Credit Rating: Types, Range, Importance & List of Credit Rating Agencies in India

Credit rating is an evaluation of the creditworthiness and loan repayment capability of an entity that has or wants to borrow money. It is the opinion of registered Credit Rating Agencies (CRAs) regarding the ability and willingness of an entity to pay back the debt on time. A good credit rating depicts a good repayment history, along with responsible credit behavior of an enterprise, company, or organization. An entity’s credit rating influences the lender’s decision to approve and deny loan applications.

Let’s further discuss the types and importance of credit rating, as well as information regarding leading Credit Rating Agencies in India.

Types of Credit Ratings

Credit Rating is measured broadly under two main categories: Investment Grade and Speculative Grade. However, the risk associated with a corporate entity is scaled as per the credit ratings defined by each CRA in India. The credit ratings are majorly graded from the highest (AAA) to (D) lowest which shall vary as per the agency and company’s profile.

a) Investment Grade

Investment grade credit ratings signify that the company has made perfect investment decisions and is in a good position to repay its debts on time. Corporate entities falling under this category can avail loans easily that too at low interest rates.

b) Speculative Grade

Companies falling under this category have made risky business investments and shall not be able to repay the loan on time. Therefore, these corporate entities do get loans but at higher interest rates.

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Entities that check Credit Ratings

Entities that check the credit ratings of companies and enterprises include the following:

• Lenders (Banks/NBFCs and other financial institutions)
• Investment Banks
• Debt Issuers
• Retail and Institutional Investors
• Other business entities

Importance of Credit Rating

Here are the benefits of credit rating for money lenders and borrowers:

For Lenders

• Better Investment Decision: No bank or money lending companies would like to give money to a risky customer. With credit rating, they get an idea about the creditworthiness of a company (that is borrowing the money) and the risk factor attached to them. By evaluating this, they can make a better investment decision.
• Safety Assured: A high credit rating means an assurance about the safety of money and that it will be paid back with interest on time.

For Borrowers

• Easy Loan Approval: With a high credit rating, you will be seen as a low/no-risk customer. Therefore, banks will approve your loan application easily.
• Competitive Rate of Interest: You must be aware of the fact that every bank offers loans in a particular range of interest rates. One of the major factors that determine the rate of interest on the loan you take is your credit history. The higher the credit rating, the lower the rate of interest.

How to do Credit Rating Agencies Work in India

• Every credit rating agency has its algorithm to evaluate the credit rating through major factors, such as timely repayment of supplies and dues, cash flow, working capital, net worth, etc. 
• Every month, these credit rating agencies collect credit information from partner banks and other financial institutions
• Once the request for credit rating has been made, these agencies dig out the information and prepare a report based on such factors
• Based on that credit report, they grade every individual or company and give them a credit rating
• This rating is used by banks, financial institutions, and investors to decide on investing money, buying bonds, or giving a loan or credit card
• The better the rating is, the more the chances of getting a loan at lower interest rates.

Top 7 Credit Rating Agencies in India

Below stated are the leading CRAs in India:

• Credit Rating Information Services of India Ltd. (CRISIL)
• Investment Information and Credit Rating Agency of India (ICRA) Ltd.
• Credit Analysis and Research (CARE) Ltd.
• India Ratings and Research Pvt. Ltd.
• Brickwork Ratings India Private Ltd.
• INFOMERICS Valuation and Rating Private Ltd.
• Acuité Ratings & Research Ltd.

Following are the details of each Credit Rating Agencies (CRAs) in India:

Credit Rating Information Services of India Ltd. (CRISIL)

Incorporated in 1987, CRISIL Ratings Limited (A subsidiary of CRISIL Limited, an S&P Global company) is a full-service credit rating agency that serves investors, lenders, issuers, and market intermediaries and regulators by covering banks, NBFCs, PSUs, manufacturing companies, financial institutions, state governments, urban local bodies, etc. Credit Rating Information Services of India Limited (CRISIL) evaluates the creditworthiness of commercial entities based on their strengths, market reputation, and market share.

The agency helps investors make informed investment decisions by providing credit ratings for companies, organizations, and banks. CRISIL generates and provides various rating services, such as Independent Credit Evaluation, Corporate and Financial Sector ratings, Fund Ratings, Recovery Risk Ratings, Expected Loss (EL) Ratings, etc. It also offers services related to Structured Finance and Insurance Hybrids. The rating generated by the agency ranges from ‘AAA’ to ‘D’, wherein ‘AAA’ is the highest or creditworthy, and ‘D’ is the lowest or even defaulted.

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

ICRA Limited (formerly Investment Information and Credit Rating Agency of India Limited) is an independent and professional investment Information and Credit Rating Agency. Formed in 1991, ICRA offers guidance and information to institutional and individual investors and creditors. It rates rupee-dominated debt instruments issued by commercial banks, NBFCs, PSUs, manufacturing companies, and municipalities.

The agency uses a transparent rating system to assign comprehensive credit ratings to corporates. It specializes in assigning corporate governance ratings, mutual funds ratings, structured finance ratings, performance ratings, etc.

Credit Analysis and Research (CARE) Ltd.

Established in 1993, Credit Analysis and Research Limited (CARE) is an experienced credit rating agency that covers various market sectors, including infrastructure, manufacturing, and financial sectors, including banks and non-financial services. The agency provides ratings to companies related to developing bank debt and capital market instruments that include CPs, corporate bonds and debentures, and structured credit.

Its credit ratings can be used by investors to make informed decisions based on credit risk and risk-return expectations. CareEdge Ratings’ (CARE Ratings Ltd.) manages and operates its wholly owned subsidiaries, such as CARE Advisory, Research & Training Ltd., and CARE Risk Solutions Pvt Ltd.

