case study on credit rating agencies in india

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An Analytical Study on Impact of Credit Rating Agencies in India’s Development

Credit rating agencies (CRAs) plays a crucial role in financial markets for lenders, investors and issuers in reducing information asymmetry between different parties. Credit rating helps us to know about the credit capability of individuals in a country. When all the investors are positively rated, then there will be an increase in new startups. Gradually income of the country increases, Employment opportunities expands and Poverty ranks less. When there is development in all the sectors then the GDP increases and country develops. The paper clearly explains the part played by credit rating agencies in the development of a country either directly or indirectly. The objective is to study about the importance of credit rating for a country to develop. Analytical research as well as descriptive type of research is used for the study. Secondary as well as primary data has been gathered for the study. The sources for the data are through the websites of the rating agencies, journals, ne...

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An efficient financial system facilitates the optimal allocation of resources towards economic development of a country by allocating resources efficiently. Markets which are a part of the financial system, support efficient allocation of funds, thus development of capital markets play a vital role in economic development of a country. Information asymmetry and lack of information can fear away investors, while a"creditrating" assigned by an independent party can attract investors to markets. The purpose of this study is to identify the current trend of the credit rating industry in Sri Lanka (SL). Data were obtained mainly from interviews and other secondary sources such as annual reports of SEC, and rating reports etc. Quantitative data were analyzed using; ratio analysis and percentage calculations, while qualitative data were analyzed using content analysis. The study revealed that underdeveloped capital markets and low financial literacy hinder the use of credit ratings in SL influencing negatively on investments.

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The financial structure in the world has become more complex with the increase in global capital movements. For this reason, credit rating agencies have emerged as an important component of the financial structure. Standard and Poors, Moody's and Fitch are the three most important companies in this market. The grades given by these institutions highly affect the economic situation of the countries. In this study, information is given about credit rating agencies and it is aimed to measure the effect of the points given to countries by Standard and Poors, Moody's and Fitch, which are the most important of these institutions, on the economy. For this purpose, the effect of credit scores on the economic growth of Balkan countries except Kosovo was analyzed using panel data analysis method. In addition, unemployment, inflation, current account balance and budget balance data were included in the analysis. The findings obtained show that credit scores have an effect on the econom...

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Credit rating agencies (CRAs) piece a dominant character in the debt (bond) souks of many republics. CRAs have also involved a substantial quantity of public and policy care throughout the past period, particularly with admiration to their character in the monetary disaster of 2008-2009 and their character in the additional new Eurozone problems. This article delivers an impression of the CRAs: who they are, whatever they do, how their importance to the monetary marketplaces came around, what their character in the monetary disaster was, and the significant features of the plan events that have pretentious the CRAs. A credit rating agency (CRA) is a marketable apprehension betrothed in the occupational of credit assessment of any obligation responsibility or of some scheme or package needful money in the procedure of debt or then. CRA is dissimilar from a merchant praise action, which typically provisions overall evidence on corporates. It is likewise dissimilar from a praise agency, which orders material on praise greatest of corporates or smooth persons. Nor is it a credit-assessing activity like the recognition section of a profitable set. The most important feature of credit assessment is that it is a view complete obtainable for public, swaying choices by contestants in monetary markets.

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The current research identifies the rating of credit raters by evaluating how credit rating agencies are involved in rating the corporate. It determines the credibility and reliability of their scores based on various variables presenting the credit history and credit worthiness of corporate operating in global perspectives including the United States, UK and India. The paper indicates that there should be some agencies or financial bodies that oversee the processes and procedures of credit raters rating the corporate worldwide. The research explores and norms and practices of the rating of credit raters and determines how the selected variables would be helpful in determining the credibility and authenticity of the credit raters in financial markets. It highlights the implications of the opinions of these credit raters on the performance and future growth of the corporate and predicts what measures should be adopted in rating the credit worthiness of corporate operating in developi...

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The credit rating level is indicator which is created for financial investors (creditors, stockholders etc.) to be used for risk dispersion and investments profitability evaluation in certain countries and enterprises. It is so important for transitional countries whose economic development significantly depends of FDI entrance and creditworthiness on international financial market. Bosnia and Herzegovina has experienced the credit rating decreasing on two occasions during the 2011. The subject of this paper is the consideration about sovereign credit rating on the example of Bosnia and Herzegovina through the next items: the nature and content of credit rating, methodology of credit rating evaluation, the importance of certain credit rating determinants, credibility of agencies for credit rating evaluation and possibilities for credit rating increment.

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List of credit rating agencies in India

Have you ever wondered about credit rating agencies and what those credit ratings mean we'll decode credit ratings and look at the agencies in india.

