Top Credit Rating Agencies In India: An Overview
Credit rating agencies (CRAs) play a crucial role in evaluating the creditworthiness of large organizations, whether private or public. They assess the ability of entities to repay their loans and assign a credit risk rating accordingly. In India, the Securities and Exchange Board of India (SEBI) regulates these agencies under the SEBI regulations for credit rating agencies, 1999.
In this article, we will take a closer look at the 5 credit rating agencies in India.
What Are Credit Rating Agencies?
Credit Rating Agencies (CRAs) date back to the early 20th century, when John Moody published the first bond ratings in 1909 for US-based railroad companies' creditworthiness assessment and to check financial health.
In India, CRAs assess entities like corporations and government bodies, evaluating their ability to repay borrowed funds. They help investors on investment decisions in debt instruments like bonds and assist issuers in raising capital on favourable terms.
The Securities and Exchange Board of India (SEBI) oversees the operations of these agencies to safeguard the integrity of the financial markets.
Top Credit Rating Agencies In India
Here are the details of the top 5 credit rating agencies in India.
1. CRISIL (Credit Rating Information Services Of India Limited)
CRISIL Limited, headquartered in Mumbai, was established in 1987 as India's first credit rating agency. Initially promoted by ICICI and UTI, with contributions from SBI, LIC, and United India Insurance Company, CRISIL has expanded its services to include ratings, research, risk, and policy advisory. In 2005, it became a subsidiary of S&P Global, which holds a 49.07% stake1.
In April 2024, it received SEBI approval for ESG scoring2 in India, further enhancing its service offerings.
2. ICRA Limited
ICRA Limited, established in 1991, is a premier Indian credit rating agency headquartered in Gurgaon.
Initially known as the Investment Information and Credit Rating Agency of India Limited, it was a joint venture between Moody's and various Indian financial institutions.
In April 2007, ICRA went public, listing on the Bombay Stock Exchange and the National Stock Exchange. As of June 2023, Moody's Corporation held approximately a 52% stake in ICRA Limited.
3. CARE (Credit Analysis And Research Limited)
CARE Ratings Limited, started in 1993, is one of India’s leading credit rating agencies. It reviews the financial trustworthiness of businesses, banks, and government bodies.
In 2024, it introduced a method to rate the financial health of countries issuing debt, focusing on five key pillars3:
- Economic Structure & Resilience
- Fiscal Strength
- External Position & Linkages
- Monetary & Financial Stability
- Institutions & Quality of Governance
4. India Ratings And Research Private Limited
India Ratings and Research (Ind-Ra), established in 1995 and headquartered in Mumbai, is a prominent credit rating agency in India. As a subsidiary of the Fitch Group, Ind-Ra provides comprehensive credit assessments across various sectors, including corporate issuers, financial institutions, and infrastructure projects.
Ind-Ra is duly recognized by the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI), underscoring its credibility and authority in the financial domain.
5. Acuite Ratings And Research Limited
Acuité Ratings & Research Limited, formerly known as SMERA Ratings, was established in 2005 and specializes in providing credit ratings for small and medium enterprises (SMEs) as well as large corporations.
As a SEBI-registered and RBI-accredited credit rating agency, Acuite has assigned over 10,000 credit ratings4 across various industries. Acuité Ratings & Research Limited is a comprehensive credit rating agency authorised by the Securities and Exchange Board of India (SEBI) and recognised by the Reserve Bank of India (RBI) as an External Credit Assessment Institution (ECAI) for Bank Loan Ratings compliant with BASEL-II regulations.
Credit Rating Scale
Here is the long-term credit ratings scale of the top 5 credit rating agencies in India.
