Top Credit Rating Agencies in India: Everything you need to know

What Is Credit Rating? 

A credit rating is a numerical evaluation of a borrower’s creditworthiness. Any individual and organisation like corporations, state or local authorities, and sovereign governments, can have a credit rating. It is represented by alphabetical symbols and helps financial institutions decide how probable it is for the borrower to repay the credit. 

What Are Credit Rating Agencies? 

A CRA or credit rating agency is a firm that analyses and evaluates the creditworthiness of a company. These firms take the borrower’s credit lines, financials, business model  and other such factors into consideration. Based on these, they decide whether the borrower will be able to repay the debts on time and the risks associated. 

Top 5 Credit Rating Agencies in India

Here are the best credit rating agencies in India that measure the creditworthiness of organisation’s  across the country: 

CRISIL (Credit Rating Information Services of India Limited)

• Launched in  1987, CRISIL is the oldest credit rating firm in India. It has its headquarters in Mumbai and acquired 8.9% of CARE’s stake in  2017.
• CRISIL offers 8 types of credit rating scales ranging from AAA to D. AAA being the best and D being the lowest in the scale.
• While CRISIL specialises in rating companies as per their creditworthiness, some of the other services offered by the company include coalition index, unit-linked insurance plans, and mutual funds ratings, etc.
• CRISIL’s clientele includes some of the country’s prominent banks and NBFCs such as SBI Bank, HDFC Bank, Kotak Bank, Bajaj Finance, etc.

ICRA (formerly Investment Information and Credit Rating Agency) Limited 

• Founded in the year 1991 in Gurugram, ICRA Limited is one of our country’s  leading credit rating agencies.
• It has four subsidiaries: ICRA Lanka, ICRA Nepal, ICRA Analytics Ltd.
• ICRA’s parent entity, Moody’s Investor Service is a leading global risk assessment firm.
• Apart from credit rating, some of the other services offered by ICRA include assessment of paying ability of insurance companies, project finance rating, credit risk assessment of debt mutual fund, etc.
• ICRA has a diverse clientele spread across the sectors. Some of ICRA’s key clients in the financial sector include Allahabad Bank, Aditya Birla Capital Limited, Bharti AXA General Insurance and more. 

CARE (Credit Analysis and Research Limited)

• Launched in  1993, CARE is one of the most renowned firms offering credit rating services to state and provincial governments and large organisations. It rates the organisations based on their short-term and long-term creditworthiness
• With its headquarters in Mumbai, CARE provides  long-term and short-term debt instruments and bank loan ratings.
• Further, CARE has partnered with several companies from Brazil, Portugal, South Africa and Malaysia to launch an international credit rating firm known as ‘ARC Ratings’.
• CARE serves some of India’s largest banks including HDFC Bank, ICICI Bank, Axis Bank, Bank of Baroda, etc. 

India Ratings and Research Private Limited 

• India Ratings and Research Private Limited is a subsidiary of Fitch Ratings India Pvt. Ltd.
• Its head office is situated in Mumbai and has branches in Kolkata, Pune, Bengaluru, Ahmedabad, Hyderabad, Delhi and Chennai.
• India Ratings and Research Pvt. Ltd. deal with ratings of corporate issuers, project finance companies, structured finance companies etc.

Acuite Ratings and Research Limited

• Acuite Rating Agency is the youngest and the newest credit rating agency in India. It was established in the year 2011 to rate the creditworthiness of Small and Medium Enterprises (SMEs) and corporate bonds. It is set up in Marol, Mumbai.
• The credit rating agency provides bond & bank loan ratings, economic analysis, and financial research services.
• It serves small-sized private corporates and public sector organisations like Nuclear Power Corporations and renowned financial sector companies.
• Acuite’s clientele in the financial sector include Bank of India, Unity Small Finance Bank, Bank of Maharashtra, Jupiter Capital, etc. 

How does Credit Rating Work in India?

