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A credit rating is an essential assessment of a person's or an organization's creditworthiness, showing their capacity to pay back debts and fulfill financial obligations. These evaluations are carried out by credit rating companies, who offer a free evaluation of credit risk. Making wise financial decisions requires having a solid understanding of the significance of credit ratings. Credit ratings are crucial in determining financial opportunities, whether for companies looking for investment or for governments looking to achieve favorable borrowing terms. Individuals and organizations can try to increase their creditworthiness and access better financial options by understanding the elements affecting credit ratings and actively managing financial responsibilities.
There are two broad categories of credit ratings used by different credit rating agencies. Credit rating agencies may use slightly different terminology to classify credit ratings within these two broad categories, but the underlying concept remains the same.
Credit ratings of companies are considered by various entities or users and organisations, including:
Credit ratings play a crucial role for lenders, borrowing companies, and other entities involved in investment decisions. Here's a more detailed elaboration on their importance:
An entity's creditworthiness is evaluated by a credit rating agency (CRA) in general terms or in relation to a specific debt or financial obligation. Like a person's credit score, a company's or government entity's credit rating indicates how creditworthy they are. These organisations assist investors and lenders in assessing the possible risk of providing money to a specific borrower and assessing the borrower's ability to repay the loan based on previous credit behaviour.
According to SEBI Regulations, 1999 of the SEBI Act, 1992, Securities and Exchange Board of India (SEBI) has the jurisdiction to authorise and control credit rating agencies.
Credit rating agencies (CRAs) play a crucial role in evaluating and determining the creditworthiness of individuals and companies. By analysing factors such as income, credit history, and financial obligations, CRAs assess the debtor's ability to repay debts and identify potential credit risks.
The list below comprises some of the prominent credit rating agencies in India:
Credit rating scales used by various credit rating agencies in India are an essential tool for assessing the creditworthiness of entities. Credit ratings use alphabetical symbols (AAA, AA, A, B, etc.) to assess the creditworthiness of corporate financial instruments. Higher ratings suggest a lower risk of default, with AAA being highly favourable, indicating strong financial capability. Ratings below BB are considered indicative of poor creditworthiness.
The three tables presented highlight different rating categories and their associated default risks. These credit rating scales serve as valuable tools for investors, lenders, and other stakeholders in evaluating the financial health and repayment capabilities of entities in India.
Table 1: Credit Rating Scale - High Safety, High Safety, and Low Risk
| Credit Rating Scale | High Safety: Lowest Risk of Default | High safety: Low default risk | Low risk |
|---|---|---|---|
| ICRA | AAA | AA | A |
| BrickWork | AAA | AA | A |
| CRISIL | AAA | AA | A |
| CARE | AAA | AA | A |
| India Ratings and Research | AAA | AA | A |
This table represents the credit rating scale for entities, ranging from high safety to low risk. It includes credit ratings from agencies like ICRA, BrickWork, CRISIL, CARE, and India Ratings and Research, providing an assessment of the default risk associated with each rating category.
Table 2: Credit Rating Scale - Moderate Safety and Moderate Default Risk
| Credit Rating Scale | Moderate safety: moderate credit risk | Moderate safety: Moderate default risk |
|---|---|---|
| ICRA | BBB | BB |
| BrickWork | BBB | BB |
| CRISIL | BBB | BB |
| CARE | BBB | BB |
| India Ratings and Research | BBB | BB |
In this table, the credit rating scale focuses on moderate safety and credit risk levels. The credit ratings assigned by ICRA, BrickWork, CRISIL, CARE, and India Ratings and Research reflect the agencies' evaluation of entities' creditworthiness in terms of moderate credit risk and moderate default risk.
Table 3: Credit Rating Scale - High Risk, Very High Default Risk, and Defaulted Instruments
| Credit Rating Scale | High risk: High default risk | High risk: Very high default risk | Default: Defaulted or about-to-default instruments |
|---|---|---|---|
| ICRA | B | C | D |
| BrickWork | B | C | D |
| CRISIL | B | C | D |
| CARE | B | C | D |
| India Ratings and Research | B | C | D |
This table presents the credit rating scale for entities with high risk and very high default risk, along with a category for defaulted or about-to-default instruments. The credit ratings assigned by ICRA, BrickWork, CRISIL, CARE, and India Ratings and Research indicate the increasing levels of default risk associated with different rating categories.
The credit ratings of corporate entities in India are influenced by several factors. These factors collectively provide credit rating agencies with insights into the financial health, repayment capability, and overall creditworthiness of corporate entities in India.
Factors that influence Credit Rating in India are described below:
Credit rating agencies assign ratings to an organization or an entity. The entities that are rated by credit rating agencies comprise companies, state governments, non-profit organisations, countries, securities, special purpose entities, and local governmental bodies. Credit rating agencies take into consideration several factors like the financial statements, level and type of debt, lending and borrowing history, ability to repay the debt, and the past debts of the entity before rating their credit. Once a credit rating agency rates the entities, it provides additional inputs to the investor following which the investor analyses and takes a sound investment decision. Poor credit rating indicates that the entity is at a high risk of defaulting. The credit ratings that are given to the entities serve as a benchmark for financial market regulations. Credit ratings are published by agencies like Moody’s Investors Service and Standard and Poor’s (S&P) based on detailed analysis.
CRISIL is a leading global analytics firm considered to be a top supplier of ratings, data, research, analytics, and solutions in India. The rating agency is owned by S&P Global Inc., a global leader in providing fair and unbiased ratings, benchmarks, analytics, and data to the capital and commodity markets.
