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List of credit rating agencies in India

Published on Nov 7, 2023Updated on May 21, 2024

List of credit rating agencies in India

A credit rating is a vital financial tool that influences lending decisions, investment strategies, and overall financial stability for individuals and businesses. Understanding the intricacies of credit ratings is imperative for making informed financial decisions.

It involves comprehending the factors that influence credit scores, such as payment history, credit utilization, length of credit history, types of credit used, and new credit inquiries. Moreover, it entails grasping the impact of credit ratings on borrowing costs, investment returns, and overall financial health.

What is Credit Rating?

A credit rating serves as a fundamental gauge of an organization's ability to meet its financial obligations, particularly when it comes to repaying borrowed funds. These ratings are meticulously assigned by credit rating companies, taking into account various financial factors, such as the entity's annual income, total debt, and future profit projections.

Lenders consider these ratings as one of the initial checkpoints when evaluating loan applications. A favorable credit rating assures lenders that the borrower possesses the financial stability and means to repay the loan in a timely manner. Conversely, a lower rating may raise concerns about the borrower's ability to meet financial commitments. In this way, credit ratings play a pivotal role in shaping lending decisions and overall financial stability.

Types of Credit Ratings

Credit rating agencies employ unique terminologies within their credit rating scales to delineate the risk inherent to corporate entities. These terms are integral to their specific credit rating systems designed for this purpose. They can be grouped into two categories, providing a comprehensive framework for comparing credit risks across agencies.

Investment Grade

This type of credit rating denotes that a corporate entity has consistently exhibited judicious financial practices and possesses the capacity to meet its debt obligations promptly. Entities falling within this category are well-positioned to secure loans at advantageous, lower interest rates, owing to their robust creditworthiness

Speculative Grade

Credit ratings falling in this category suggest that a corporate borrower has engaged in high-risk business endeavors, raising concerns about their ability to meet loan obligations. Entities falling within this classification secure loans at elevated interest rates, reflecting the increased credit risk associated with such borrowers.

Users of Credit Ratings

Credit ratings are utilized by a diverse set of stakeholders. They include:

  • Lenders
  • Investment Banks
  • Debt Issuers
  • Retail and Institutional Investors
  • Businesses and Corporations.

These users rely on credit ratings to evaluate the creditworthiness of companies and make informed financial decisions.

Lenders

Lenders scrutinize a company's credit ratings to understand its ability to meet loan obligations. A favorable credit rating signals reliable repayment behavior and timely loan repayments. Conversely, subpar or poor credit ratings raise concerns about the borrower's payment reliability.

Investment Banks

Lenders scrutinize a company's credit ratings to understand its ability to meet loan obligations. A favorable credit rating signals reliable repayment behavior and timely loan repayments. Conversely, subpar or poor credit ratings raise concerns about the borrower's payment reliability.

Debt Issuers

Debt issuers, including companies and entities, consistently review their credit ratings to evaluate their creditworthiness and maintain their appeal to prospective lenders and investors. This ongoing assessment is crucial for their financial credibility.

Retail/Institutional Investors

Individual and institutional investors examine a company's credit ratings to estimate potential returns on investments in its shares or bonds. Higher credit ratings suggest the potential for robust returns over the long term.

Other Businesses/Corporations

When considering business transactions or partnerships, other companies assess the credit ratings of potential collaborators to assess their financial stability. This evaluation is pivotal in determining the viability of prospective partnerships.

Importance of Credit Rating

Credit rating is of utmost importance in the financial realm, impacting borrowing power, interest rates, and access to funds for individuals and businesses. A favorable credit rating enhances borrowing capabilities and secures lower interest rates, thereby reducing overall borrowing costs. It serves as a measure of financial reliability and can influence investment decisions by signaling the risk associated with investing in bonds or other financial instruments.

Furthermore, a strong credit rating contributes to a positive financial reputation, allowing for better negotiation terms and increased business opportunities. Insurance premiums may also be affected by credit rating, making it an influential factor in various aspects of personal and business finance. Overall, understanding and maintaining a good credit rating is crucial for long-term financial stability and access to favorable financial opportunities.

Top 7 Credit Rating Agencies in India

Seven specialized credit rating agencies in India have gained prominence in the Indian financial landscape. These agencies, including ICRA, CRISIL, CARE, BrickWorks, India Ratings and Research, Informetrics Valuation, and Acuite, have played a crucial role in assessing and evaluating creditworthiness across various industries.