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What are credit ratings?

• Credit ratings and the agencies behind them give us the lowdown on how likely someone or something is to pay back the money they've borrowed.
• Whether it's an individual, a big company, or even a government, these ratings dive deep into their financial health, payment track record, and the economic landscape.
• This helps lenders and investors decide whether to lend them cash or invest in their debt. Credit ratings keep the financial market fair and transparent by helping everyone understand the risks involved.
• You'll likely get better loan deals if you have a good rating. But if your rating is not so good, expect to pay a bit more in interest.
• Credit ratings are assessments of how likely individuals or companies are to repay the borrowed money. Think of it as a financial report card that lenders use to evaluate the creditworthiness of borrowers.
• These ratings are assigned by specialised agencies like CRISIL (Credit Rating Information Services of India Limited), ICRA (Investment Information and Credit Rating Agency), CARE (Credit Analysis & Research Ltd), ONICRA (Onida Individual Credit Rating Agency), and SMERA (Small and Medium Enterprises Rating Agency of India) in India, based on various factors such as financial health, payment history, and economic conditions.
• A higher credit rating implies a lower risk of default, making it easier for borrowers to access loans on favourable terms.
• Conversely, a lower credit rating suggests a higher risk, which may result in difficulty in securing loans.
• Overall, credit ratings play a crucial role in the functioning of financial markets by providing transparency and confidence to lenders and investors.

What are credit rating agencies?

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Credit rating agencies in india, acuité ratings & research limited, brickwork ratings india private limited.

• Founded in: 2008
• Headquarters: Bengaluru

Care Ratings Limited

• Founded in: 1993
• Headquarters: Mumbai

Crisil Ratings Limited

• Founded in: 1987

ICRA Limited

• Founded in: 1991
• Headquarters: Gurgaon

India Ratings and Research Pvt. Ltd.

• Founded in: 1995

Infomerics Valuation and Rating Pvt. Ltd

• Founded in: 1986
• Headquarters: Delhi

Frequently Asked Questions (FAQs)

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List of Credit Rating Agencies in India and their Functions

Credit rating agencies in India, including CRISIL, CARE, ICRA, SMREA and Brickwork Rating etc. Know about List of Credit Rating Agencies in India and their Functions

Table of Contents

Context: The government has criticised the ‘opaque methodologies’ used by the major global credit rating agencies to arrive at sovereign ratings.

About Credit Rating Agencies

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List of Credit Rating Agencies in India

Role of credit rating agencies in india.

• Evaluate the creditworthiness of borrowers.
• Assign ratings to issuers, indicating repayment likelihood.
• Assist investors in assessing investment risks.
• Provide standardized, independent assessments for market trust.
• Fulfill regulatory requirements for institutions and investors.
• Aid in managing and reducing investment risk.
• Facilitate lower borrowing costs for entities issuing debt.
• Contribute to efficient capital allocation in financial markets.
• Assess and rate Small and Medium Enterprises for credit access.
• Subject to SEBI oversight to ensure accuracy and reliability.
• Facilitate global investors in understanding Indian entities’ risk profile.

Criticism of Credit Rating Agencies in India

• Accusations of bias due to payment by rated entities.
• Criticisms for slow adjustments, especially in economic downturns.
• Overemphasis on historical data, neglecting current market dynamics.
• Failures in accurately assessing high-risk financial products.
• Allegations of agencies following a “herd mentality.”
• Concerns about opaque rating methodologies and processes.
• Accusations of ratings exacerbating economic downturns.
• Criticism for significant impacts on markets and economies.
• Limited rating services for Small and Medium Enterprises (SMEs).
• Instances of agencies failing to anticipate defaults promptly.
• Calls for increased legal accountability for inaccurate ratings.

Credit Rating Agencies UPSC

Credit rating agencies in India, including CRISIL, CARE, ICRA, SMREA, Brickwork Rating, India Rating and Research Pvt. Ltd, and Infomerics Valuation and Rating Private Limited, assess a borrower’s creditworthiness based on factors such as financial statements, debt levels, repayment history, and geopolitical and economic events. SEBI regulates these agencies, overseeing their periodic re-evaluations of ratings in response to developments like the Coronavirus pandemic and climate change.

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Credit Rating Agencies in India FAQs

How many credit rating agencies are there in india.

There are a total of seven credit agencies in India viz, CRISIL, CARE, ICRA, SMREA, Brickwork Rating, India Rating and Research Pvt. Ltd and Infomerics Valuation and Rating Private Limited.

What is ICRA and CRISIL?

