'Credit Risk Assessment From The Perspective Of A Rating Agency': A Lecture by Mr. Anoop Bhatia, Vice President, ICRA

Understanding when, where and how much credit risk is being incurred throughout an enterprise is an important knowledge to possess to not only survive, but thrive, and that applies to both businesses and financial institutions.

The students of VGSOM had the privilege of attending a guest lecture session delivered by Mr. Anoop Bhatia, Vice President, ICRA on ‘Credit Risk Assessment – Fundamentals and Rating Agency perspective’ as a part of Vaarta ‘15 guest lecture series. An alumnus of XLRI, Mr. Bhatia is a member of the rating committee of ICRA and has an expertise in Moody's evaluation framework covering the key parameters used for credit assessments. He has been managing portfolios of large corporates for credit ratings of their fixed income securities/bank lines.

Mr. Bhatia started the lecture with an introduction to ICRA Limited and a subsequent explanation of the significance of a credit rating agency by analogizing Moody’s stature in the market to the United States’ muscle in the global scene, saying how Moody’s can destroy a country by downgrading its bonds akin to how the U.S. can destroy a country by leveling it with bombs. Students were then led through the nuances of credit ratings and their uses for investors, issuers, intermediaries and regulators. Elaborating on the key success factors for ratings, he focused on credible and independent structures and procedures. After giving an initial outlay, he shed light on the various rating approaches and methodologies used by ICRA.

Structuring the discussion around the rating framework from the perspective of corporates, he then introduced the students to the underlying forces of business, financial and management risks. He coursed the discussion further by stressing on important financial parameters & rating scales used by credit rating agencies. He also elucidated various contemporary topics pertaining to credit rating like the ‘Transition matrix’ to the students. Citing examples from various sectors such as petrochemicals & FMCG, he explained the intricacies of the credit rating process in very lucid manner. Issues such as CRA are not auditors, credit rating changes with time, regulation of CRA and raters were also conversed. In the concluding stage of the session, two case studies were discussed so as to better apprehend the various factors taken into consideration by a rating agency while giving a rating.

The session was interspersed with many questions from the students, which mainly centered around issues such as the Indian economy growth forecast, China’s devaluation of the Yuan and its impact on Indian rupee. In response to one of the questions, he gave highlights about why sometimes credit ratings fail and how investor perceptions are guided by credit ratings. He explained that ratings should not be viewed as assurances of credit quality or exact measures of the likelihood of default.  He also mentioned that too much of competition in the rating industry is destructive as this sector is fundamentally different from other sectors where competition ensures superior products at cheaper prices. The real world examples that he shared with the students, time and again, proved very helpful for the visualization of the concepts being discussed, thus allowing the students to further appreciate the topics and the concepts.

Overall, the session was very informative and Mr. Bhatia succeeded in presenting a rather heavyweight subject of discussion in an easily comprehensible style. This enlightening experience for the VGSoM students, under the tutelage of an eminent industry expert, was the biggest takeaway from this session.