Everything You Need to Know about CRISIL Rating

What is CRISIL Rating?
CRISIL Rating is analyzed by Credit Rating Information Services of India Limited (CRISIL), and it represents the creditworthiness of an organization, thereby helping investors in the assessment of the risks associated with the organization's financial instruments.

What is CRISIL?
CRISIL is the first credit rating agency in India, incorporated in 1987. The key promoters of CRISIL include ICICI Ltd, UTI and other reputed financial institutions. It is the leading global analytics company which provides ratings, data, research, analytics, and solutions services. It delivers actionable insights, independent opinions, and efficient solutions globally to its customers.

Read more about all credit rating agencies in India.

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CRISIL Rating’s Clientele
CRISIL’s clientele includes large corporations, MSMEs (micro, small and medium enterprises), and top global financial institutions and investors. It also works with the government and policymakers in India’s infrastructure sector and other emerging markets.

CRISIL offers various services, including rating securities and companies, Indian research, SME solutions, global analytics, global research, infra advisory and BI and risk management, to different sectors like finance, automobile, energy, infrastructure, IT, industrial & consumption products, media, travel, health, telecom, retail and others.

The company serves borrowers, lenders, investors, and market intermediaries of a diverse range of sectors, including state governments and urban local bodies.

CRISIL rates bank loans, mutual funds, short-term NCDs, fixed deposits, long-term debt instruments such as NCDs & preference shares, and short-term instruments like CPs. It rates financial sector entities, including banks, non-banking financial companies (NBFCs), securities firms, and housing finance companies (HFCs). CRISIL also rates securitization transactions through PTC (pass-through certificate) route & structured obligation transactions.

How is CRISIL Rating Used in Investment Decisions?
CRISIL rating list helps potential investors in making informed investment related decisions in financial instruments and companies. It also assists companies in raising capital with a higher degree of legitimacy and approval. That is the main reason why many firms use CRISIL ratings as a key point in marketing.

CRISIL rates the safety of the investment in the financial instrument or the organisation with the following symbols:

CRISIL AAA means the highest safety, followed by AA, A, BBB, BB, B C, and D (meaning Default). Sometimes it may add a (+) or a (-) to the symbol.

CRISIL also releases rankings of mutual funds, which are used by investors along with other variables like Net Asset Value, Sharpe Ratio, Asset Under Management, etc.

The CRISIL rating signifies the financial health of an organisation in terms of its capability to meet its liability obligations regularly and on time. The rating company regularly updates its ratings. If investors do not have the time or resources to come to a conclusion regarding investment, they can refer to the CRISIL rating and reports to make a decision.

Also Check: Credit Bureau of India

CRISIL Rating Scales
CRISIL assigns credits ratings under the following categories:

Long-term ratings: These ratings are for long-term instruments like bank loans, debentures, bonds, other debt securities and fund-based facilities. These instruments have a maturity of more than one year. The long-term ratings are decided on a 20-point scale ranging from ‘CRISIL AAA’ to ‘CRISIL B’.
Short-term: These ratings are for short-term instruments, including a certificate of deposits, short-term debentures, commercial paper, etc., with a maturity period of one year or less. The short-term ratings are decided on a 9-point scale varying from ‘CRISIL A1’ to ‘CRISIL A4’, and ‘CRISIL D’ (meaning default).
Dual ratings: Dual ratings are assigned by CRISIL to some debt instruments with a maturity of more than one year. These debt instruments also have a put option which is exercisable within one year from the issuance date. These ratings are assigned for both long-term as well as short-term scales. The long-term rating is the first component of the dual rating, which indicates how likely timely payments of the principal and interest will be made during the life of the instrument. The second component of the dual ratings is the short-term rating scale, which indicates the likelihood of payment if the put option is exercised. Some examples of dual ratings are ‘CRISIL AA+’ and ‘CRISIL A1+’.
Structured Obligation Ratings (SO): These ratings are assigned to short-term and long-term structured finance instruments. These ratings have the suffix ‘SO’. The ‘SO’ rating is assigned to only asset-backed transactions and securitized transactions. The long-term ratings are assigned to an instrument with a maturity of more than one year. These ratings range from ‘CRISIL AAA (SO)’ to ‘CRISIL D (SO)’. Instruments with a maturity of one year or below have short-term ratings, which range from ‘CRISIL A1 (SO)’ to CRISIL D (SO)’.
Credit Enhancement Ratings (CE): All short-term and long-term instruments backed by explicit external credit enhancement are assigned with this ranking. However, the rated instrument does not mean bankruptcy from the issuer/originator. CRISIL assigns a ‘CE’ suffix for rating such instruments. An instrument with a more than one-year maturity has long-term ratings, ranging from ‘CRISIL AAA (CE)’ to ‘CRISIL D (CE)’. Instruments with a maturity of one year or below have short-term ratings, ranging from ‘CRISIL A1 (CE)’ to CRISIL D (CE)’.
Fixed Deposit (FD): As the name suggests, FD ratings are assigned by CRISIL for fixed deposits of banks, financial institutions, and corporates. These ratings are assigned on a 14-point scale with the prefix ‘F’. The rating ranges between ‘FAAA’ to ‘FD’.
Financial Strength Ratings: These ratings are assigned to insurance companies and range from ‘AAA’ to ‘D’.
CRISIL Mutual Fund Rankings (CMFR)
CRISIL rating for mutual funds is assigned on a scale of 1 to 5. CRISIL Fund Rank 1 is the best and indicates a “very good performance”, whereas Rank 5 is the worst. The top 10 percentile in CRISIL MF ranking means Rank 1, and the next 20 percentile means Rank 2.

Also Check: Commercial CIBIL Report

CMFRs are decided on the basis of the following parameters:

Superior Return Score: This shows the returns of the fund compared to its portfolios.
Portfolio Concentration Analysis: It means a portfolio with too much diversification is rated low.
Mean Return & Volatility: Mean return refers to the NAV-based daily average return, and volatility indicates the fluctuations in returns.
Liquidity: It is the ease with which the position of a fund can be liquidated.
Quality of Asset: It shows the likelihood of the debtors in a debt or hybrid fund not defaulting on timely repayments.
Exposure to sensitive sectors: It shows the Industry Risk Score to assess the risk associated with the industry to which the stock/debt is related.
Tracking error: It is applicable only to funds that are tracking any indices. It measures the variation in the performance of a fund from the performance of the index it is tracking.
Counting of negative returns: This metric measures the downside risks linked with Arbitrage Funds.
Effect of CRISIL Ratings on Depositors
CRISIL rates a variety of financial instruments, including fixed deposits. The criteria for any investor in an FD is a high-interest rate. Mostly, the government doesn’t back Fixed Deposits. Hence, the investments of depositors are subject to market risk. CRISIL ratings for different financial institutions and FDs help depositors to choose FDs which are safe and offer attractive interest rates. CRISIL FD ratings are FAAA, FAA, FA, FB, FC, FD and NM, with FAAA being the highest rating and FD the lowest.

CRISIL credit ratings are an extremely useful tool for retail investors who are trying to judge a few fixed-income securities/ equities as well as large investors/ traders who are trying to make profits from trading in debt/ equity. If you wish to invest or trade, read financial markets and then open a Demat account with a trustworthy brokerage platform.

Also Read: How to Improve your CIBIL Score after a Loan Settlement?