CRISIL, or Credit Rating Information Services of India Limited, uses modifiers within its 'CRISIL AA' to 'CRISIL C' ratings to indicate comparative standing. ICRA, standing for Investment Information and Credit Rating Agency, offers credit ratings, research, and risk assessment services, registered with SEBI.

Which credit rating agency in India is registered with Sebi?

CRISIL, ICRA, CARE, SMERA, Fitch India, Brickwork Ratings.

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Credit Rating Agencies in India Meaning, Benefits, Importance, Limitations

Table of contents:-, credit rating agencies in india, meaning of credit rating, definition of credit rating, benefits of credit rating, what is credit rating agency, characteristics of credit rating, importance of credit rating, limitations of credit rating.

The establishment of Credit Rating Agencies in India forms an important step in the process of financial reforms. Following are the credit rating agencies in India explained in brief:

1) Credit Rating Information Services of India Limited (CRISIL)

The Credit Rating Information Services of India Limited (CRISIL) was promoted in 1987 by the ICICI and UTI. Other shareholders include:

• Asian Development Bank,
• State Bank of India,
• Life Insurance Corporation of India,
• Housing Development Finance Corporation Limited,
• General Insurance Corporation of India and its subsidiaries,
• Standard Chartered Bank,
• Banque Indosuez,
• Bank of Tokyo,
• Sakura Bank,
• Hong Kong and Shanghai Banking Corporation,
• Citibank, Grindlays Bank,
• Bank of India,
• UCO Bank, Bank of Baroda,
• Allahabad Bank,
• Canara Bank,
• Central Bank of India,
• Indian Overseas Bank and
• Bank of Madura Ltd.

Its primary objective is to rate the debt obligations of Indian companies. Its rating provides a guide to the investors as to the degree of certainty of timely payment of interest and principal on a particular debt instrument. CRISIL rates debentures , fixed deposit programmes, and short-term instruments like commercial paper, structural obligations, and preference shares. CRISIL is the market leader in India and works as a ‘full service’ rating agency. It has the most wide range of rating services . By combining its expertise in risk analysis and the art of constructing risk frameworks with a profound contextual understanding of business, CRISIL ratings offer the most reliable opinions on risk.

CRISIL’s Impact on Debt Markets: Ratings, Services, and Contributions

Since its inception on March 31, 1994, CRISIL has rated a total of 926 debt instruments issued by 668 companies. It has introduced the CRISIL card, CRISIL view, CRISIL ban card, and CRISIL rating digest service. CRISIL has published CRISIL bond yield tables to provide a handy reference to investors for determining yield-to-maturity on a c, given the price of the debenture , its coupon rate, and its maturity period. It has also published a CRISIL RATING Scan containing rating reports on companies whose instruments have been rated by CRISIL. during the quarter. CRISIL ratings continue to play an important role in the development of the debt markets in India. Till March 31, 2003, it has rated more than 4438 debt instruments worth over 4,46,329 crore, for more than 2000 companies.

2) Investment Information and Credit Rating Agencies of India (ICRA)

ICRA or the Investment Information and Credit Rating Agencies of India is sponsored by IFCI jointly with the other lead financial institutions and banks and became operational in September 1991 to guide the investors or creditors in determining the credit risk associated with an de instrument or credit obligation. The ICRA rated debentures , bonds, preference shares, fixed deposits, and short-term instruments like commercial paper, etc, of several companies. Since its time of inception in March 1995, ICRA rated 485 dels instruments evolving 17,638 crore. In addition, ICRA provides a “general assessment report on different aspects of the company’s operations management”.

ICRA is an independent and professional company providing investment information and credit rating services. With the growth and globalization  of the Indian capital market leading to an exponential surge in demand for professional credit risk analysis, ICRA has actively responded to this need. The response includes executing assignments such as credit ratings, equity gradings, and mandated studies spanning diverse industrial sectors. ICRA presently provides its services under three banners, namely:

i) Advisory services

ii) Rating services,

iii) Information services,

3) Credit Analysis and Research Limited (CARE)

Credit Analysis and Research Limited (CARE) is sponsored by the Industrial Development Bank of India jointly with Canara Bank, UTI, private sector banks, and financial service s companies to offer credit rating information and equity research services to Indian industries and institutions. CARE was incorporated on April 21, 1993, and started its operations in October 1993. It undertakes the rating of all types of debt instruments like commercial paper, fixed deposits, bonds, debentures , and structural obligations, involving an independent and professional assessment of the debt servicing capabilities of companies. Since its inception till the end of March 1995, CARE has rated 249 debt instruments covering a total debt volume of 9,729 crore.