CRISIL | ICRA | CARE | IND-Ra | ACUITE |
CRISIL AAA | [ICRA]AAA | CARE AAA | IND AAA | ACUITE AAA |
CRISIL AA | [ICRA]AA | CARE AA | IND AA | ACUITE AA |
CRISIL A | [ICRA]A | CARE A | IND A | ACUITE A |
CRISIL BBB | [ICRA]BBB | CARE BBB | IND BBB | ACUITE BBB |
CRISIL BB | [ICRA]BB | CARE BB | IND BB | ACUITE BB |
CRISIL B | [ICRA]B | CARE B | IND B | ACUITE B |
CRISIL C | [ICRA]C | CARE C | IND C | ACUITE C |
CRISIL D | [ICRA]D | CARE D | IND D | ACUITE D |
Their top rating, "AAA," means super safe, while "D" means it’s in trouble. It’s like a safety scorecard for investment decisions. In the same way, these agencies give short-term ratings.
Also read: The Role Of Credit Ratings In Corporate Bond Markets
How Do Credit Rating Agencies Work In India?
Credit rating agencies in India assess how likely companies and government bodies are to repay their debts and offer financial transparency to investors.
- Collecting Information: This includes reviewing financial statements, and market reports, and meeting with the entity's management.
- Analyzing Data: CRAs then examine this information to assess factors like industry risks, market position, operational efficiency, and financial health.
- Assigning Rating: The analysis is presented to a rating committee, which assigns a credit rating that reflects the entity's ability to repay its debts on time.
- Ongoing Monitoring: After the rating is assigned, CRAs continuously monitor the entity for any significant changes that could affect its creditworthiness.
Benefits Of Credit Ratings
Key benefits of credit ratings include:
- Informed Investment Decisions: Credit ratings help investors assess the risk associated with different investment options, enabling them to make informed decisions.
- Access To Capital: For businesses and governments, a good credit rating can facilitate obtaining loans or issuing bonds at more favourable interest rates.
- Increase Investor Confidence: A strong credit rating can attract more investors, signalling financial stability and a lower risk of default.
- Lower Borrowing Costs: High credit ratings lead to reduced interest rates on loans, decreasing overall borrowing expenses.
- Market Transparency: Credit ratings provide standardized information about the creditworthiness of entities, promoting transparency in financial markets.
Conclusion
Credit rating agencies play an important role in India's financial markets. They help with the creditworthiness assessment of companies and governments, making it easier for investors to make informed decisions. Credit ratings build trust and encourage a healthy financial environment, benefiting both investors and borrowers across the country.
Frequently Asked Questions
1. Can credit ratings change over time?
Yes, credit ratings can change over time. They are reviewed regularly and can increase or decrease depending on the issuer's financial situation.
2. Are credit ratings mandatory for all financial instruments in India?
In India, credit ratings are not mandatory for all financial instruments. While they are required for certain instruments, such as public debt tools like bonds, they are not compulsory for all types of financial products.
3. What is the significance of a 'AAA' rating?
A 'AAA' rating signifies the highest level of creditworthiness. It indicates that the issuer has a strong capacity to meet its financial commitments, with a very low risk of default.
References:
1. The Times Of India, accessed from: https://timesofindia.indiatimes.com/business/india-business/sp-buys-majority-equity-in-crisil/articleshow/1104343.cms
2. The Hindu Business Line, accessed from: https://www.thehindubusinessline.com/markets/crisils-new-esg-ratings-unit-gets-sebis-approval/article68106233.ece
3. PR Newswire, accessed from: https://www.prnewswire.com/news-releases/careedge-announces-entry-into-global-scale-ratings-with-launch-of-sovereign-ratings-for-39-countries-302267542.html#:~:%20Resilience,Institutions%20&%20Quality%20of%20Governance%20(16.67%%20weightage).&text=CareEdge%20Sovereign%20Ratings,expected%20future%20trends.
4. Acuité Ratings & Research Limited, accessed from: https://www.acuite.in/who-we-are.htm?utm_source=chatgpt.com#:~:text=In%20a%20brief,conducting%2050%2C000%20ratings.
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