CIBIL Report - what it contains

In your credit report, here are a few areas lenders focus on.

Payment History: This appears in the Account(s) section of your CIBIL credit report.

There are two parts to this information: the Days Past Due (DPD), and the month and year of payment. The DPD indicates how many days the payment is late that month. Obviously, anything other than "000" is considered negative.

Up to 36 months of this payment history (with the most recent month displayed first) is provided in this section.

Current Balances: Also appearing in the Account(s) section of your credit report, the current balances on various loans indicate the depth of your debt. The sum of your current balances helps determine your strength to take on additional debt in relation to your current income.

Naturally, lower the current balance, better the chance of your loan getting approved.

New credit facilities: If a loan provider observes that you have recently been sanctioned a number of new credit facilities, it would mean that your monthly outflow in terms of loan repayments is likely to have increased. Hence, it may be viewed negatively.

Number of new enquiries: If you have applied for a number of loans in the recent past, the chances of your loan getting approved are likely to suffer. Simply because such credit behaviour indicates that you are 'credit hungry' and are in urgent need of money.

By understanding how banks think, you can not only complete a lending application that will showcase your strengths better but you can also pre-qualify for loans by lenders based on their lending criteria.

This will reduce the number of attempts you make to qualify. Fewer attempts at the doors of various lenders for getting loans reduce the short-term damage to your credit prospects.

Ensuring that your 'reputation collateral' is reflected accurately will provide you with access to credit faster and on better terms.

Why FDs rated hgiher than NCDs

http://www.thehindubusinessline.com/features/investment-world/money-wise/article3901228.ece

If you are investing in a debt instrument, you need to check not just the interest rate but the credit rating too. But did you know that fixed deposits (FDs) and non-convertible debentures (NCDs) issued by the same company may have a different risk rating? Rating agencies may give a higher rating to an FD scheme from a company, despite its NCD being rated a notch lower or vice-versa.

But, why is it so? Well, industry and company specific risks hold good for all investors, irrespective of the instrument. That said, there are few factors that could lead to the differing ratings.

Time factor

The first one is tenure. Given that all businesses can go through cycles, risks for the same company may vary across time. If a rating agency thinks a business has higher uncertainties over the medium or long term, ratings for longer term instruments may be different from short term ones.

For instance, if the medium term outlook for a company looks promising, then rating agencies may consider a higher rating for FDs. However, assuming that uncertainties loom large for the company over the longer time frame, rating agencies may take a cautious stance while assessing long-term instruments such as NCDs and bonds.

Two, there can also be differences between credit ratings on instruments with the same tenure. The underlying security is one factor here. Instruments backed by collateral may have a better rating, when compared to unsecured ones. This is because the risk of default is hedged to the extent of the underlying security.

security

But mere collateral may not suffice. Quality of the security also matters. For instance, fixed deposit issues by NBFCs are backed by investment in government securities to the extent of 15 per cent of the receipts. In contrast, NCDs are usually secured by the company's receivables. Though secured, you may still run the risk of bad debt with receivables. Hence, rating agencies may give higher weight to the fixed deposit scheme by an NBFC than its NCD.

Instances of such divergent ratings across instruments are common with NBFCs. Sundaram Finance is a classic example. The company's FD has been rated as FAAA by Crisil, a leading rating agency, while its NCD has been rated one notch lower at AA+ (plus). Other NBFCs with a similar trend include Mahindra & Mahindra financial services (MMFS) and Shriram City Union Finance (Shriram).

MMFS's FD has been rated as FAAA by Crisil, while its NCD has been rated at a lower grade AA+ (plus). In the case of Shriram, its FD carries a FAA rating, higher than its NCD rating of AA – (minus).

According to Crisil, FD issues are rated better as they attract higher retail participation. Being retail in nature, the ticket size of the issue may be relatively small, unlike NCDs. This may cushion the issuing company from the refinancing pressure, at the time of maturity. Simply put, all the investors are unlikely to pull out at the same time.

This is in contrast to NCDs, which as a category are largely aimed at institutional investors.

In Crisil's view, a fair amount of fixed deposits get renewed and this strengthens the case for a better rating. However, given the medium-term rating scale for these instruments, it makes sense for you to look at the NCD rating for the issuing company too. This can throw light on the long-term concerns that the rating agency has for the company you invested in.