SEBI (Credit Rating Agencies) Regulations, 1999 (as amended up to December 27, 2011) regulate Credit Rating Agencies (CRAs) in India. The global analytics company CRISIL is the foremost rating agency in India, providing rating services across sectors. As reported by Centrum Broking (considering its Q4 2018 research figures), CRISIL tops with a revenue market share of approximately 30%. The following two CRA revenue market share spots are claimed by CARE with 28% and ICRA with 21%.
The Reserve Bank of India (RBI) operationalised The Credit Information Companies (Regulation) Act, 2005 (“the Act”) w.e.f. December 14, 2006, stating the following in its official notification for the Act, “An Act to provide for regulation of credit information companies and to facilitate efficient distribution of credit and for matters connected therewith or incidental thereto.” This Act was meant to authorise companies registered under it to provide a credit score (credit information—creditworthiness of any borrower of credit institution) based on past credit behaviours. CRAs are meant for investors to evaluate the risk factor of a company. Credit Bureaus are meant for lenders to evaluate the creditworthiness of individual consumers.
The Credit Rating Agencies in India
Credit Rating Agencies are primarily the assigners of ratings service meant to assess the creditworthiness of the issuers of debt obligations. These agencies also assess the potential probability of default by companies, state or local governments, municipality issuing bonds, special purpose entities, etc. The creditworthiness of issuers of debt obligations, debt instruments, underlying debt’s servicers, is rated by the CRAs. In general terms, the debt instruments rated by CRAs comprise government, municipal, and corporate bonds, preferred stock, certificate of deposit, and collateralised securities. The primary CRAs in India are CRISIL (erstwhile Credit Rating Information Services of India Limited), ICRA (erstwhile Investment Information and Credit Rating Agency), ONICRA (established under the auspices of ONIDA Finance), CARE (Credit Analysis and Research), INDIA RATINGS & RESEARCH (erstwhile Fitch India), BWR (BrickWork Ratings), and Acuité Ratings & Research (erstwhile SMERA Ratings Limited).
The Credit Bureaus or Credit Information Companies in India
Individual consumers receive ratings—as a 3-digit score—for their creditworthiness along with a credit report from credit bureaus or Credit Information Companies (CICs). The credit bureaus (or credit reference agencies, or consumer reporting agencies) rate the ability of individual consumers to repay the debt in a timely manner and discharge the obligations with regards to the availed credit facility, i.e., the principal sum and interest payments. The primary credit bureaus in India are CIBIL-TransUnion, Equifax (ECIS), CRIF-HighMark and Experian.
How CRAs Assign Ratings?
- Founded in Gurgaon in 1987, CRISIL’s scale offers ratings in 3 different categories:
- i) Elevated safety upon judicious loan servicing: CRISILAAA, CRISIL AA, CRISIL A.
- ii) Moderate security: CRISILBBB, CRISIL BB.
iii) Elevated Risk Levels: CRISIL B, CRISIL C, CRISIL D.
- ICRA’s rating scales include:
ICRA Long-Term Rating Scale: [ICRA]AAA to [ICRA]D.
ICRA Medium-Term Rating Scale: MAAA to MD.
ICRA Short-Term Rating Scale: [ICRA]A1 to [ICRA]D.
ICRA Issuer Rating Scale: [ICRA]AAA to [ICRA]D.
ICRA Long-Term Structured Finance Rating: [ICRA]AAA(SO) to [ICRA]D(SO).
ICRA Short-Term Structured Finance Rating: [ICRA]A1(SO) to [ICRA]D(SO).
ICRA Long-Term Debt Fund Credit Risk Rating Scale: [ICRA]AAAmfs to [ICRA]Cmfs.
ICRA Short-Term Debt Fund Credit Risk Rating Scale: [ICRA]A1mfs to [ICRA]A4mfs.
ICRA Rating Scale for Claims paying ability of Insurance Companies: iAAA to iC.
ICRA Fund Management Quality Ratings: AMC Quality 1 (AMC1) to AMC Quality 5 (AMC5).
ICRA Expected Loss rating scale: [INFRA] EL 1 to [INFRA] EL 7.
- Established in Mumbai in 2005, Acuité Ratings & Research rates on a scale of AAA (Highest Safety, Lowest Credit Risk) to D (Default or Expected Default).
- Having its origin in the year 1993, CARE’s rating scale is grouped in: i) Long-Term Debt Ratings: CARE A1 to CARE D. ii) Short- Term Debt Ratings: CARE AAA to CARE D.
- ONICRA was established in 1993. It offers MSME ratings considering two primary aspects: financial vigour and performance competency.
How CICs Assign Credit Scores?
In the case of CICs, Credit Information Bureau India Ltd (CIBIL—TransUnion) is the oldest registered such professional consumer information bureau in India. The CIC credit scores in India generally fall in the range of 300 (lowest) to 900 (highest).