4) Onida Individual Credit Rating Agency (ONICRA)

Onida Finance has set up a private company, Onida Individual Credit Rating Agency (ONICRA). It undertakes ratings for credit cards, leasing , hire purchase transactions, housing finance, and bank finance. The main objective of these credit rating agencies in India is primarily to restore confidence in the capital market and to provide an unbiased assessment of the creditworthiness of the companies issuing debt instruments. It also provides information about the creditworthiness of corporation to investors at a low cost. In addition to this, it provides a sound basis for a proper risk-return structure. It also assists the institutional investment regarding the framing of public policy guidelines. However, ONICRA was abolished in the latter part.

5) Duff Phelps Credit Rating (DPCR)

Duff Phelps Credit Rating (DPCR) India Pvt. Ltd is another private sector credit rating agency that was set up in 1996. It has already rated several companies. However, SEBI has started giving guidelines to them to regulate them as one of the capital market institutions.

6) Fitch Ratings

Fitch Ratings India Ltd is the latest agency to conduct credit ratings from the foreign sector. It is a 100 per cent subsidiary of its parent company abroad, operating in India.

A credit rating is a numerical assessment of a borrower’s creditworthiness, either in general or about a specific debt or financial obligation. This rating can be assigned to any entity seeking to borrow money, whether it’s an individual, corporation, state or provincial authority, or sovereign government.

Credit bureaus like Experian and TransUnion determine individual credit scores using a 3-digit numerical scale and Fair Isaac (FICO) credit scoring. For companies and governments, credit assessment is typically conducted by credit rating agencies such as Standard & Poor’s (S&P), Moody’s, or Fitch. These credit rating agencies in India are compensated by the entity seeking a credit rating, whether it’s for itself or one of its debt issues.

Credit rating can be defined as an expression, conveyed through the use of symbols, offering an opinion on the credit quality of the issuer of debt securities regarding a specific instrument. According to SEBI regulations, credit rating is essentially an opinion on securities expressed in the form of a standard symbol or any other standardized form assigned by a credit rating agency. The symbol assigned by the rating agency indicates the credit character of that particular security, facilitating an assessment of its credit risk. However, it does not directly advise whether to buy, sell, or hold that security. Therefore, a rating serves as a measure of credit risk exclusively and does not provide information about the level of market risk.

Credit rating is predominantly considered about debt instrument. In addition to this, lenders such as banks and non-banking finance companies use internally developed credit rating score models to assess the creditworthiness of their borrowers or rely on rating agencies to obtain a rating for the same. Companies that issue debt instruments cannot independently rate their instruments.

The rating of debt instruments offers benefits to interested parties, such as investors, issuers, and intermediary agencies like brokers, etc. These benefits are described below:

Benefits to Investors

1. recognition of risk.

Credit rating offers investors easily recognizable rating symbols that convey information about the risk involved in an investment. Investors can quickly understand the worth of the issuer company by examining the symbol, as the instrument is rated through scientific and professional analysis of the company’s financial position. Consequently, investors are spared the need to incur costs for collecting credit information and conducting analysis. Even investors without any knowledge of financial analysis can use rating symbols for investment decisions.

2. Safeguards against Bankruptcy

The credit rating of an instrument provided by the credit rating agency offers investors insight into the financial strength of the issuer company. This useful information enables investors to make decisions related to their investments. A highly rated instrument from a company assures investors regarding the safety of their investment and the interest (or return) on their investments with minimal risk of bankruptcy.

3. Rating Facilitates Quick Investment Decisions

Investors can make swift decisions about investments in various instruments with the assistance of credit ratings assigned to those instruments. Consequently, there is no need for investors to conduct a fundamental analysis of a company, considering factors such as the financial strength of the company, the quality of management , and other parameters.

4. Credibility of Issuer

The rating symbol assigned to a debt instrument provides an insight into the credibility of the issuer company. The rating agency is entirely independent of the issuer company and has no business connections or any relationship with its Board of Directors, etc. The absence of business links between the rating agency and the issuer company enhances the confidence of investors in such a rating symbol.

5. Choice of Investment

Several alternative credit-rated instruments are available at a particular point in time for deploying investible funds. Investors can choose from various instruments based on their own risk profile and diversification plan.

6. Benefits of Rating Surveillance

Investors benefit from the credit rating agency’s ongoing surveillance of rated instruments from different companies. The credit rating agency downgrades the rating of any instrument if, subsequently, the company’s financial performance is not satisfactory or its financial position has suffered due to internal or external events. This downgrade necessitates the subsequent dissemination of information about its position to the investors.

