• CRISIL Rating and their Effect on FDs

    Published on September 21 2019

    CRISIL is a full service rating agency and is the largest of its kind in India. CRISIL has singlehandedly pioneered the concept of credit rating in the nation. It has been trusted to rate a wide array of debt instruments including, certificate of deposit, bank loans, commercial paper, non-convertible debentures, bank hybrid capital instruments, asset backed securities, mortgage backed securities, perpetual bonds, partial guarantees, etc.

    Who does CRISIL cater to?

    Established in 1987, CRISIL’s ratings caters to investors, lenders, issuers, market intermediaries and regulators. CRISIL provides information that are required by these categories and issues credible benchmarks for evaluating the feasibility of credit repayment.

    What sectors do CRISIL ratings cover?
    CRISIL Rating and their Effect on FDs

    CRISIL ratings actively cover manufacturing companies, banks, non-banking finance companies, public sector undertakings, financial institutions, state governments, urban local bodies, mutual funds, industrial companies, non-banking financial institutions (NBFCs), Infrastructure entities, microfinance institutions, urban local bodies, etc. with a wide net encompassing 190 industry sectors.

    What is the role of CRISIL?

    CRISIL ratings play an invaluable role in providing assistance to issuers and borrowers. It bridges the gap between borrowers and funds, while also providing alternatives for the purpose of funding. Additionally, CRISIL ratings enhance the cost of funds by optimising them.

    How do CRISIL ratings affect Depositors?

    CRISIL ratings are heavily relied on by investors and lenders to supplement the internal evaluation process before submitting to making an investment. Whereas, with the view of the markets as a whole, CRISIL ratings are considered an important benchmark for pricing as well as trading of debt instruments.

    Furthermore, CRISIL ratings aid regulators in measuring and managing the credit risk involved with the activity of lending. These ratings are also useful in computing an entity’s adequacy in the sector of banking. Determination of eligible investment pool for insurance companies, pension funds and provident funds are also enabled with CRISIL ratings.

    How to decipher CRISIL’s rating system?

    CRISIL follows the following rating system while rating fixed deposits-

    NMNot Meaningful
    FCHigh risk
    FBInadequate safety
    FAAdequate safety
    FAAHigh safety
    FAAAHighest safety

    CRISIL may add a (+) or (-) for ratings FAAA to FC to indicate the position of the company within the rating category.

    What does a good CRISIL score indicate?

    CRISIL ratings are one of the most important factors to gauge when looking for a company fixed deposit. A company’s or bank’s credibility is greatly determined using CRISIL ratings. Company fixed deposit schemes are generally graded by CRISIL and is the first thing that investors look into before making an investment in an account. These ratings behaves as an assurance that indicates the highest degree of safety for a fund. It also shows the timely servicing of the entity’s financial obligations, in turn aiding to the credibility. CRISIL ratings enable depositors to differentiate between high credit risk organisations from low credit risk organisations. For example, HDFC Bank is rated FAAA by CRISIL, thus indicating high credit quality and low credit risk in their fixed deposit scheme. The first and foremost thing to watch out for would be to invest into well rated schemes. A usual indicator for a well rated scheme is AA and above ratings.

    Higher rate of interest vs higher CRISIL rating?

    Institutions that offer higher rates of interest due to low credit ratings are usually high risk investments. Financial institutions that have received a bad rating from CRISIL tend to offer lucrative interest rates in order to lure depositors into investing.

    CRISIL provides an unbiased and objective assessment of an entity’s timely repayment capacity and history. This allows investors to make independent decisions when it comes to making a deposit in a company fixed deposit scheme.

    Why do investors rely on CRISIL ratings?

    CRISIL ratings greatly aid in understanding the financial health of the company offering the fixed deposit scheme. It allows the depositor with the assurance of making a comparative analysis amongst the various players in the market. It also enables the act of investing by securing the channels leading to investment decisions. With an easy to understand and simple rate card, depositors now have a benchmark to compare various offerings of the product. This allows the investor to wisely make a decision regarding the investment of hard earned money. Furthermore, CRISIL makes it possible to sieve through the numerous offers that are available across various companies.

    Does CRISIL rating affect a company’s Fixed Deposit rates?

    CRISIL does not directly affect Company FDs in any way, but is a sure shot way for investors and depositors to check the credibility of a particular entity before making a long term commitment. With the ever changing market trends, CRISIL makes it easier for the layman to keep up with the ever changing dynamics of the industry.

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