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Credit Rating Agencies

Credit Rating Agencies

A Credit Rating Agency is simply an institution that allocates Credit Ratings to the borrower’s. The basis of these ratings is the debt repayment capacity of the borrower which involves timely interest payments and the likelihood of default by the customer.
Before we discuss about the credit rating agencies of the country, a brief overview of SEBI is crucial.

SEBI (Securities and Exchange Board of India)

  • SEBI was formed by Government of India in 1988 and given statutory powers on 12th April 1992.
  • Headquarter: Mumbai, Maharashtra
Credit Rating Agencies in the country are regulated by SEBI (Securities and Exchange Board of India).  The SEBI (Credit Rating Agencies) Regulations, 1999 govern the credit rating agencies and provide for eligibility criteria for registration of credit rating agencies, monitoring and review of ratings, requirements for a proper rating process, avoidance of conflict of interest and inspection of rating agencies by SEBI, amongst other things.

Major Credit Rating Agencies of India

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

  • CRISIL was established in 1987.
  • It is India's first and major Credit Rating Agency.
  • CRISIL has its headquarters in Mumbai, Maharashtra.
  • Standard & Poor’s International is the parent company of CRISIL.

2. CARE (Credit Analysis and Research Limited)

  • CARE was established in 1993.
  • This credit rating agency has its headquarters in Mumbai.

3. ICRA (Investment Information and Credit Rating Agency)

  • Its an associate of Moody’s Investors Service
  • ICRA was founded in 1991.
  • It has its headquarters in Gurgaon.

4. ONICRA (Onida Individual Credit Rating Agency)

  • ONICRA was founded in 1993
  • The organisation has its headquarters in Gurgaon.

5. Brickwork Ratings India Private Limited

  • Brickwork Ratings India Private Ltd was established in 2007.
  • This credit rating agency has its headquarters in Bengaluru, Karnataka.

6. SMERA (Small and Medium Enterprises Rating Agency of India Limited)

  • This credit rating agency was set up in 2005 exclusively for Micro, small and medium enterprises.
  • It has its headquarters in Mumbai.

Major Credit Rating Agencies of the World

Apart from these, the major credit rating agencies of the world are -

Moody's Investors Service

  • Moody's Investors Service was established in 1909.
  • The organisation has its headquarters in New York, USA.

Standard & Poor's Financial Services LLC

  • Standard and Poor's was founded in 1860.
  • The organisation has its headquarters in New York, USA.
  • It is a subsidiary of S&P Global.

Fitch Ratings

  • Fitch Ratings has its headquarters in New York.
  • It was founded in 1914.
  • Fitch Ratings is also the parent company of India Ratings & Research Private Limited that operates from Mumbai.
Now a major question that arises is, 

Why are these Credit Rating Agencies important?

The significance of these organisations may be summed up as -
  • These agencies determine the risk that is associated by investing in the companies.
  • This aids in making Informed Investment Decisions.  Credit Ratings give a fair estimate of the ability of the organisations to fulfill their financial commitment.
  • A high credit rating indicates a high possibility of paying back the loan.
  • The Credit Rating of organizations also helps the lending institutions in deciding the loan eligibility of the their borrower.
  • The increasing levels of default resulting from easy availability of finance, is another factor that has led to the growing importance of the Credit Rating.
  • Credit Rating also plays a vital role in financial markets. They assess the credit risk of the corporate or government borrowers by analyzing the relevant information available regarding the borrower and its economic circumstances. This analysis is reflected in Credit Rating. This rating represents an opinion about the likelihood of meeting the financial obligations by the borrower. 
  • Credit Rating Agencies rates a wide range of entities, including:
    (a) Industrial companies
    (b) Banks
    (c) Non-banking financial companies (NBFCs)
    (d) Infrastructure entities
    (e) Microfinance institutions xv. Insurance companies
    (f) Mutual funds
    (g) State governments
    (h) Urban local bodies