7. No Need to Depend on Investment Advisors or Professionals

Investors lacking knowledge about investments may have to seek advice from financial intermediaries, such as stockbrokers, portfolio managers, or financial consultants when investing funds in debt instruments. However, investors do not need to rely on the advice of these financial intermediaries, as the rating symbol assigned to a particular instrument suggests the creditworthiness of the instrument and indicates the degree of risk involved. Therefore, investors can make direct investment decisions.

Benefits of Credit Rating to Issuer Company

A company that has obtained a credit rating from a rating agency for its issuance of debt securities enjoys various advantages. A few of these advantages are given below:

Wider Audience for Borrowing

A company with an excellent rating for its debt instruments can approach various categories of investors for resource mobilization using the press media. Investors from different strata of society could be attracted to higher-rated instruments as they understand the degree of certainty regarding the timely payment of interest and principal on a debt instrument with a better rating.

Lower Cost of Borrowing

A company whose debt instruments or public deposits program receives a high rating will be able to reduce the cost of borrowing by offering lower interest rates on fixed deposits, debentures, or bonds. Investors prefer lower interest rates due to the lower credit risk associated with highly rated instruments.

Self-Discipline by Companies

Rating encourages companies to provide more disclosures about their accounting systems, financial reporting, management patterns, etc. The company gains the opportunity and motivation to improve its existing practices to match the competitive standard and maintain the rating standard it has achieved or make improvements upon the rating.

Rating as a Marketing Tool

Companies with rated instruments enhance their image and can use credit rating as a marketing tool to create a better impression when dealing with customers, lenders, and other creditors. Even consumers feel confident using products manufactured by companies that carry higher ratings for their credit instruments.

Motivation for Growth

Rating motivates the company for growth, as the promoters of the company feel confident in their efforts and are encouraged to undertake the expansion of their existing operations or new project s. With a better image created through a higher credit rating, the company can mobilize funds from the public and institutional lenders like banks and financial institutions .

Reduction of Cost in Public Issues

A company with a higher-rated instrument can attract investors and raise funds with less effort. Thus, a company whose debt instrument is highly rated can minimize the cost of public issues by controlling expenses on media coverage, conferences, and other marketing expenditures.

Benefits to Financial Intermediaries

Highly credit-rated instruments give brokers an advantage, requiring less effort in studying the company’s credit position to convince their clients to select a particular investment proposal. Rated instruments speak for themselves regarding the financial soundness of the company and the strength of the instrument rated by the credit rating agency. This enables brokers and other financial intermediaries to save time, energy, cost, and manpower in convincing their customers about investments in any particular instrument. They use their resources to expand their clientele and boost their business activities.

Other Benefits

Other general benefits of credit rating are given below:

1. Positive Impact on the Capital Market

Rated securities contribute to the improvement of the capital market and reflect on its efficient functioning. The trading of rated securities in the secondary market becomes smooth and easy, providing liquidity for such securities. This, in turn, indirectly enhances the primary market for debt instruments with higher credit ratings.

2. Identification of Strengths and Weakness of the Issuer Company

A company that has obtained a rating for its security understands its strengths and weaknesses in all spheres of the corporate environment. It can take corrective steps to improve its position and remain guided by the surveillance efforts of the Credit Rating Agency. Particularly, companies with low credit ratings make efforts to enhance their performance. Thus, credit rating creates a tendency among rated corporate units to remain healthy and maintain a higher standard for corporate governance, which will help them improve their standing both in domestic and international markets.

3. Liquidity and Marketability of Debt Securities

Rated debt securities become easily marketable and therefore, achieve the status of more liquid instruments. Credit rating symbols or grades establish the market price range for the rated securities. The virtues of easy marketability and greater liquidity of the instrument make it popular with investors, and the issuer company can efficiently sell the rated security at the least cost.

A credit rating agency is a private company that evaluates the creditworthiness of large-scale borrowers, like companies or countries. It effectively ranks borrowers based on their ability to repay loans.

A credit rating agency (CRA), also known as a rating service, assigns credit ratings that reflect a debtor’s ability to make timely principal and interest payments and the likelihood of default. CRAs may rate the creditworthiness of issuers of debt obligations, debt instruments, and, in some cases, the servicers of the underlying debt, but not individual consumers.

Debt instruments rated by CRAs include government bonds, corporate bonds, CDs, municipal bonds, preferred stock, and collateralized securities such as mortgage-backed securities and collateralized debt obligations. The issuers of these obligations or securities may be companies, special purpose entities, state or local governments, non-profit organizations, or sovereign nations. Credit ratings facilitate the trading of financial products (like stocks or bonds) on the secondary market and influence the interest rates that securities pay, with higher ratings leading to lower interest rates.

