In India, there are currently four credit rating agencies (CRAs) that are registered with the Securities and Exchange Board of India (SEBI) and authorized to provide credit rating services. These are:
- CRISIL (Credit Rating Information Services of India Limited): CRISIL is the oldest and largest credit rating agency in India. It was established in 1987 and is a subsidiary of Standard and Poor’s (S&P).
- ICRA (Investment Information and Credit Rating Agency of India): ICRA was established in 1991 by leading financial institutions and is now a subsidiary of Moody’s Investors Service.
- CARE (Credit Analysis and Research Limited): CARE was established in 1993 by various Indian financial institutions and is now a subsidiary of Fitch Ratings.
- India Ratings and Research: India Ratings and Research was established in 2012 as a wholly-owned subsidiary of Fitch Ratings.
The primary objective of CRAs in India is to provide independent and objective credit ratings to issuers of debt instruments, such as bonds, and to assess the creditworthiness of borrowers, such as companies and governments. CRAs in India also provide credit rating services to small and medium enterprises (SMEs), microfinance institutions, and structured finance instruments, among others.
SEBI is the regulatory body that oversees the functioning of CRAs in India. SEBI has prescribed a framework for the registration, functioning, and governance of CRAs in India, which includes guidelines on the rating process, criteria for rating, and disclosure norms, among others.
CRAs in India follow a rigorous and systematic process for rating issuers and their debt instruments. The rating process involves an analysis of various factors, such as financial performance, industry dynamics, management quality, and macroeconomic factors, among others. The rating agencies use a letter grade system to rate issuers, with AAA being the highest rating and D being the lowest.
The ratings provided by CRAs in India are widely used by investors, lenders, and other market participants to assess credit risk and make investment decisions. A higher credit rating typically results in lower borrowing costs for issuers, as investors are willing to accept a lower return on investment due to the lower risk of default.