad and Kolkata. Ind-Ra is recognised by Securities and Exchange Board of India, National Housing Bank and the Reserve Bank of India.


8. ONICRA
ONICRA Credit Rating Agency is the private rating agency established by Sonu Mirchandani under ONIDA Finance. It is headquartered in Gurugram, Haryana. The agency provides credit ratings, conducts risk assessment and provides analytical solutions to individuals, corporates and MSMEs. The solutions offered by the agency helps organisations take informed decisions about lending funds to individuals, MSMEs and other organisations. After its establishment in 1993, the agency has gained expertise in assessing micro, small and medium enterprises. It is one of the seven agencies licensed by the National Small Industries Corporation (NSIC) for the rating of SMEs. Onicra provides grading services as well. Its grading services include education grading, healthcare grading, solar energy grading and APMC grading. Onicra has signed MoUs with 16 banks and NBFCs in India to provide interest rate concession to up to 1% to top MSME units. It performs a wide range of tasks such as accounting, finance, analytics, customer relations and back-end management. More than 2500 SMEs have been rated by Onicra in the past two and a half decades.


9.Equifax India (Equifax Credit Information Services Private Limited, ECIS)
Equifax India is a subsidiary of Equifax US and was formed a joint venture between the parent company and seven prime financial institutions in India (UBI, SBI, Bank of Baroda, Bank of India, Kotak Mahindra, Sundaram Finance and Religare).


10. Experian India
Experian India consists of two companies, Experian Credit Information Company of India Private Limited (provides credit information) and Experian Services India Private Limited


11. CIBIL
Aims to create information solutions enabling businesses to grow and give consumers faster, cheaper access to credit and other services. TransUnion CIBIL Limited is a credit information company operating in India. It maintains credit files on 600 million individuals and 32 million businesses. TransUnion is one of four credit bureaus operating in India and is part of TransUnion, an American multinational group


12. CRIF High Mark Credit Information Services
CRIF High Mark Credit Information Services Pvt. Ltd. is an RBI approved credit bureau in India.It serves retail, agriculture and rural, MSME, commercial and microfinance. The company was incorporated in 2005 and is based in Mumbai. It launched its credit bureau operations in 2010 and has a database of over 120+ crore credit records as of July 2018
CRIF High Mark Credit Information Services Private Limited was formerly known as High Mark Credit Information Services Private Limited. High Mark was founded in 2007 by Dr. Anil Pandya with a vision of setting up India’s most comprehensive and most inclusive credit bureau.

In 2014, CRIF, an Italy based firm acquired majority stakes in the company and the name changed to CRIF High Mark
CRIF holds 70% in CRIF High Mark. Established in 1988 in Bologna (Italy), CRIF is a global company specialising in the development and management of credit reporting, business information and decision support.

CRIF High Mark's other shareholders include State Bank of India, Punjab National Bank, SIDBI, Edelweiss, Shriram City Union Finance, and Alpha, which is a consortium of microfinance institutions.


Few brief observations:-

1. Top 3 CRISIL/ CARE/ ICRA holds 80-85% of market and revenue share. All top 3 are listed in NSE/BSE. High PE, high dividend stocks, given good returns for longterm investors.

However, we need at least one fully local credit rating agency. CRISIL under majority S&P control won't do. China has two - DaGong and ChenXing. Even Japan has its own - JCP.

Suraj, bar setting up our own agency, is there any way to basically bypass and show S&P, Moody and Fitch their place? They are basically holding our entire economic growth hostage.

2. Big or small corporate rating or mainly consumer rating , we find all most all of our Credit rating agencies have foreign hand. Ok accepted that initially to set them up or give credibility to a newly formed agency we may have required handholding & expertise from biggies but after 20-30 years of existence , now they own us full.

3. This is not political discussion or CT thread, and sooraj sir modertes OT posts quite stringently but still I will say this......
{Deleted}

Mollick.R wrote: Not from economics or finance background. But in the year 2016-17 while taking decision to invest in stocks of credit rating agency (CRISIL/ ICRA/CARE) did good amount of reading about them & subsequently made some money also.
.......................................

