Rating Agencies

By- Krishna Chanchal

CREDIT - This term has many meanings in the financial world, but credit is generally defined as a contract agreement in which a borrower receives a sum of money or something of value and repays the lender at a later date, generally with interest.

On what basis a borrower can get money –

The five C's of credit are used to convey the creditworthiness of potential borrowers.

o                      The first C is character—the applicant's credit history.

o                      The second C is capacity—the applicant's debt-to-income ratio.

o                      The third C is capital—the amount of money an applicant has.

o                      The fourth C is collateral—an asset that can back or act as security for the loan.

o                      The fifth C is conditions—the purpose of the loan, the amount involved, and prevailing rates

Financial Institutions provide credit to an individual or organization on the basis of 5C’s which help in evaluating the creditworthiness of the borrower.

On the other hand, a Credit rating agency is an organization that assigns credit ratings to the debtors predicting their capability to pay back debt timely and simultaneously making the forecast on the chances of the debtor defaulting. These rating agencies rate large borrowers (both governments and companies).

They help in providing an evaluation for the bonds and loans provided by governments and corporate institutions.

 

Top Rating agencies of India –

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

 Set up in 1987, Credit Rating Information Services of India Limited (CRISIL) is one of the oldest credit rating agencies in India. It is operational in countries including the UK, USA, Poland, China, Hong Kong, and Argentina, in addition to India.

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

Established in 1991 and headquartered in Mumbai, Investment Information and Credit Rating Agency of India uses a transparent rating system to assign comprehensive credit ratings to corporates. ICRA is known for assigning corporate governance rating, mutual funds rating, structured finance rating, performance rating, etc.

3. Credit Analysis and Research (CARE) Limited

Credit Analysis and Research Limited (CARE) started its operations in April 1993. Headquartered in Mumbai, it also has regional offices in New Delhi, Kolkata, Pune, Chandigarh, Ahmedabad, Jaipur, Bengaluru, Coimbatore, Chennai and Hyderabad.

 

4. Acuite Ratings & Research (earlier SMERA Ratings Limited)

Established in 2011, earlier known as Small Medium Enterprises Rating Agency of India Limited is now known as Acuite Rating & Research. It has two key divisions – Bond Ratings and SME Ratings. It evaluates the credibility of existing MSMEs (Micro, Small, and medium enterprises).

6. India Ratings and Research Pvt. Ltd.

Formerly known as Fitch Ratings India Pvt. Ltd., determines credit ratings for corporate issuers, financial institutions, managed funds, project finance companies, structured finance companies and urban local bodies. Headquartered in Mumbai, it also has other branch offices in Ahmedabad, Chennai, Delhi, Hyderabad, Bengaluru, Pune, and Kolkata.

7. Infometrics Valuation and Rating Pvt. Ltd.

Founded by former finance professionals, bankers and administrative services personnel, Infometrics Valuation and Rating Pvt Ltd is an RBI-accredited and SEBI registered credit rating agency. It offers an unbiased assessment and evaluation of the creditworthiness of banks, non-banking financial companies (NBFCs), small and medium scale units (SMUs)and large corporates.

 

The key functions of Credit rating agencies are –

• Low-cost information: - The credit rating agency collects, analyses, interprets and makes a proper conclusion of any complex data and transforms it into a very lucid and easily understandable manner.

• Provides a basis for suitable risk and return: - The instruments rated by rating agency gets greater confidence amongst investor community. It also gives an idea regarding the risk associated with the instrument.

• Helps in the formulation of public policy: - If debt instruments are professionally rated, it becomes very easy to judge the eligibility of various securities for inclusion in the institutional portfolio with greater confidence.

• Provides superior information: - Credit rating agency being an independent rating agency, due to highly trained and professional staffs and with the access to information which is not publicly available information, these agencies are able to deliver superior information.

• Enhances corporate image: - Better credit rating for any credit investment enhances visibility and corporate image in the industry.