A credit rating agency, often known as CRA, is a company that rates borrowers on the basis of their repayment ability. It allows lenders to speculate the probability of these organizations to default. The entities rated by these agencies can be-
→ Companies
→ Special purpose entities
→ State governments
→ Local governmental bodies
→ Non-profit organizations
Alternatively, individual customers are rated by institutions commonly known as credit bureaus. They award a three-digit credit score and credit report to every customer based on their financial history.
Difference Between A Credit Rating Agency And A Credit Bureau
Before we dive into learning about credit rating agencies, it is important to understand the difference between a credit card agency and a credit bureau. So, here are the key differences between a credit rating agency and a credit bureau-
| What Is a Credit Rating Agency? |
What Are Credit Bureaus? |
| For investors to judge the risk factor of a company or organization. |
For lenders to judge the creditworthiness of individuals. |
| Awarded in letters. Eg. AAA, CCC |
Awarded as a 3 digit number topped at 900. |
| Compiled by 7 major institutions in India namely, CRISIL, ICRA, CARE, ONICRA, Fitch India, BWR and SMERA |
Compiled by 3 major institutions namely, Experian, Equifax, and TransUnion. |
| Awarded to companies and organizations |
Awarded to individuals. |
Credit Rating Agencies in India:
As mentioned before, there are 6 major credit rating agencies in India. Also, each one of them is listed under SEBI. Let’s discuss them in detail for further understanding-
CRISIL
CRISIL (formerly Credit Rating Information Services of India Limited) is a global analytical company providing ratings, research, and risk and policy advisory services. The majority shareholder of CRISIL is Standard & Poor’s. CRISIL also works with various governments and policy-makers in India and other developing nations. Also, one of the major key areas of this agency is to enhance and improve the infrastructure and meet the demands of a particular region. Additionally, the agency has provided ratings to approximately 5180 SMEs in India alone. Another important function of CRISIL is to establish the creditworthiness of companies based on the business strengths, the board, the market share, and reputation of the company etc. So, here is a snapshot of this credit rating agency-
| Year of Establishment |
1987 |
| Headquarters |
Gurgaon, India |
| Rating scale |
— CRISIL offers 8 different grades credit scoring. They are,
— CRISILAAA, CRISIL AA, CRISIL A – The three grades offer maximum safety for timely servicing of the loans.
— CRISILBBB, CRISIL BB – Offer moderate safety.
— CRISIL B, CRISIL C, CRISIL D – High-risk individuals
|
ICRA
Formerly named as the Investment Information and Credit Rating Agency, the ICRA was a joint venture of Moody’s and Indian financial and banking service organizations. It was then renamed to ICRA Limited in April 2007 and listed in the Bombay Stock Exchange and National Stock Exchange in the same year. ICRA assigns corporate governance rating, performance ratings, grading and provides rankings to mutual funds, hospitals and construction and real estate projects. The focus area for ICRA is the MSME sector. So, here is a summary of this credit rating agency-
| Year of Establishment |
1991 |
| Headquarters |
Mumbai, India |
| Rating scale |
The ICRA rating system includes symbols that represent the ability of a corporate entity to service its debt obligations in a timely manner. The rating symbols vary with the financial instruments considered. |
CARE
CARE stands for Credit Analysis and Research. After its genesis in 1993, it has now become the second largest credit rating agency in India. Its headquarters are in Mumbai. Additionally, it has its regional offices in New Delhi, Bangalore, Chennai, Hyderabad, Ahmedabad, and Kolkata. The primary function of CARE is to perform rating of debt instruments, credit analysis rating, loan rating, corporate governance rating, the claims-paying ability of insurance companies, etc. It also grades construction entities and courses undertaken by maritime training institutions. Ratings provided by CARE include financial institutions, state governments, and municipal bodies, public utilities, and special purpose vehicles. So, here is what you need to know about this credit rating agency-
| Year of Establishment |
1993 |
| Headquarters |
Mumbai, India |
| Rating scale |
CARE offers two different categories of bank loan ratings for short-term and long-term debt ranges-
— The short-term debt ratings are as follows and mentioned in the descending order of safety level for servicing loans appropriately. CARE AAA, CARE AA, CARE A, CARE BBB, CARE BB, CARE B, CARE C, CARE D.
— The long-term debt ratings are as follows and mentioned in the descending order of safety level for servicing loans appropriately. CARE A1, CARE A2, CARE A3, CARE A4, and CARE D.
|
ONICRA
The ONICRA is a credit rating agency established by Sonu Mirchandani under ONIDA Finance. This agency provides credit ratings, conducts risks assessment and provides analytical solutions accordingly to individuals, corporates, and MSMEs. It is also licensed by the National Small Industries Corporation (NSIC) for the rating of SMEs. This credit agency provides grading services such as education grading, healthcare grading, solar energy grading, and APMC grading as well. It has assessed more than 2500 SMEs have been rated by Onicra in the past two and a half decades. So, here is a snapshot of the details of this credit rating agency-
| Year of Establishment |
1993 |
| Headquarters |
Mumbai, India |
| Rating scale |
Credit ratings for MSME’s are based on two factors: financial strength and performance capability. |
Fitch India
Fitch India is a part of the Fitch Group which is one of the 3 biggest players in the credit rating agencies in the world. The Indian unit is headquartered in Mumbai and provides a rating for both long-term and short-term debt instruments. Here is a snapshot of the features of Fitch India-
| Year of Establishment |
1995 |
| Headquarters |
Mumbai, India |
| Rating scale |
— Rating Scale for Long-Term Debt Instruments [the instruments with the original maturity exceeding one year]: AAA to D
— Rating Scale for Short-Term Debt instruments [the instruments with the original maturity of up to one year]: A1 to D
|
BWR
BWR stands for BrickWork Ratings. Established in the year 2007, it has adopted the ratings approved by SEB for various debt instruments. Additionally, it offers ratings for bank loans, SMEs, corporate governance rating, municipal corporation, capital market instrument, and financial institutions. It is also involved in the grading of NGOs, tourism, IPOs, real estate investments, hospitals, IREDA, educational institutions, MFI, and MNRE. So, the features of BWR are as follows-
| Year of Establishment |
2007 |
| Headquarters |
Bangalore, India |
| Rating scale |
Brickwork Ratings rates the different financial instruments using its signature rating scale that starts with “BW” and is followed by unique rating symbols. |
SMERA
SMERA stands for Small and Medium Enterprise Ratings Agency. It is a joint initiative of SIDBI, Dun & Bradstreet India and the leading banks in India. Also, it was established in the year 2005. This credit rating agency is associated 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. So, here is a summary of this credit rating agency-
| Year of Establishment |
2005 |
| Headquarters |
Mumbai, India |
| Rating scale |
— AAA – Highest Safety, Lowest Credit Risk
— AA – Highest Safety, Very Low Credit Risk
— A – High Safety, Low Credit Risk
— BBB – Moderate Safety, Moderate Credit Risk
— BB – Moderate Risk, Moderate Risk of Default
— B – High Risk, High Risk of Default
— C – Very High Risk, Very High Risk of Default
— D – Default / Expected to be in Default soon
|
So now you can understand that Credit rating is essential for the assessment of companies and organizations. This is because they help investors to understand whether the money they are investing is worth it. So these were the 7 credit rating agencies in India. In case you have any questions related to credit rating agencies, we will be glad to answer them in the comments below. Until next time!
