When lending money to someone, you would love to know whether the person is capable of repayment.
Similarly, you want to know whether an investment scheme will pay the returns it promises.
By the same corollary, governments want to know whether it is worth their while to invest and allow their companies to make investments in a foreign country.
Coming down to mundane things: that online retailer or your neighbourhood mobile store will sell a smartphone on Equated Monthly Instalments (EMIs) only when they know you are capable of paying the money.
The same principle holds good when applying for a credit card or loan.
Since it is impossible to gauge a person, company or country’s creditworthiness, there are companies that offer this specialized service.
They assign something called credit ratings. The higher your credit ratings, better the chances of getting a loan or something on EMI.
What are Credit Rating Agencies?
A credit rating agency is a company that hires financial experts and analysts. These agencies study various parameters of the person or company or country.
For individuals, it would include income, liabilities, assets and expenses.
For companies, it will consider reputation, product offerings and popularity, relevance to the market, profitability and expansion scope, among others.
Experts and analysts pore through data you give and their findings from various sources to give you something called as credit ratings.
It is a system that somewhat enables banks and others to know whether a borrower will repay.
List of Top 10 Credit Rating Agencies in India 2019
India is an economic powerhouse. Therefore, we have the top three credit rating agencies of the world operating in this country.
Then we also have credit rating agencies that assess companies and enterprises.
The third is credit rating agencies that check the creditworthiness of individual borrowers.
Moody’s Investor Service ranks among the top three credit rating agencies in the world. The company also has operations in India.
It assesses various projects, companies and the performance of the Central and state governments to provide credit ratings.
Standard & Poor
S&P ratings are something the world pays attention to. Hence, countries like India that try and attract foreign investments ensure we have high credit ratings.
Standard & Poor is one of the three top credit rating agencies in the world with operations in India.
It provides credit ratings to Indian and foreign companies and governments.
Fitch is also one of the top three credit rating agencies of the world.
Fitch also has operations in India. Its ratings play a vital role in attracting foreign investment to India.
Fitch also provides credit ratings of Indian companies and the Indian economy as well as various projects for foreign and local investors to know whether they should put money in this country.
Nomura Capital India Pvt Ltd is part of the eponymous global credit rating agency from Japan.
They assess Indian companies, banks, projects and evaluate the national economy based on decisions taken by the Central and state governments. Nomura ratings are valuable for all investors.
SMERA stands for Small & Medium Enterprises Ratings Agency. SMERA is a joint initiative by SIDBI, Dun & Bradstreet Information Services India Pvt. Ltd and top nationalized banks of India.
SMERA is known as India’s first credit ratings agency that assesses Micro, Small and Medium Enterprises (MSME) in the country. It has provided over 7,000 ratings to the MSME sector since inception.
Credit Rating Information Services of India Ltd or CRISIL is the largest homegrown credit rating agency in India.
It was established in 1987. One of the three largest credit rating agencies of the world, Standard & Poor holds a majority stake in CRISIL.
According to various sources, CRISIL has provided over 10,000 ratings till mid-2023. CRISIL provides ratings for savings schemes, banks and Mutual Funds in India.
Its star ratings- from one star to five star- guide investors in Mutual Funds on putting money in a scheme
Onida Individual Credit Rating Agency or ONICRA is a large and top credit ratings agency in India.
If you are taking a smartphone or that expensive TV on instalments or applying for credit card or home loan, ONICRA might assess your creditworthiness.
ONICRA is helping enterprises to know credit ratings of individuals and helping banks take decisions before giving loans.
Credit Analysis and Research Limited (CARE) is a credit rating, research and advisory committee that was established in 1993.
CARE is a Joint Venture between Industrial Development Bank of India (IDBI), Canara Bank, Unit Trust of India (UTI) and leading banks, Non-Banking Financial Companies and other financial organizations in the country.
It has given over 10,000 credit ratings since inception, according to Small Industries Development Bank of India.
Investment Information & Credit Ratings Agency or IICRA is one of the largest and top credit rating agencies in the country.
Global credit rating giant, Moody’s holds a majority stake in IICRA. It is a JV between Moody’s and top nationalized and private banks in India, NBFCs and other major financial institutions.
IICRA has developed a linear scale for the MSME sector and has a team of dedicated professionals for credit ratings of these enterprises.
Anyone that has applied for a loan or wants to buy stuff on instalments will have heard of CIBIL.
The term stands for Credit Information Bureau (India) Ltd. It is an organization that assesses individuals, companies and groups for creditworthiness.
CIBIL TransUnion score ranges between 300 and 600. Higher the score, better your chances of getting a loan.
CIBIL considers various factors such as outstanding loans, credit card repayments and other parameters to give the CIBIL TransUnion credit score.
Indian banks use CIBIL TransUnion scores to decide whether or not to give loans to people.
Credit Rating Controversies
Despite credit scores being a common system adopted worldwide to check the creditworthiness of individuals, families, groups, enterprises, large companies and countries, the financial fraternity remains divided about its use.
Some financial experts believe that a person or country’s creditworthiness cannot be judged on a few parameters while ignoring others.
For example, a person with zero loans or debts and high income but suffering from the terminal disease may emerge with top credit ratings.
Similarly, a country suffering from temporary political crises may find its credit ratings dip and affect the overall economy.
This can cause permanent damage to the country in question.
They cite the example of Venezuela, a country rich in natural resources and educated manpower but facing political turmoil whose credit ratings have taken a dramatic beating over the last few years.
Whether or not you like it, credit rating is a system that is here to stay. At least for the long run.
Therefore, ensure that you pay all loans on time. Better still, avoid taking mobile phones on EMIs just to show off to friends and peers.
Your credit ratings take a heavy beating while you chat and watch movies on that smartphone.
And if you cannot repay for any reason, you may never be able to get a mortgage for an important thing like buying a house or marriage.
With electronic banking systems and computerization of the finance sector, credit ratings will play a major role in your personal financial wellbeing.