1. Credit Rating Information Services of India Ltd. (CRISIL)

Credit Rating Information Services of India Ltd. (CRISIL) is a prominent and highly respected credit rating agency in India. Established in 1987, it has played a vital role in the Indian financial sector, offering credit ratings, research, and risk assessment services to help individuals and businesses make informed financial decisions.

2. Investment Information and Credit Rating Agency of India (ICRA) Ltd.

The Investment Information and Credit Rating Agency of India (ICRA) Ltd is a well-regarded credit rating agency in India. Founded in 1991, the ICRA provides credit ratings, risk assessment, and research services to aid investors, lenders, and businesses in making informed financial decisions.

3. Credit Analysis and Research (CARE) Ltd.

Credit Analysis and Research (CARE) Ltd. is a leading credit reporting agency in India. It plays a crucial role in the Indian financial sector, assisting investors, lenders, and businesses in making well-informed financial decisions by evaluating credit risk and financial stability.

4. Acuite Ratings & Research Ltd.

Acuite Ratings & Research Ltd. is a notable credit rating agency in India. With a strong focus on analytical rigor and transparency, Acuite has gained recognition for its expertise in evaluating creditworthiness and contributing to the Indian financial landscape

5. Brickwork Ratings India Private Ltd.

Brickwork Ratings India Private Ltd. is a prominent credit score agency. It plays a significant role by assisting investors, lenders, and businesses in evaluating credit risk and making well-informed financial decisions. It has earned a reputable position within the industry.

6. India Ratings and Research Pvt. Ltd.

Established in 2008, it specializes in providing credit ratings, research, and risk assessment services. It assists investors, lenders, and businesses in making informed financial decisions by evaluating credit risk and financial stability. The agency is recognized for its expertise and plays a crucial role in the Indian financial sector.

7. INFOMERICS Valuation and Rating Private Ltd.

Founded in 2012, the agency specializes in credit ratings, research, and risk assessment services. INFOMERICS is a valuable resource for investors, lenders, and businesses, helping them evaluate credit risk and make informed financial decisions. The agency has gained recognition for its expertise and contributions to the Indian financial sector.

Must Read: What is ECN Number in CIBIL Report & How to Get It?

How Do Credit Rating Agencies Work?

Credit rating agencies in India follow a standardized process when assigning credit ratings, taking several key factors into account. These factors include an analysis of the entity's financial statements, historical repayment behavior, and the nature of its current debt obligations. Some agencies also consider the reputation of the entity's board and its standing in the market.

Once the relevant data is collected and analyzed, each credit rating agency applies its proprietary system to assign weightage to these factors. This personalized approach allows them to arrive at a credit rating for a corporate entity or financial instrument. It's important to note that while the factors considered are similar across agencies, the specific weightings and methodologies may differ, which can result in variations in the assigned ratings.

These credit ratings serve as vital tools for investors, lenders, and businesses, aiding them in evaluating credit risk and making informed financial decisions.

Different credit rating scales

The following table outlines the credit rating scales employed by the primary credit rating agencies in India:

Credit Rating Agency 

Credit Rating Scale 

CRISIL 

CRISIL scales typically range from "AAA" (highest) to "D" (default). 

ICRA 

ICRA uses scales like "AAA" to "D" to denote creditworthiness. 

CARE 

CARE's credit ratings encompass "CARE AAA" as the top rating, descending to "CARE D" for default. 

Brickwork Ratings 

Brickwork Ratings utilizes scales that span from "BWR AAA" (highest) to "BWR D" for default. 

India Ratings and Research 

India Ratings employs scales ranging from "IND AAA" to "IND D" to signify creditworthiness. 

INFOMERICS Valuation and Rating 

INFOMERICS uses scales like "IVR AAA" to "IVR D" to assess credit risk. 

Acuite Ratings & Research 

Acuite utilizes scales from "ACUITE AAA" (highest) to "ACUITE D" for default. 

Factors affecting Credit Ratings in India

There are numerous factors significantly influence the credit ratings of corporate entities in India, impacting their creditworthiness:

  1. Loan Portfolio: The composition of the entity's loan portfolio is a key determinant, with favorable ratings linked to primarily secured loans and unfavorable ones to unsecured loans.
  2. Future Prospects: The entity's projected business outlook, encompassing growth plans and expected earnings, strongly shapes its credit rating. Positive prospects lead to higher ratings, while uncertainty may yield lower ones.
  3. Repayment History: The entity's history of loan repayments is crucial, showcasing its financial management skills and impacting the credit rating.
  4. Market Reputation: The firm's market standing influences its income, in turn affecting its repayment capability. This factor is considered by credit rating agencies.

