Credit Rating Agencies in India

Credit Rating Agencies (CRA) assess creditworthiness of organisation and different entities. In simple words, these agencies analyse a debtor’s ability to repay the debt and also rate their credit risk. All the credit rating agencies in India are regulated by SEBI (Credit Rating Agencies) Regulations, 1999 of the Securities and Exchange Board of India Act, 1992. There are a total of six credit agencies in India viz, CRISIL, CARE, ICRA, SMREA, Brickwork Rating, and India Rating and Research Pvt. Ltd.

How Credit Rating Agencies Work

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.

Some of the Top Credit Rating Agencies in India are:

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

CRISIL is one of the oldest credit rating agencies in India. It was launched in the country in 1987 following which the company went public in 1993. Headquartered in Mumbai, CRISIL ventured into infrastructure rating in 2016 and completed 30 years in 2017. CRISIL acquired 8.9% stake in CARE credit rating agency in 2017. It launched India's first index to benchmark performance of investments of foreign portfolio investors (FPI) in the fixed-income market, in the rupee as well as dollar version in 2018. The company’s portfolio includes, mutual funds ranking, Unit Linked Insurance Plans (ULIP) rankings, CRISIL coalition index and so on.

2. ICRA Limited

ICRA Limited is a public limited company that was set up in 1991 in Gurugram. The company was formerly known as Investment Information and Credit Rating Agency of India Limited. Before going public in April 2007, ICRA was a joint venture between Moody’s and several Indian financial and banking service organisations. The ICRA Group currently has four subsidiaries - Consulting and Analytics, Data Services and KPO, ICRA Lanka and ICRA Nepal. At present, Moody’s Investors Service, the international Credit Rating Agency, is ICRA’s largest shareholder. ICRA’s product portfolio includes rating for - corporate debt, financial rating, structured finance, infrastructure, insurance, mutual funds, project and public finance, SME, market linked debentures and so on.

3. Credit Analysis and Research limited (CARE)

Launched in 1993, CARE offers credit rating services to areas such as corporate governance, debt ratings, financial sector, bank loan ratings, issuer ratings, recovery ratings, and infrastructure ratings. Headquartered in Mumbai, CARE offers two different categories of bank loan ratings, long-term and short-term debt instruments. The company also offers ratings for Initial Public Offerings (IPOs), real estate, renewable energy service companies (RESCO), financial assessment of shipyards, Energy service companies (ESCO) grades various courses of educational institutions. CARE Ratings has also ventured into valuation services and offers valuation of equity, debt instruments, and market linked debentures. Moreover, the company has launched a new international credit rating agency ‘ARC Ratings’ by teaming up with four partners from South Africa Brazil, Portugal, and Malaysia. ARC Ratings has commenced operations and completed sovereign ratings of countries, including India.

4. Brickwork Ratings (BWR)

Brickwork Rating was established in 2007 and is promoted by Canara Bank. It offers ratings for bank loans, SMEs, corporate governance rating, municipal corporation, capital market instrument, and financial institutions. It also grades NGOs, tourism, IPOs, real estate investments, hospitals, IREDA, educational institutions, MFI, and MNRE. Brickwork Ratings is recognised as external credit assessment agency (ECAI) by Reserve Bank of India (RBI) to carry out credit ratings in India.

5. India Rating and Research Pvt. Ltd.

India Ratings is a wholly-owned subsidiary of the Fitch Group. It offers credit ratings for insurance companies, banks, corporate issuers, project finance, financial institutions, finance and leasing companies, managed funds, and urban local bodies. In addition to SEBI, the company is recognised by the Reserve Bank of India and National Housing Bank.

6. Small and Medium Enterprises Rating Agency of India (SMERA)

Established in 2005, SMERA is a joint initiative of SIDBI, Dun & Bradstreet India and leading banks in India. SMERA has joined hands with prominent institutions such as IIT Madras, The Bangladesh Rating Agency Limited, CAFRAL, CoinTribe, and SIES. Apart from its shareholder banks, SMERA has also entered into MoUs with over 30 Banks, Financial Institutions and Trade Associations of the country.

Frequently Asked Questions on Credit Rating Agencies

  1. What is credit rating agency?
  2. A credit rating agency does assessment of the financial strength of companies and other government entities. They help investors identify the companies ability to pay debts and their level of risk.