Individual consumers are rated for creditworthiness not by credit rating agencies but by credit bureaus (also called consumer reporting agencies or credit reference agencies), which issue credit scores.

The value of credit ratings for securities has been widely questioned. During the financial crisis of 2007–08, hundreds of billions of securities that had received the agencies’ highest ratings were downgraded to junk. Rating downgrades during the European sovereign debt crisis of 2010–12 were blamed by EU officials for accelerating the crisis.

The credit rating industry is highly concentrated, with the “Big Three” credit rating agencies controlling approximately 95% of the rating business. Moody’s Investors Service and Standard & Poor’s (S&P) together control 80% of the global market, and Fitch Ratings controls a further 15%.

1. Based on Data: A credit rating agency assesses the financial strength of the borrower using financial data.

2. Assessment of Issuer’s Capacity to Repay: It evaluates the issuer’s ability to meet its financial obligations, including the capacity to pay interest and repay the principal amount borrowed.

3. Done by Experts: Credit rating is conducted by experts from reputable, accredited institutions.

4. Guidance about Investment – Not Recommendation: Credit rating guides investors but does not recommend investing in any particular instrument.

5. Expressed in Symbols: Ratings are expressed in symbols such as AAA, and BBB, which can be easily understood by laypeople.

1. Quality and Dependable Information: Credit rating agencies employ highly qualified, trained, and experienced staff to assess risks. They have access to important information, which allows them to provide accurate information about the creditworthiness of the borrowing company.

2. Unbiased Opinion to Investors: A good credit rating agency provides an unbiased opinion because it has no vested interest in the rated company.

3. Free or Nominal Cost Information: Credit ratings of instruments are published in financial newspapers and advertisements of the rated companies, often at no cost to the public. Additionally, individuals can obtain them from credit rating agencies for a nominal fee, which is more affordable than the cost of independently gathering such information.

4. Information in Easy-to-Understand Language: Credit rating agencies gather, analyze, and interpret information, presenting their findings in easy-to-understand language, often in symbols like AAA, BB, and C, rather than technical language or lengthy reports.

5. Discipline for Corporate Borrowers: Higher credit ratings enhance a borrower’s goodwill, encouraging other companies to also aim for good ratings. This promotes financial discipline and ethical practices among companies striving for favourable ratings.

6. Assistance in Investment Decisions: Credit ratings help investors assess risks and make informed investment decisions.

7. Formation of Public Policy on Investment: Rated debt instruments allow regulatory authorities (SEBI, RBI ) to establish policies regarding the eligibility of securities for investment by institutions like mutual funds and provident funds. For instance, a policy may specify that a mutual fund cannot invest in the debentures of a company unless it holds a AAA rating.

While recognizing the benefits of credit rating, it is necessary to keep in mind certain limitations. A few limitations of credit rating are explained below:

1. Concealment of Material Information

The company approached for credit rating may not provide all material information to the credit rating agency. In such cases, the credit rating given by the agency may not reflect the true picture of the credit risk.

2. Biased Rating and Misrepresentations

In the absence of quality ratings based on objective analysis, credit rating becomes a curse for the capital market. To avoid biased ratings or subjectivity in the credit rating process, executives working with Credit Rating Agencies, involved in the credit rating process, should have no links with the company or individuals interested in the issuer company. This ensures their reports are impartial, and credit rating recommendations are judicious for the rating committee. Additionally, rating committee members should also be impartial and judicious in their decision-making.

Companies with lower-grade ratings often do not advertise or use the rating when raising funds from the public. In such cases, Credit rating agencies in India should, in the public interest, advertise the rating symbols assigned to such companies for public information. This helps make the public aware of the poor financial position of such companies.

3. Static study

Credit rating is conducted based on present and past data of the company, making it a static study. The disclosure about the company’s health through credit rating is a one-time exercise, and anything can happen after the assignment of rating symbols to the company. Depending on the rating for future results defeats the very purpose of risk indicativeness of rating. After the credit rating is assigned, many changes may take place in the economic environment, political situation, government policy framework, etc., directly affecting the operations of a company. With such changes, the original purpose for which credit rating was done may become obsolete.

4. Downgrade

Once a company has been rated and is unable to maintain satisfactory financial performance, the credit rating agency would review the grade and downgrade the rating, resulting in the impairment of the company’s image. Most of the limitations mentioned above can be overcome by taking precautions at every stage of the credit rating process.