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India Ratings and Research Pvt. Ltd.

India Ratings and Research (Ind-Ra), a wholly owned subsidiary of the Fitch Group is one of the leading credit rating agencies recognized by SEBI and accredited by RBI. Ind-Ra offers credit rating services to banks, insurance companies, corporate issuers, finance and leasing companies, urban local bodies and managed funds, structured finance, and project finance companies.

With its Head office in Mumbai, the agency operates from its seven branch offices across India, including Delhi, Chennai, Kolkata, Ahmedabad, Bengaluru, Hyderabad, and Pune.

Brickwork Ratings India Pvt. Ltd.

Brickwork Ratings (BWR) is a SEBI-registered and RBI accredited Credit Rating Agency that offers rating services on Bank Loans, Fixed Deposits, Non-convertible debentures (NCD), Commercial Paper, Securitised paper, Security receipts, etc. The agency offers credit ratings for banks, financial institutions, large corporate customers, and state and local governments.

BWR offers a wide range of rating services and products related to Capital Market Instruments and Bank Loans for the Corporate, Financial, Infrastructure, and Insurance Sectors, PSUs, State Government, Municipal and Urban Local Bodies, etc.

INFOMERICS Valuation and Rating Pvt. Ltd.

Integrated Financial Omnibus Metrics Research of International Corporate Systems

INFOMERICS Valuation and Rating Private Limited are a SEBI-registered and RBI accredited Credit Rating Agency that provides deep analysis and evaluation of creditworthiness and ratings of Banks, NBFCs, Large Corporates and Small and Medium Scale Units (SMUs).

INFOMERICS offers credit rating services money market & capital market instruments and borrowing programs, such as Non-Convertible Debentures, Commercial Papers, Tier I & Tier II Bonds, Perpetual Bonds, Structured Obligations (including Guarantee Backed Debt programs), and Securitisation Transactions.

The agency also rates Mutual Funds and Alternative Investment Fund schemes. Its grading services include Corporate Governance rating, and Grading of Construction entities, Engineering & Management institutions, Initial Public Offerings (IPOs), etc.

Acuité Ratings & Research Limited

Acuité Ratings & Research Limited (Formerly known as SMERA Ratings Limited) is a SEBI-registered and RBI-accredited credit rating agency that offers ratings to companies serving structured finance, corporate and financial sectors.

Its earlier range of products and services portfolio included Bank Loan Ratings, SME Ratings, Bond Ratings, CP Ratings, etc. However, currently, the agency’s primary services include Bond & Bank Loan Ratings, Economic Analysis, and Financial Research Services.

Largely, Acuité offers services to largely small-sized private corporates, and public sector organizations like Nuclear Power Corporation, and renowned companies in the financial sector. The agency offers credit rating services to companies serving various sectors, such as banking, telecom, IT, steel, aviation, oil and gas, retail, etc.

Difference between Credit Score and Credit Rating

FAQs on Credit Rating

Q. What is the credit rating scale of credit rating agencies in India?

Ans. Credit rating scales are the alphabetical symbols that define the creditworthiness and repayment capabilities of business entities. A credit rating scale is categorized as (AAA, AA, A, BBB, BB, B, CCC, CC, C, and D), etc. from high to low in descending order. AAA being the highest rating signifies a lower risk of default. Any credit rating below BB indicates poor creditworthiness of the borrower.

Q. Why is credit rating important for a company?

Ans. Credit rating is the primary thing checked by lenders before any loan approval. Credit rating helps lenders in assessing the creditworthiness of potential borrowers. It assists in evaluating the credibility of corporate issuers and financial institutions.

Q. Why is it important to have good credit ratings?

Ans. It’s always beneficial to have good credit ratings, as it helps in availing the best loan or credit card options available in the financial market at lower interest rates. It helps lenders to make informed decisions regarding the risk involved with the borrower before loan sanctioning.

Q. Are Credit Rating Agencies Regulated?

Ans. Yes, the Credit Rating Agencies (CRAs) are considered as an integral part of the Indian financial system. All the leading CRAs are regulated by the Securities and Exchange Board of India (SEBI) via the SEBI (Credit Rating Agencies) Regulations, 1999.

Q. Who regulates Credit Rating Agencies in India?

Ans. The Credit Rating Agencies (CRAs) in India are regulated by the Securities and Exchanges Board of India (SEBI), as well as they are reviewed and monitored regularly.

Q. How does one establish and maintain a good credit rating?

Ans. The best and fastest way to maintain a good credit rating is by paying down all your loan EMIs and credit card dues in time, increasing your credit limit,  checking credit report errors, maintaining a lengthy credit history, and getting your business registered.

Q. Can I delete my credit history?

Ans. No, neither you nor credit bureaus have the authority to delete your credit history, as it depends on your past credit behavior. Your credit history is collected and managed by Credit Information Companies like TransUnion CIBIL, Experian, Equifax, and CRIF High Mark. These four leading credit bureaus have permission from RBI to calculate and generate credit reports and credit scores of individuals and companies.

Q. How is credit rating expressed or denoted in your credit report?

Ans. Usually, the credit ratings of companies are expressed or denoted in the form of alphabets, such as ”AAA”, ”AA”, ”A”, “BBB” and so on. The range of these ratings is from ”AAA” being the highest rating and ”D” considered the lowest by all the credit rating agencies. Categories from AAA to BB come under Investment Grade and ratings categorized from BB to D are considered under Speculative Grade by most of the credit rating agencies.

Q. Is an ‘AA’ credit rating good?

Ans. As ”AA” comes just after the highest grade of ”AAA”, therefore it is visible that the second highest rank is AA and is surely considered good by lenders or financial institutions.