  3. What is the difference between credit ratings and credit score?
  4. 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.

  5. Who regulates credit rating agencies?
  6. 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.

  7. How is credit rating denoted?
  8. Rating is denoted by a simple alphanumeric symbol, for e.g. AA+, A-, etc.

  9. How much time does it take for the rating process to be over?
  10. Credit Rating is a long process and takes around 3-4 weeks to complete from the date of receipt.

News About Credit Rating Agencies in India

  • Essel Propack’s credit ratings reaffirmed by CARE

    CARE has reaffirmed the credit ratings of Essel Propack. The reaffirmed credit ratings are as follows: For long-term bank facilities, rating of ‘CARE AA’; for short-term bank facilities, credit rating of ‘CARE A+’; for short-term/long-term bank facilities, credit rating of ‘CARE A1+/CARE AA’; for non-convertible debentures (NCD) of the company, the rating is ‘CARE AA’.

    7 October 2019

  • RBI Governor to focus on performance of bank chiefs

    The Reserve Bank of India (RBI) Governor Shaktikanta Das said that the apex body will put more focus on the central bank in coming months, as per a report from PTI. It will bring corporate governance reforms in the banking and non-banking finance companies (NBFCs) space to improve transparency and accountability. He further added that RBI the performance of chiefs such as MDs and CEOs of public and private sector banks should be closely monitored by the Board of Directors. The performance evaluation will be conducted by either through a sub-committee or an external peer group review, added Das. 

    Das was speaking at the 15th convocation of the National Institute of Bank Management (NIBM), Pune. He said that in a bid to take care of corporate governance and to improve the functioning of the PSB boards, enhance their quality and stability is the key. The stability of the PSB can be done via further streamlining appointment process, succession planning and compensation. Das said that the RBI will continue to play a positive and constructive role to ensure private banks flourish.  

    He further added that the RBI has issued a discussion paper on proposed guidelines for compensation in private banks which also specifies minimum variable pay component and clawback arrangements, among others. Talking about NBFCs Das mentioned that the apex body is monitoring the activity and performance of the NBFC sector with a focus on major entities and their inter-linkages with other sectors. He reiterated that RBI will not hesitate to take any required steps to maintain financial stability. 

    10 June 2019

  • DHFL’s PTCs worth Rs.630 crore downgraded by ICRA

    ICRA has downgraded Dewan Housing Finance Corporation’s (DHFL) purchaser payouts and pass-through certificates (PTCs) issued under six mortgage loan securitisation transactions worth Rs 630 crore. The latest slash in the rating comes a couple of days after Crisil ratings agency downgraded the housing finance company’s commercial paper worth Rs.850 crore. The ratings of the PTCs have been revised to AA -(SO) from BBB (SO) by ICRA credit rating agency. Earlier, Crisil had lowered its rating on DHFL commercial papers (CPs) worth Rs 850 crore to A4+ from A3+. The credit rating agency had added that the downgrade in the ratings were attributed to the more-than-expected reduction in the company's liquidity.

    The revised rating on the commercial paper worth Rs.850 crore of DHFL has been changed to A4 Watch with Negative Implications from A3+ Watch with Negative Implications, reported PTI.The mortgage lender’s liquidity dropped to ?2,775 crore as of April-end. ICRA also added that the downgraded loan pools were performing well in terms of collections till March 2019.

    20 May 2019

  • NBFC Funding from Securitisation up 2.5 times at Rs.26,200, says ICRA

    In a time of tight liquidity, NBFCs and Microfinance institutions (NBFC-MFI) managed to raise around Rs.26,200 crore via securitisation, according to ICRA. The credit rating agency revealed that the growth was 2.5 times higher as against the amount that was secured in FY18 which stood at Rs.9,700 crore. A key reason for the increase in securitisation deals was State Bank of India’s (SBI) decision to buy portfolios worth Rs.45,000 crore from NBFCs.

    The NBFC sector suffered a major setback following the IL&FS crisis in Septembe-October 2018. IL&FS defaulted on several of its loan obligation following which SBI announced that it was buying the portfolios of NBFCs to ease the liquidity situation. As per ICRA, out of the 18-20% of the overall loan disbursements, 37% of loan disbursed in Q3 was mainly due to securitisation. This number is expected to increase to 50% in FY 2019.