5. Rating is no guarantee of the company’s soundness

Credit rating is conducted for a particular instrument to assess credit risk. Therefore, it cannot be construed as a rating for the quality of management or the overall financial position of the company.

Credit rating agencies in India are like giving a grade to how likely someone is to pay back the money they’ve borrowed. It’s a way of assessing the risk of a credit assignment, and it covers things like debentures, fixed deposits, and commercial papers. This process is super helpful for issuers, investors, intermediaries, and regulators.

What makes credit rating successful? A big part of it is the reputation and credibility of the credit rating agency. It’s not a one-time thing but an interactive process with different steps. The rating, expressed in symbols, can go up or down based on various factors. Lately, credit rating has expanded to cover things like the rating of equity, structured obligations, utilities, sovereign entities, and municipalities.

In India, SEBI keeps an eye on the credit rating business, making sure things are fair and square. There are four SEBI-recognized credit rating agencies doing their thing in the country.

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Credit Rating Agencies in India

You must have heard the phrase “The Zero Moment of Truth.” Zero moment of truth is all about the research we do on the product before we purchase it. Whether we are buying a villa or vase, we go through reviews and ratings. The same happens in the bond market as well. Here the rating is a systematic process executed by independent organizations, and they are called Credit Rating agencies. Credit rating agencies are well-regulated entities. Let’s discuss more about Credit Rating Agencies in India(CRA).

Table of Contents

The credit rating is an evaluation of prospective debtors. The debtor could be a country or organization that owes money. Credit Rating Agencies study the debtor’s credit history and predict the ability to pay back the bonds or other debt instruments and a forecast on anticipated debtor defaulting. Credit ratings help both institutional and individual investors to invest appropriately.

8 terminologies you must know before you invest in bonds.

A credit rating agency is a company that assigns credit ratings. Credit Rating Agencies in India consider the following factors to understand and predict the creditworthiness of the borrower.

• Financials: Financials include the income statement, balance sheet, and cash flow.
• Performance: The performance of a company is determined based on production, sales, sales growth, and market coverage. 
• Management Quality: An organization with a value-based leadership team that is compliant with regulations performs better in the long run and sounds promising to the investors.  
• Prospect of usage of the fund: Understanding the business development strategies and purpose of fundraising. 
• Payment History: Payment history includes repaying debts, dividends, taxes, and compensation to the employees. 

The CRA and issuer make a contract. Credit rating agencies periodically collect credit history, credit type, duration, credit utilization, credit exposure, etc. They collect other financial details from banks and Financial Institutions that are related to the issuers. Considering all these collated data, agencies generate a report. These ratings guide investors and banks to make investment decisions. The CRAs disclose the report even if the issuer doesn’t accept the report and ratings. But the issuer can appeal to CRA to review the rating.

Credit Rating Agencies in India provide a later-based rating. In India, “AAA” to “BBB” rated bonds are considered relatively safer instruments, and bonds rated below “BBB” are considered relatively riskier instruments.

Benefits of Credit Rating

For investors :.

It helps the investors to make better decisions. A high credit rating means an assurance about the safety of the money and that it will be paid back with interest on time and principal amount on maturity.

For companies(issuers):

For borrowing companies (issuers), credit rating works as a tool to convince investors. It facilitates the capital raising and saves time.

Top Credit Rating Agencies in India

Moody’s:.

Moody’s was founded in the year1909 by John Moody is headquartered in Newyork. Later in 1962, it was acquired by Dun and Bradstreet. Moody’s assigns ratings to companies and countries. Moodys rate the commercial and public debt securities that include corporate bonds, money market funds, fixed-income funds, and hedge funds. Their rating ranges from Aaa to C. Aaa to Baa3 ratings are given to investment-grade bonds and Ba1 to C ratings are given to junk bonds.

John Knowles Fitch founded Fitch rating in 1914.It is headquartered in Newyork. Fitch rate countries by evaluating their financial and political conditions. Ratings from Fitch range from AAA to D. AAA to BBB ratings are given to investment-grade bonds and BB to D ratings are given to riskier bonds.  FIMALAC acquired it in 1997. The fact to be noted here is Fitch delivered risk management software to IBM.

Standard and Poor’s:

Standard and Poor’s is one of the three largest CRAs in the world. Its a subsidiary of S&P Global. S&P Global was founded in 1860 headquartered in Newyork. Its ratings range between AAA and D. AAA to BBB ratings indicate safety and BB+ to D ratings are given to riskier bonds.

What is the bond market, and how does it work?