These elements collectively shape an entity's credit rating, aiding lenders and investors in gauging credit risk and making well-informed financial decisions.

Must Read: How to Read CIBIL Report?

Conclusion

Credit ratings and the agencies that provide them are of paramount importance in India's financial landscape. They offer a structured framework for assessing the creditworthiness of various entities, enabling sound decisions in lending and investment.

The factors affecting credit ratings, including the composition of loan portfolios, future business outlook, repayment track record, and market standing, collectively furnish a holistic view of an entity's financial well-being. These ratings wield a direct influence over an entity's ability to secure capital and the terms of borrowing, thus impacting economic stability and growth.

* Please note that this article is for your knowledge only. Loans are disbursed at the sole discretion of SMFG India Credit. Final approval, loan terms, disbursal process, foreclosure charges and foreclosure process will be subject to SMFG India Credit's policy at the time of loan application. If you wish to know more about our products and services, please contact us

FAQs

Who approves or regulates credit rating agencies in India?

Credit rating agencies in India are regulated and overseen by the Securities and Exchange Board of India (SEBI). SEBI is the primary regulatory authority responsible for the securities and financial markets in India, including the oversight of credit rating agencies.

How is credit rating expressed/denoted?

Credit ratings use a combination of letters and symbols to indicate creditworthiness, such as Highest: "AAA", High: "AA," "A" Upper-Medium: "BBB", Lower-Medium: "BB," "B", Lowest Investment-Grade: "C," "D", Speculative or Junk: "D". These symbols offer a standardized way to assess credit risk for entities, assisting investors and lenders.

How can borrowers benefit from a good credit rating?

Borrowers with a good credit rating enjoy numerous advantages. They gain easier access to loans and credit cards, often at lower interest rates, which can significantly reduce borrowing costs. Good credit enhances their negotiating power, allowing for more favorable loan terms, higher credit limits, and quicker loan approvals.

What is the difference between credit rating and credit score?

Credit ratings and credit scores differ in their focus and application. A credit rating assesses the creditworthiness of entities like governments or corporations, and it's used primarily by investors and lenders. A credit score evaluates an individual's creditworthiness and is employed by lenders, landlords, and sometimes employers to make decisions.

What is the difference between CRISIL ‘AAA’ and ‘AA’?

CRISIL 'AAA' and 'AA' credit ratings represent different levels of credit risk. 'AAA' signifies the highest rating, indicating exceptionally low credit risk. 'AA' is slightly lower on the rating scale, reflecting a lower but still relatively low credit risk, with a strong capacity to meet obligations.

Which five credit rating categories are there?

Credit rating agencies utilize five key credit rating categories.

  • Highest Credit Quality: indicated by "AAA" or "Aaa.
  • High Credit Quality: "AA" or "Aa".
  • Upper-Medium Credit Quality: Ratings like "BBB" or "Baa".
  • Lower-Medium Credit Quality: Entities with "BB" or "Ba".
  • Speculative or Junk Grade: Ratings such as "CCC" or "C".

How are credit scores determined?

Credit scores in India are calculated using various algorithms, by four major credit bureaus: CIBIL, Experian, Equifax, and CRIF High Mark. These bureaus employ different scoring models, leading to potential variations in your credit score when assessed by different bureaus.

What are short-term credit ratings?

Short-term credit ratings are assessments of an entity's creditworthiness with a specific focus on its short-term financial obligations and ability to meet them. These ratings are typically assigned to entities such as corporations or financial instruments with short-term maturities, usually within a year.

How is a Credit rating denoted?

Credit ratings are typically denoted using a combination of letters and symbols, although the exact format may vary slightly depending on the credit rating agency. These symbols provide a standardized way to convey the creditworthiness and credit risk associated with entities, whether they are governments, corporations, or individuals.

Is SEBI A Credit Rating Agency?

No, the Securities and Exchange Board of India (SEBI) is not a credit rating agency. SEBI is the regulatory body for the securities market in India. SEBI's role is to ensure the fair and transparent functioning of the credit rating agencies in India.

Can I use the terms ‘credit score’ and ‘credit rating’ interchangeably?

No, a 'credit score' is a numerical portrayal of an individual's creditworthiness, vital for decisions on loans, rentals, and employment. In contrast, a 'credit rating' evaluates entities like corporations, governments, or financial instruments. Assigned by credit rating agencies, it assists investors and lenders in assessing credit risk.

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