    Earlier in January this year, a total of 18 NBFC-MFIs, for the first-time pooled assets worth for securitisation, in order to collectively overcome the liquidity issue in the sector quickly. In FY 2018, the securitisation was on account of direct assignment (DA), added ICRA. Vibhor Mittal, Group Head – Structured Finance Ratings at ICRA told Business Standard that securitisation is an important funding tool for NBFC-MFIs, but the dependence has been particularly high during the second half of fiscal 2019.

    19 April 2019

  • Telecom Industry Needs to Migrate to Optic Fiber Cable Network, says ICRA

    ICRA credit rating agency has stated that the Indian telecom industry needs to migrate from traditional copper-based networks to dense optic fiber cable networks as the country has more than a billion mobile phone users. Moreover, the mobile data consumption has recorded a substantial increase in the past two years, added ICRA.

    As per the latest numbers, the country has 539 million wireless internet subscribers thanks to the easier availability of affordable smartphones, low data tariffs, increase in speeds of delivery and enhanced content. People in the country are consuming 418,330 terabytes (TBs) of data. ICRA reported that data consumption is expected to grow further in the long term thanks to the rise in applications, improving technology and more content. As a result, the telecom networks need to be robust and have the capacity to carry large amounts of data and deliver it quickly.

    Currently, India has around 5 lakh towers of which only 22% have fiber network, in comparison China has 80%. India has 110 million km of fiber deployed as against 420 million km in the United States and 1,090 million km in China. The credit rating agency estimates the present market value of fiber assets owned by major private telecom operators is about Rs.1.2 lakh crore. The extent of fiber rollout over the next few years will require investments of Rs.2.5 lakh crore to 3 lakh crore.

    3 April 2019

  • Moody’s Upgrades Yes Bank’s Outlook to Stable

    Credit rating agency, Moody’s Investor Service has changed YES Bank’s outlook to ‘stable’ from negative. The global rating agency has affirmed Yes Bank rating of 'Ba1'. The upgrade in the outlook has been owing to the recent developments at Yes Bank such as the appointment of a new Managing Director and CEO and nil divergences report from the RBI. Moody’s said in a statement that it has also affirmed the bank’s foreign and local currency bank deposit ratings of Ba1/NP, foreign currency senior unsecured MTN programme rating of (P)Ba1, and Baseline Credit Assessment (BCA) and adjusted BCA of ba2. The rating action is based on recent developments, including the results of the RBI’s risk assessment report and YES Bank’s stable financial performance, it further said, adding that the lender’s financial performance, including its asset quality, profitability, and funding and liquidity position, remain stable

    In November 2018, the credit rating agency had downgraded YES Bank’s ratings and changed the outlook to negative citing concerns over corporate governance and impact of the change in its top leadership as then Managing Director and CEO Rana Kapoor was asked to step down by the RBI. In case of continues deterioration of Yes Bank’s impaired loans, the rating agency said that the ratings could again be downgraded. Also, if the rate of new bad loans rises or if the bank’s capital ratios decline due to its inability to raise fresh capital, the ratings will be tweaked again.

    26 February 2019

  • Moody’s downgrades Bharti Airtel’s rating to Ba1

    Moody's Investors Service has downgraded the credit rating of telecom operator Bharti Airtel. The credit rating agency has also downgraded the backed senior unsecured notes issued by Bharti Airtel’s African arm by taking into consideration the uncertainty around the company's profitability, cash flow situations and debt levels. Moody’s has downgraded the credit rating of the agency from Baa3 to Ba1. Moody's estimates the profitability of Bharti's Indian mobile segment will remain low over the next several quarters. Credit ratings reflect the company's ability to repay debt and raise funds. Ratings range between Aaa, which means best, to lowest category C. Ba1 rating means obligations are judged to have speculative elements and are subject to substantial credit risk but have a superior ability to repay short-term debt obligations. 

    Moody's Vice President and Senior Credit Officer, Annalisa DiChiara told PTI,"The downgrade reflects uncertainty as to whether or not the company's profitability, cash flow situation and debt levels can improve sustainably and materially, given the competitive dynamics in the Indian telco market”.  Bharti Airtel reported EBITDA of Rs.26,500 crore for the 12 months ending 31 December 2018, representing a 15.5% year over-year (YoY) contraction. The telco’s profitability of its core Indian mobile segment which contributes around 37% of EBITDA remained low, generating just Rs.9,800 crore over the same period. Last week, the company’s share price dropped 72% in consolidated net income for the three months ended December 2018 at about Rs.86 crore. 