CRISIL Limited, CRISIL House, Central Avenue, Hiranandani Business Park, Powai Mumbai – 400076 Tel: + 91 (22) 33423000 Fax: + 91 (22) 33423810 Email: info@crisil.com
In less than three decades after it began operations in April 1993, CareEdge Ratings (CARE Ratings Ltd.) has made a name for itself as one of India's top credit rating companies.
CareEdge is a knowledge-based organisation that offers almost real-time research on all national and international economic trends. The industry research team continuously monitors and produces sector reports.
4th Floor, Godrej Coliseum Somaiya Hospital Road Behind Everard Nagar Off Eastern Express Highway, Sion (E) Mumbai 400 022 Tel: + 91 (22) 566 02871/ 72/73 Fax: + 91 (22) 566 02876 Email: care@careratings.com
Brickwork Ratings (BWR), a Credit Rating Agency registered with SEBI and authorised by the RBI, provides ratings for NCDs, Bank Loans, Fixed Deposits, Security Receipts, Commercial Paper, Securitized Paper, and other financial instruments.
Canara Bank, a prominent public sector bank, is the promoter and strategic partner of Brickwork Ratings.
3rd Floor, Raj Alkaa Park 29/3 & 32/2, Kalena Agrahara Bannerghatta Road, Bangalore – 560 076 Tel: +91 (80) 4040 9940 Fax: +91 (80) 4040 9941
ICRA Limited (formerly known as Investment Information and Credit Rating Agency of India Limited) was founded by leading financial institutions, commercial banks, and financial services firms in 1991 to serve as an independent and expert investment information and credit rating agency.
The ICRA Group of Companies is made up of ICRA and its subsidiaries (Group ICRA). ICRA is a public limited company, and the National Stock Exchange and the Bombay Stock Exchange both list its shares.
105, Kailash Building, 11th Floor 26, Kasturba Gandhi Marg New Delhi 110 001 Tel: + 91 (11) 23357940 – 50 Fax: + 91 (11) 23357014 Email:info@icraindia.com
The aim of Acuite Ratings and Researcg is to pursue their mission to unleash the development potential of financial markets and give their clients the insights they need to make wise and informed decisions as India's leading credit rating and research organisation.
The company is supported by the largest and most potent public and private sector banks in the nation and is also a SEBI registered and RBI authorised credit rating agency. The agency benefits from Dun & Bradstreet's co-promotion of them as a leading global provider of data and analytics.
Unit No.102, 1st Floor, Sumer Plaza Marol Maroshi Road, Marol Andheri (East) Mumbai 400 059 Tel: + 91 (22) 67141144/45 Fax: + 91 (22) 67141142
INFOMERICS Valuation and Rating Private Limited is a SEBI registered and RBI authorised credit rating agency. The company aims to reduce information asymmetry between lenders and investors and connecting borrowers and issuers with various fund-raising options and channels.
Flat No. 104/108, 1st Floor Golf Apartments Sujan Singh Park New Delhi 110003 Tel:+ 91 (11) 24601142, 24611910, 24649428 Fax No.:+ 91 (11) 24627549 E-mail:vma@infomerics.com
India Ratings and Research (Ind-Ra) is dedicated to offering the credit markets in India accurate, fast, and prospective credit opinions. Ind-Ra has gained a considerable market position in India's fixed income market thanks to its foundation of independent thinking, rigorous analytics, and an open and fair approach to credit research.
Wockhardt Towers, 4th Floor, West Wing Bandra Kurla Complex, Bandra East Mumbai 400 051 Tel: + 91 (022) 40001700 Fax: + 91 (022) 40001701 Email: investor.services@indiaratings.co.in
A credit rating is given to a company, organisation or a government body by calculating its ability to repay the debt and to predict the likelihood of default. On the other hand, a credit score is given to an individual after taking a look at his credit history and repayment behaviour.
All the credit rating agencies in India are regulated by Securities and Exchanges Board of India (SEBI). The credit rating agencies are monitored and reviewed by SEBI.
Rating is denoted by a simple alphanumeric symbol, for e.g. AA+, A-, etc.
Credit Rating is a long process and takes around 3-4 weeks to complete from the date of receipt.
Typically, credit ratings fall between 300 to 850. Scores go into one of five categories, including bad, fair, good, very good, and excellent, depending on where they fall within that range.
Credit score algorithms often consider your payment history, amount due, and how recently and frequently payments were missed. The number of your credit accounts that have been past due relative to all of the accounts you have on file will also be shown in your credit history.
CIBIL is owned by TransUnion who owns 92.1% of it.
Four credit reporting agencies exist in India: TransUnion CIBILTM, Equifax, Experian, and CRIF High Mark. The Department of Banking Operations and Development of the RBI directly oversees these credit reporting agencies.
A short-term credit rating reflects the likelihood that a borrower will default within the year. It provides an assessment of the borrower's ability to meet their financial obligations in the near term, typically within the next 12 months.
Credit ratings for corporate financial instruments are represented by alphabetical symbols such as AAA, AA, A, B, and so on. These ratings reflect the creditworthiness of the borrower, with higher ratings indicating a lower probability of default. AAA is considered a favorable rating, signifying a strong ability to fulfill financial obligations, while ratings below BB are regarded as indicators of poor creditworthiness.
TransUnion CIBIL is one of the leading credit information companies in India. The company maintains one of the largest collections of consumer credit information in the world. CIBIL Score plays a key role in the lives of consumers. Banks and other lenders check the CIBIL Score of the applicants before approving their loan or credit card application. Consumers can visit the official website of CIBIL to check their CIBIL Score and Report. CHECK YOUR CIBIL SCORE now.
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