This is really good information. Thank you for taking time to put it together. I didn't know that the credit rating market in India is so active.

Suraj wrote:Russia (multiple times in the 1990s) and Brazil (multiple times between the 1980s and late 2000s) have had multiple domestic and external debt defaults. India has never had one. What's more, India has no history of hyperinflation and near economic collapse. What we have is a chronically high structural deficit, but which has never impeded economic operation or precipitated a crisis. However this is almost entirely in domestic currency, so technically the government can never fail to pay its obligations.

Yet we're rated on par with Russia and just above Brazil. A to BBB+ is about the ratings band India should typically occupy, including right now.

Not sure, but suspect that it has to do with income per person (GNP). Anyone know how much impact credit rating has on interest ?

Rishirishi wrote:
Not sure, but suspect that it has to do with income per person (GNP). Anyone know how much impact credit rating has on interest ?

Look at the column called Adj. Default Spread on this webpage http://pages.stern.nyu.edu/~adamodar/Ne ... yprem.html .

Adj. Default Spread = Interest paid the country - Interest paid by AAA rated countries like US, Swithzerland, etc.

Therefore, total interest paid = Adj. Default Spread + Interest paid by AAA rated countries

Credit to Ashwath Damodaran of NYU. He does a priceless service of providing financial data.

Here some Adj. Default Spreads for notable ones :

USA = 0% (because that is considered base)
India = 2.82%
Russia = 3.26%
China = 1.04%
Brazil = 4.45%
UK = 0.74%
Pakistan = 9.65% (just to highlight some of the worst cases)

Thanks all for your great posts!

Legal requirement to push down foreign ownership below 50% + strategic support for CARE seems the way forward for large firms.
And carefully supporting some of the SMEs rating agencies, preventing them from being taken over.

CRISIL and ICRA are big players. Them plus CARE accounts for over 80% of the market. They need to have their foreign majority stakes unwinded. There's no problem with them having a stake, just not >50%. The biggest shareholder should be GoI and its entities like LIC.

Uttam: USA is no longer AAA sovereign rated at S&P. They're down to AA+ now. Moody's still has them Aaa. Not that it matters to them. Thanks for the pointer to Ashwath Damodaran's data! It gives a pretty clear breakdown of rating vs adjusted risk premium (only for investment grade debt) :

Aaa: +0.0%
Aa1: +0.59%
Aa2: +0.74%
Aa3: +0.90%
A1: +1.04%
A2: +1.26%
A3: +1.78%
Baa1: +2.37%
Baa2: +2.82%
Baa3: +3.26%

Between A2-Baa1 (a more suitable position for India) and Baa2 is still 1-1.5% more .

Suraj wrote:

Uttam: USA is no longer AAA sovereign rated at S&P. They're down to AA+ now. Moody's still has them Aaa. Not that it matters to them.

That's correct. And it didn't bode well for the S&P analyst who led the effort to downgrade US.

https://www.crisil.com/content/dam/cris ... bility.pdf

While on the subject of rating agencies, this is an excellent report on the impact of Covid on Indian economy. Prepared by CRISIL Research. Has a lot of breakup of impact sectorwise, and on interest rates, forex etc.

Key messages

Economy was already poised for slowdown before Covid

Permanent loss of 4% of GDP. Recovery likely in 2022. Will take four years to get the GDP growth curve back on track

Risk of zero GDP growth in 2021

Corporate profitability to reduce by 15% to 30%.

Bank credit growth will crash

https://m.economictimes.com/news/econom ... 534412.cms

A total area of 461,589 hectares has been identified across the country for the purpose, the people said, asking not to be identified because they aren’t authorized to speak to the media. That includes 115,131 hectares of existing industrial land in states such as Gujarat, Maharashtra, Tamil Nadu and Andhra Pradesh

10 sectors identified and promoted across 4 trading partner countries to invite displaced manufacturers from china

https://mobile.twitter.com/IndiaToday/s ... 1254936580

IndiaToday
@IndiaToday
India’s PPE success! Medics hail domestic quality.
#IndiaFirst with
@GauravCSawant

India's PPE Industry manufacturing went from 0 to $1B in less than 2 months becoming 2nd largest PPE manufacturer. 8.4 million kits supplied & 14 million more to be supplied after which exports will begin & that too with better quality than cheen imported dump. 200,000 kits being produced daily. If this is not a lesson in Make in India success then nothing in future will be. This opportunity needs to be taken by GoI by force & sheer effort to de-throne Chinese manufacturing.

