What are the Credit Rating Agencies in India?

By : Neha Dhyani

Updated : Jun 3, 2022, 6:16

To understand what credit rating agencies are, we must first understand what the term credit rating means. A credit rating is an assessment of a borrower's creditworthiness concerning a debt or financial obligation. A credit rating can be given to anyone that seeks to borrow money, be it an individual, corporation or state.

So now that we know what credit rating is, let us look at Credit Rating Agencies in India. A credit rating agency is an institution that assigns credit ratings, which is a factor that helps us to evaluate the creditworthiness of a debtor and the likelihood of occurrence of a default in repayment of a debt.

Six Credit Rating Agencies in India

There are six Credit Rating Agencies in India that are registered with the Securities and Exchange Board of India (SEBI). They are -

  1. CRISIL
  2. ICRA
  3. CARE
  4. SMERA
  5. Fitch India
  6. Brickwork Ratings

Credit Rating Agencies in India were established to provide unbiased evidence and research-backed opinion on the ability of a debtor to meet his debt service obligations.

Importance of Credit Rating Agencies in India

For Lenders

Through credit ratings given by approved credit rating agencies, lenders get an idea about the creditworthiness of their borrowers and the risk factor attached to them. With the help of credit ratings, they can reach better investment decisions.

Higher the credit rating, the higher the assurance that the money will be repaid on time with interest.

For Borrowers

A high credit rating for a borrower means that the financial institution or lender will easily approve his loan application. Lenders will also view borrowers with a high credit rating as trustworthy and less risky and, therefore, may make one eligible for a higher loan.

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Some of the Issues Concerning Credit Rating Agencies in India

  • Lack of uniformity among the Credit Rating Agencies in India.
  • Lack of standardisation in credit ratings.
  • Lack of transparency.
  • Lack of accountability of credit rating agencies - There is no one to rate the credit rating agencies.

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Measures and Tightened the Guidelines for Credit Rating Agencies in India

  • SEBI has asked credit rating agencies to disclose the liquidity conditions of the company or organisation being rated.
  • If the credit rating has been assigned based on cash flows, the credit rating agencies would have to obtain and disclose the funding source.
  • Credit rating agencies must disclose the rating history across various categories.
  • Credit rating agencies will have to analyse any liquidity decline and verify any asset and liability mismatch.
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FAQs on Credit Rating Agencies in India

Q1. Which are the major Credit Rating Agencies in India?

The major credit rating agency in India is CRISIL which has more than 60% market share and is headquartered in Mumbai.

Q2. How can the reliability of Credit Rating Agencies in India be increased?

Credit Rating Agencies in India should avoid arriving at ratings with limited information and should operate on a fixed fee structure, thereby bringing some transparency. The accountability of the credit rating agencies must be increased. This can be done by SEBI intervention. Further, credit rating agencies should refrain from providing advisory services to the rated companies, as this leads to a decrease in the independence of the ratings.

Q3. How many credit rating agencies are there in India?

There are six Credit Rating Agencies in India that are registered with the Securities and Exchange Board of India.

Q4. Why are Credit Rating Agencies in India important?

Credit Rating Agencies in India are important as the credit ratings assigned by these agencies are used by lenders and investors to decide whether or not to approve loans.