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Credit Rating
Agencies

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In order to learn about Credit Rating Agencies (CRAs), we need to know the significance of credit rat-
ings. Basically, the credit ratings are based on the creditworthiness and the credentials of an individ-
ual or a company, which involves the analysis of the possible credit risks associated with granting a
financial instrument. The ability of the individual or company to meet the debt obligations is deter-
mined after weighing the statements of liabilities and assets. Learning about CRAs is fairly important
for Bank exams as well as SSC. Also, static GK is one of the more scoring sections in the exams. Read
the article thoroughly to know in detail, about the Credit Rating Agencies in India.

Credit Rating Agencies Introduction

According to SEBI Regulations, 1999 of the SEBI Act, 1992, Securities and Exchange Board of India
(SEBI) reserves the right to authorise and regulate credit rating agencies across the country. CRA us-
es the debtor’s income and credit lines to analyse if there is any credit risk associated or the debtor’s
ability to repay the debt. In a broader sense, these agencies evaluate and assess an individual’s or a
company’s creditworthiness.

Major Functions of Credit Rating Agencies

 Rate companies, state governments, local government bodies, non-profit organisations, coun-
tries, securities, and special purpose entities.
 Provides the report making it easier for the lender to analyse and come to an informed deci-
sion.
 Assess an individual’s or a company’s creditworthiness
 Adequacy of cash flow
 Provides market position of the company within the industry
 Helps in Public policy formation
 Does an evaluation of Industrial risks
 Performs a financial analysis based on accounting quality
 Provides a solid basis for risk and return
 Facilitates the protection of earnings

Major Credit Rating Agencies in India

Credit Rating Agencies CRISIL

CRISIL stands for Credit Rating Information Services of India Limited. Set up in 1987, it is the first
CRA to find its place in India. Standard & Poor’s - one of the biggest CRAs of the world - is the ma-
jority shareholder of CRISIL. Headquartered in Mumbai, CRISIL has now become a global analytical

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company that rates companies, researches the markets and provides risk and policy advisory services
to its clients

Functions

 CRISIL rates organizations like public limited companies, banks and financial organizations,
and not individuals.
 The agency establishes the creditworthiness of companies based on the market share, reputa-
tion, business strengths and more such factors.
 CRISIL also collaborates with various policy-makers in India and other developing nations to
improve the infrastructure and meet the demands of the region.
 It also provides advisory services and training services.

Major Objectives

 CRISIL enables companies to mobilise funds in large amounts from a wide investor base, at a
fair cost.
 Helps individual and institutional investors in making informed investment decisions
 Enable intermediaries to place debt instruments with investors by providing them with an ef-
fective marketing tool
 Act as a catalyst for channelising investment in proper debt instruments, by revealing the risks
involved.
 Helps in creating an environment that facilitates debt rating.
 Creates awareness about credit rating amongst merchant brokers, corporations, brokers, regu-
latory authorities and others.

Credit Rating Agencies CARE

Credit Analysis and Research limited (CARE) was established in the year 1993 and initially promoted
by Unit Trust of India (UTI) Bank, Industrial Development Bank of India (IDBI), Canara Bank and
other financial institutions. Headquartered in Mumbai, CARE is the second-largest credit rating
agency in India. CARE also enhanced its scope of business by launching a new international credit
rating agency, ‘ARC Ratings’ with four partners from Malaysia, South Africa, Brazil and Portugal.

Functions

 By providing the entire spectrum of credit rating, CARE helps the corporates to raise capital
for their various requirements.

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 It also assists the investors in formulating an informed investment decision based on the credit
risk and their own risk-return expectations.
 CARE has emerged as the leading agency in covering many segments including manufacturing,
infrastructure, non-financial services, financial sector including banks, among others.
 CARE Ratings have made a reputation for itself in the Indian capital market which revolves
hugely around investor confidence.

Major Objectives

 CARE’s Information and Advisory Service Department prepares credit rating and reports on
requests from banks, business partners and other financial entities.
 Conduct extensive research and rate SMEs based on their financial health.
 Also, to conduct sector-based studies and provide necessary advisories for valuation, credit
appraisal systems.and financial restructuring.
 Ensures grading of construction entities and courses undertaken by maritime training institu-
tions.
 CARE ratings have also forayed into valuation services and offers valuation of equity, debt in-
struments, and market linked debentures.
 CARE’s international arm in ARC Ratings, has commenced operations and also completed
sovereign ratings of countries, including India.

Credit Rating Agencies ICRA

Originally named as Investment Information and Credit Rating Agency of India Limited, ICRA is a
joint venture of Indian financial and banking service organisations & Moody’s, which was set up back
in 1991. In April of 2007, the credit rating agency was renamed to ICRA limited and also got listed in
the Bombay Stock Exchange and National Stock Exchange. Headquartered in Gurugram, Haryana,
ICRA stands as an independent professional corporate investment information and credit rating and
advisory agency.

Functions

 Provide informative consultation to institutional and individual investors/creditors, regarding

risks
 Promoting transparency in the financial markets, by assisting the regulators
 Aid the intermediaries in improving efficiency in the funds raising process by providing them
with appropriate tools
 Enhance the ability of borrowers/issuers to access the money market

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 ICRA assigns corporate performance ratings, governance rating, gradings and provides rank-
ing to mutual funds, hospitals, construction and real estate companies.
 For companies that are lesser known and not very prominent, ICRA devises strategies for them
to access the capital markets.
 It provides advisory and credit rating services.
 After conducting extensive research in the fiscal, monetary, and industrial sector, ICRA offers
the best solutions and strategies.

Major Objectives

 ICRA’s product portfolio includes rating for structured finance, corporate debt, financial rat-
ing, infrastructure, project and public finance, insurance, mutual funds, SME, market linked
debentures and so on.
 The dedicated team of professionals have developed a linear scale for the concerned sector, to
cater to its clients, which also helps the agency to benchmark peers quite easily.
 ICRA does not cater to the international companies and organisations, and so its ratings are
also used to analyse the credit risk in India.
 It intends to operate in a transparent manner and develop user-friendly concepts.

Credit Rating Agencies SMERA

Small and Medium Enterprises Rating Agency of India, also known as SMERA, works solely for the
benefit of Micro, Small and Medium Enterprises. It was set up in 2005 by Small Industries Develop-
ment Bank of India (SIDBI) primarily, along with Dun and Bradstreet Information Services India
Private Limited (D&B) and various public, private sector and other MNC banks of India. Headquar-
tered in Mumbai, SMERA has been accredited by Reserve Bank of India and registered with SEBI as a
credit rating agency in 2012.

Functions

 It is also known as an external credit assessment institution (ECAI).

 SMERA rates bank loans under Base II guidelines.
 One of its major jobs include grading of various instruments like IPO, bonds, NCDs, fixed de-
posits, security receipts, commercial papers, etc.
 These gradings are used by all banks for capital adequacy requirements calculation as author-
ised by the RBI.

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Major Objectives

 Financial Institutions give a huge weightage to SMERA ratings before lending money to small
businesses.
 Along with its shareholder banks, SMERA has also entered into MoUs with over 30 Banks,
Trade Associations and Financial Institutions of India.

Therefore, Credit Rating Agencies are required to work with fairness and transparency during
their dealings, as their analysis provides the lender or investor with an insight into the workings of
the business. This helps further research and risk evaluation. Investment decisions are made easier
through the ratings of these agencies.