@CNBCTV18Live

The Uttar Pradesh government exempts industries in the state from ALL LABOUR LAWS for the next 3 years.

Only these labour laws will apply:
*Building and Other Construction Workers Act
*Section 5 of Payment of Wages Act
*Workmen Compensation Act
*Bonded Labour Act

Link

==================

UP & MP have dismantled APMC & now radically changed Labor laws. India is now second largest PPE manufacturer in the world and may even start exporting in couple of months.
It once again proves that India will transform only when there is a crisis

--Vamsee

Kaivalya wrote:https://m.economictimes.com/news/econom ... 534412.cms

A total area of 461,589 hectares has been identified across the country for the purpose, the people said, asking not to be identified because they aren’t authorized to speak to the media. That includes 115,131 hectares of existing industrial land in states such as Gujarat, Maharashtra, Tamil Nadu and Andhra Pradesh

10 sectors identified and promoted across 4 trading partner countries to invite displaced manufacturers from china

Thats almost 8 times X Singapore .. maybe more

Vamsee wrote:@CNBCTV18Live

The Uttar Pradesh government exempts industries in the state from ALL LABOUR LAWS for the next 3 years.

Only these labour laws will apply:
*Building and Other Construction Workers Act
*Section 5 of Payment of Wages Act
*Workmen Compensation Act
*Bonded Labour Act

Link

==================

UP & MP have dismantled APMC & now radically changed Labor laws. India is now second largest PPE manufacturer in the world and may even start exporting in couple of months.
It once again proves that India will transform only when there is a crisis

--Vamsee

These are pretty spectacular moves indeed! I hope this serves as a basis to permanently dismantle several labour laws that remained entrenched until recently, but which are ripe for elimination now, with no opposition to it except from the extreme left fringe.

Here is another news of a very significant reform in UP.

UP: Mandi tax on 46 fruits, vegetables abolished

From the article: Farmers will save 2% tax as well as 15% handling losses due unnecessary loading and unloading.

It seems the railways and surface transport ministries aren't the only ones doing great things during lockdown. Entire states are showing enormous initiative to use the lockdown to dismantle regressive structures that survived 30 years of liberalization. Agriculture and services are diametric opposites when it comes to reforms. Services benefited from lack of regulation . Agriculture remains incredibly stifled by the heavy hand of regulation and state control. Manufacturing sits somewhere in between. The lockdown offers a great moment to liberalize both, such that it kicks off the animal spirits of the rural economy, in the same way the TVE reforms in China did in the 1980s and 90s.

Suraj wrote:I Agriculture remains incredibly stifled by the heavy hand of regulation and state control.

Based on some personal experience in UP, there are two huge challenges in front of the agri-economy in UP.
1) Land reforms. Over time land was divided among farmer's offspring, and then further divided and further divided. I have seem hundreds of agri plots that are smaller 50ft by 50ft. What can you grow in it with any economies of scale? Agricultural land cannot be easily converted to any other purpose. The UP govt. hasn't done a consolidation (chakbandi) in my parental village for over 30 years. They need to made these reforms as soon as possible. Let the farmer sell this land to any body and for any purpose. That way the farmer doesn't have to stay tied up this a small plot of land and move to places offer better employment potential. Some of the more entrepreneurial farmers will buy these small plots and create large plots to derive economies of scale.
2) Sale purchase of agricultural produce is controlled by a govt. sanctioned mafia. Mandis started out with good intention have stifled efficient flow of goods. The taxation is very small part of the overall problem posed by these mandis. Freeing sale of agricultural produce from mandis will reduce the middle man cut and more money will flow to farmers.