Step 1– Each credit ratings agency, such as CRISIL, CARE, ICRA, India Rating and Research Private Limited, India Ratings and Research Private Limited etc, uses its own set of standards and algorithms to rate the organisations.

Step 2- The agency receives a request to rate a company’s bond. 

Step 3- The agency then collects the necessary information of the company needed to rate their bonds.  

Step 4- It then evaluates them based on various factors such as market reputation, present and past performance, loan portfolio, profit-making capacity etc.   

Step 5– Then, they make a detailed report of the company based on such information. 

Step 6- After completing their assessments, the agencies provide grades to the company’s bonds ranging from good to low. 

The Securities and Exchange Board of India (SEBI), holds the right to regulate and authorise the credit rating agencies under the SEBI (Credit Rating Agencies) Regulations, 1999 of the SEBI Act, 1992.

What Are the Factors that Affect Credit Rating in India? 

Here are the factors that impact the credit ratings of an entity in India: 

• Loan portfolio 

A significant factor is the type of active loans a business entity has opted for. An entity with more secured loans than unsecured ones will have a better credit rating.

• Future plans for a business 

One of the major factors on which credit ratings depend is the expected earnings and expansion plans of a business. If a business provides substantial proof of chances of growth in income in the future, it will receive a good credit rating. 

• Loan repayment history 

The financial institution will assess the repayment capabilities of an entity by assessing its past repayment history. Delayed or missed repayments can negatively affect credit ratings and indicate poor repayment behaviour.

Types of Credit Rating – Investment Grade and Non- Investment Grade

Credit rating agencies use various alphabetic symbols as their rating scale to evaluate the risk of default associated with a bond. Based on their credit ratings, bonds are divided into two categories – investment grade and non-investment grade bonds. The former is a low risk bond, whereas the latter is highly risky but can offer greater returns.

Investment Grade Bonds

Investment Grade bond credit ratings show a low risk of default associated with the bonds. It means that the issuer is in a good position to issue the bonds and will be able to pay back the bond’s principal and interest on time. Hence, it proves to be a good investment option for the investors. Generally, the rating for these bonds ranges from BBB or higher. Companies with good earning potential and decent debt-paying history are graded in this category. 

Non-investment Grade Bonds

Non-investment Grade bonds type of bond credit ratings show a high risk of default associated with the bonds. It means that the issuer is not in a good position to issue the bonds and will not be able to repay the bond’s principal and interest on time Hence, it proves to be a risky investment option for investors. These are also known as Junk Bonds. These companies have lower credit ratings such as BB, B or CCC. 

Benefits of Credit Ratings

Below mentioned are some benefits of credit ratings:

• Protects them from bankruptcy 

The credit rating instruments help investors get a good idea about the creditworthiness of any company. Companies with a high credit rating assure investors that their invested amount is safe. 

• Provides information at nominal costs 

Financial institutions as well as individual investors can obtain reliable company information at reasonable prices via credit ratings. The institutional/investor cannot afford the significant costs associated with the assessment and interpretation of complicated data. Investors can trust the graded instruments because information processing is handled by a specialised  organisation who have considerable experience in the field. 

• Opens new doors for investments 

The current investment sector offers investors a wide array of credit facilities to choose from. They can select a certain instrument based on their risk appetite and diversification strategy. Credit ratings give investors fair advice to help them choose

Credit Ratings Offered by the Top Firms in India

The table below shows the credit rating scales that rating agencies use in India: 

Final Thoughts 

A credit rating is a determination of an entity’s creditworthiness for purposes of borrowing money. This includes businesses, non-profit organisations, local governments, or other governments. Verified credit rating companies evaluate the company’s financial history and its capacity to pay back debts in order to issue these ratings. 

It is crucial to have a strong credit rating since it is used by lenders and investors to determine whether or not to grant loans. A good credit rating can also help a company obtain money at lower interest rates. These agencies also  assist  lenders and investors to analyse and make informed decisions.

Frequently Asked Questions (FAQs)