CRISIL was incorporated in 1987. CRISIL happens to be the first credit rating agency in the country. It is a subsidiary of S & P Global. Crisil has two categories of securities: Long term and short-term. Long-term securities ratings range from AAA to D and short-term securities ratings range from A1 to D. It offers eight types of credit rating, which are as follows: AAA, AA,  and A ratings indicate a higher level of safety. BBB and BB ratings indicate medium safety. B, C, and D ratings indicate a lower level of safety.

ICRA was established in 1991. ICRA is headquartered in Mumbai. ICRA is owned by Moody’s. ICRA’s rating scale starts from AAA  and ends with D. Ratings AAA to A ratings indicate higher safety, BBB to B indicate moderate safety, and C and D ratings are given to riskier securities. . The rating services of ICRA are:

• Bank Loan Rating
• Public Finance Rating
• Corporate Governance Rating
• Infrastructure Sector Rating
• Insurance Sector Rating

Credit Analysis and Research Limited (CARE) has been functioning since 1993. Its rating scale includes two categories – long term debt instruments and short term debt ratings. AAA to A rated instruments are safe, BBB and BB rated instruments are moderately safe and B to D rated instruments are riskier.

CRAs study the overall economic condition of different countries. They consider political stability, capital market transparency, foreign currency reserves, and investments. CRAs prepare reports on the government’s general creditworthiness and give credit ratings called a sovereign credit rating.

The credit rating agencies in India are well-regulated by SEBI Credit Rating Agencies Regulations, 1999 of the Securities and Exchange Board of India Act, 1992. SEBI has a detailed framework of guidelines to control the operations of CRAs to protect investors’ interests. Hence investors can rely on credit ratings and make investment decisions.

Fixed Income Securities: Bonds, FDs, PPF, & Bond-ETF which one to choose?

You, as a bond investor, are trying to know what bond rating is.

Credit rating is the rating given to the issuer, and whereas Bond-rating is the rating assigned to the Bond, i.e., the issue. Rating the issuer and rating the issue are like two faces of the same coin. In either case, the process and purpose remain the same. The same issuer may offer multiple issues; hence having a different rating system for the issuer, and each of the issues helps the issuer to make informed decisions.

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Great information of CRAs. But a given rating shall take care of all aspects of a company , with out investor going into other details. But I see ‘A’ rating for shriram transport ( example ) is given for both its secured bons aa well as UNSECURED bonds . But it is always preferable to go for secured bonds . But why same rating is given example ‘ A ‘ for these bonds ? Please clarify.

Credit rating takes into account a lot of parameters specific to a bond tranche. Every bond tranche, even from the same issuer, is invested separately into business activities with varying safety levels, assurance of capital invested, risk levels in the business area in which the bond money is invested, etc. There could be two tranches of bond from the same issuer, and one tranche is tagged “secured” and the other “unsecured.” The point to be noted here is that there are many different parameters considered for evaluation in addition to the security of the bond. The overall weighted average/ assessment across all such parameters for these two bond tranches can mark both the bonds in the same zone of safety/ risk. This is the probable cause of the same rating across the two tranches of bonds from Shriram.

Keep reading; keep exploring. We would be glad to answer your queries. GoldenPi Team

if golden pi shut the business in future then how can investors redeem the amount invested in a bond after maturity

Rest assured that your investment is safe. GoldenPi is only an enabler of transactions in bonds. Even in the unlikely case of us shutting down in the future due to some unforeseen circumstances, your investments will remain intact. You will continue to hold your Bond units in your Demat account and receive the Bonds’ regular interest payouts into your Bank Account. On maturity, the Bond’s face value will be credited to your bank account, as well.

Thanks for visiting our website.

Regards Sushma

‘AAA ‘ is the highest rating that can be assigned to a bond or bond issuer. ‘AAA ‘ indicates a high level of creditworthiness. AAA-rated bonds are considered investment-grade bonds.

We hope you find this answer helpful. Thanks for reaching us.

Regards GoldenPi Team

what is means of A- RATING

Every Credit Rating Agency presents ratings in a unique format. However, “Rating- A” is a good rating indicating a relatively higher level of creditworthiness.

A bond with an “A -Rating” is considered an investment-grade bond that indicates a relatively higher safety level.

I am concerned with the period of investment. I am a senior citizen hence prefer shorter period investments. Can you help. Also would like to know your charges for the service.

Great services specially to Sr.Citizens.

Great services specially to Sr.Citizens. Get the relevant information about short period bonds.

South indian bank showing the rating as “-A “, is it means below ” A” Rating?

Hello Manulala,

“A” represents the rating and “+” or “-” indicates outlook.

Credit ratings represent the past and present performance of the company and the outlook indicates the probable shift in ratings in near future.

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