What is credit rating?

A credit rating tells you how reliable a borrower or financial product (like a bond) is when it comes to repaying money on time. It helps investors understand the risk of lending money or investing in that bond. 

These ratings are given by credit rating agencies and are especially important for bond investors to decide if it’s a safe investment or not.
 

Credit Rating Agencies in India
 

Major credit rating agencies in India include CRISIL, ICRA, CARE Ratings, and India Ratings and Research. These agencies, regulated by SEBI, evaluate the creditworthiness of companies and financial instruments like bonds to ensure transparency and accuracy in ratings.
 

Rating Process: The agency assesses factors like financial health, credit history, debt obligations, and overall business model among other factors.
 

Rating Scale:  After analysis, the agency assigns a letter grade to indicate credit risk:
 

 • AAA, AA, A: High credit quality, low risk.

 • BBB: Moderate credit quality, adequate repayment ability.

 • BB, B: Speculative, higher risk but no imminent default.

 • CCC, CC, C: High risk, with a greater chance of default.

 • D: Default or the highest level of risk.
 

Ratings from AAA to BBB are considered Investment Grade (safer investments), while ratings on or below BB are Speculative Grade (higher risk with potentially higher returns)