Please do post suggestions like this on the Twitter feed of the UP CM, or any similar means. Now's a time when people are receptive to ideas and have the space to implement them too.

https://www.bloomberg.com/news/articles ... t-of-china
India Looks to Lure More Than 1,000 U.S. Companies Out of China

India is seeking to lure U.S. businesses, including medical devices giant Abbott Laboratories, to relocate from China as President Donald Trump’s administration steps up efforts to blame Beijing for its role in the coronavirus pandemic.

The government in April reached out to more than 1,000 companies in the U.S. and through overseas missions to offer incentives for manufacturers seeking to move out of China, according to Indian officials who asked not to be identified, citing rules on speaking with the media. India is prioritizing medical equipment suppliers, food processing units, textiles, leather and auto part makers among more than 550 products covered in the discussions, they said.

It could also present India with a chance to finally push through long-stalled reforms on land, labor and taxes that have hindered investment for years. Modi’s second term has been marred by nationwide protests and slow growth since his party scored a landslide election victory a year ago, presenting a risk for companies planning to move.

“There are opportunities for India to try to gain a place in global supply chains, but this will require serious investments in infrastructure and governance,” said Paul Staniland, an associate professor at the University of Chicago who writes about India’s politics and foreign policy. “India faces tough competition from elsewhere in South and Southeast Asia.”

Officials have told companies that India is more economical in terms of securing land and affordable skilled labor than if they moved back to the U.S. or Japan, even if overall costs are still higher than China. They have also offered an assurance that India will consider specific requests on changes to labor laws, which have proved a major stumbling block for companies, and said the government is considering a request from e-commerce companies to postpone a tax on digital transactions introduced in this year’s budget.

https://timesofindia.indiatimes.com/ind ... 556879.cms
From zero, India now produces around 2 lakh PPE kits per day

Suraj wrote:Please do post suggestions like this on the Twitter feed of the UP CM, or any similar means. Now's a time when people are receptive to ideas and have the space to implement them too.

I have done that a few times but usually via email to senior officials. Some day I will open a twitter account!

vijayk wrote:https://www.bloomberg.com/news/articles ... t-of-china
India Looks to Lure More Than 1,000 U.S. Companies Out of China

India is seeking to lure U.S. businesses, including medical devices giant Abbott Laboratories, to relocate from China as President Donald Trump’s administration steps up efforts to blame Beijing for its role in the coronavirus pandemic.

The government in April reached out to more than 1,000 companies in the U.S. and through overseas missions to offer incentives for manufacturers seeking to move out of China, according to Indian officials who asked not to be identified, citing rules on speaking with the media. India is prioritizing medical equipment suppliers, food processing units, textiles, leather and auto part makers among more than 550 products covered in the discussions, they said.

It could also present India with a chance to finally push through long-stalled reforms on land, labor and taxes that have hindered investment for years. Modi’s second term has been marred by nationwide protests and slow growth since his party scored a landslide election victory a year ago, presenting a risk for companies planning to move.

“There are opportunities for India to try to gain a place in global supply chains, but this will require serious investments in infrastructure and governance,” said Paul Staniland, an associate professor at the University of Chicago who writes about India’s politics and foreign policy. “India faces tough competition from elsewhere in South and Southeast Asia.”

Officials have told companies that India is more economical in terms of securing land and affordable skilled labor than if they moved back to the U.S. or Japan, even if overall costs are still higher than China. They have also offered an assurance that India will consider specific requests on changes to labor laws, which have proved a major stumbling block for companies, and said the government is considering a request from e-commerce companies to postpone a tax on digital transactions introduced in this year’s budget.

We may offer all facilities and area twice the size of Luxembourg to companies wanting to relocate from china but they wont come unless we change our archaic and nonsensical labor laws. Unless the foreign companies have the option to hire-fire and start-close 'at will' it is advantage Vietnam. Look at the irony - The labour union problem in India is actually helping a communist country to beat India in getting more business!!!