     

    5 February 2019

  • Telangana govt to use blockchain tech to help the unbanked get credit scores

    Lenders like banks and non-banking finance companies rely on consumer’s credit score to measure their creditworthiness. By checking their credit score, lenders know if the consumer has the ability to repay the borrowed amount. However, people from the economically weaker section remain untapped as they don’t have a credit score. In a bid to empower the people from the weaker section of the society, the Telangana government is all set to make use of the blockchain technology. The Telangana government has joined hands with Cognito Technologies to establish a credit scoring system for the economically weaker section of the state’s population using blockchain technology. Cognito Technologies will collaborate with Sthree Nidhi Credit Cooperative Federation Ltd., a government body that advanced affordable loans to self-help groups. The company will implement blockchain technology within the already established Sthree Nidhi digital microfinance system, as per Murali Mohan Reddy Duvvuru, the co-founder of Cognito Technologies. The entire process of loan disbursement and repayments will be recorded on blockchain ledgers using smart contract. The firm will be using the blockchain technology to establish a credit history for every individual. Both Sthree Nidhi and Cognito Technology is in the process to identify the first district in which the pilot will be launched. The pilot will include 10,000 SHGs, and the process of recording will start from April this year and will run for a couple of months. If the pilot becomes successful, it could catalyze similar programs spreading across the state.

    14 January 2019

  • SEBI Meets Credit Rating Firms to Discuss NBFC Liquidity Concerns

    on 22 November 2018, Securities and Exchange Board of India (SEBI) met with the top four credit rating agencies in India. The market regulator arranged the meeting to discuss their assessment of the liquidity issues associated with NBFCs(Non-banking finance companies). SEBI discussed the possible repercussions if these NBFCs are not able to roll over their borrowings under such circumstances. SEBI is also checking whether borrowing NBFCs are cooperating in sharing the detailed information. In addition, the market regulator has also asked how these agencies were evaluating the liquidity conditions. The recent move comes from SEBI as there are concerns overs NBFCs and housing finance companies (HFCs) ability to sustain their businesses due to the growing liquidity crunch.

    In September, infrastructure lender IL&FS and its group companies defaulted on their debt payments. As a result shares of NBFCs have taken a beating in recent times. Last week, SEBI also arranged a similar meeting with mutual funds (MFs) about their status of bankrolling NBFCs. At present, there are close to 11,000 NBFCs in the country, out of which about 215 are 'systemically important'. Meanwhile, in India the number of housing finance companies is more than 80.

    3 December 2018

  • SEBI Issues Stricter Disclosure Norms for Credit Rating Agencies in India

    The Securities and Exchange Board of India (SEBI) has released tighter norms for credit rating agencies. As per the newer norms, the credit rating agencies in the country will have to include a special section dedicated to liquidity in their ratings actions press release SEBI issued a circular that explains the disclosures in detail. Moreover, the agencies will also have to publish information related to the historical average rating of the issuer and even highlight any gradual change in the company’s rating. Furthermore, the agencies will have to publish the one-year historical rating transition for an issuer over a five-year period. Sebi said that all the credit rating agencies will now be required to furnish data on sharp rating actions in investment grade rating category, to stock exchanges and depositories for disclosure on website on half-yearly basis, within 15 days from the end of the half-year.

    The aim of the move is to make it easier for retail investors to get a clear picture of the financial health of an issuer. India’s security regulator stated that the credit rating agencies should monitor and analyse the relevant factors that affect the creditworthiness of an issuer. Moreover, they should discuss the same in the rating notes for assignment of ratings. The move comes from SEBI following the fall of IL&FS (Infrastructure Leasing & Financial Services Limited), wherein India’s largest infrastructure development and finance company defaulted on its debt. SEBI is blaming the credit rating agencies that failed to monitor IL&FS’s liquidity situation closely. IL&FS defaulted in payment obligations of bank loans (including interest), term and short-term deposits and failed to meet the commercial paper redemption obligations due on September 14. The defaults also jeopardised hundreds of investors, banks and mutual funds associated with IL&FS.

    16 November 2018

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