What is CRISIL?
CRISIL is a credit rating agency set up in India that provides ratings, analysis, risk, and policy advice related to different types of investments. CRISIL not only assesses the creditworthiness of funds, but also provides extensive research and insights into the performance, risks, and threats associated with any funds or business.
Full Form of CRISIL
The full form of CRISIL is Credit Rating Information Services of India Limited. CRISIL rates numerous financial sector entities, like banks and non-banking financial institutions, housing finance companies, etc. CRISIL has a huge client base to serve ranging from micro, small, and medium companies to large corporations, investors, and top global financial institutions.
Table of Content
Key takeaways from Credit Rating Information Services of India Limited (CRISIL):
- It is the first credit rating agency in India.
- CRISIL analysis and insights help lenders, borrowers, issuers, investors, regulators, and other stakeholders to make sound decisions to manage and mitigate risks, make pricing and valuation decisions, generate more revenue, and enhance returns.
- CRISIL has three major domains of functions which are Corporate sector ratings, Structured finance ratings, and Financial sector ratings.
- CRISIL also works with government bodies to formulate policies and draft frameworks for efficient economic growth and development.
Credit Rating Agencies assess the creditworthiness and perform extensive analysis of businesses, funds, and even rates countries to provide the creditworthiness about them so that investors can utilise them to make informed decisions. There are several credit agencies present in India, like,
- CRISIL (Credit Rating Information Services of India Limited)
- ICRA (Investment Information and Credit Rating Agency)
- CARE (Credit Analysis and Research Limited)
- India Ratings and Research Private Limited
History of CRISIL
1. Inception: CRISIL was introduced to the country in the year 1988 by ICICI and UTI and the share capital of CRISIL was subscribed by SBI, LIC, and UIIC (United Indian Insurance Company).
2. First Business Assignment: CRISIL conducted its first corporate sector rating in 1988, just after its formation and now CRISIL has 67 corporate sectors to function.
3. First instrument rating: CRISIL in the year 1989 was the first agency to rate commercial papers and in 1992, CRISIL was the first rating agency to perform credit rating of debt instruments of banks.
4. Launches IPO: CRISIL launched its IPO(Initial Public Offer) in November 1993, which at that time received an oversubscription of 2.47 times.
5. Acquisition by S&P Global: In the Year 2005, S&P Global a US-based consulting firm acquired the majority of its shares and became a holding of S&P Global which has a leading business in financial information. In the past, S&P Global acquired 9.68% shares of CRISIL in 1997 and later acquired it.
6. Launching of CSR: CRISIL as part of its CSR initiative (Corporate Social Responsibility) launched CRISIL Foundation in the year 2013 to promote financial awareness and financial literacy along with environment conservation.
7. Commencement of Fund Ratings: In the year 2014, CRISIL introduced fund management capability ratings of mutual funds, which are now seen as a benchmark by investors before investing in mutual funds.
8. Revenue Reporting: As of December 2023, the reports suggest that CRISIL has reported 3,246.4 CR of revenue.
Functions of CRISIL
1. Rating: CRISIL is the only rating agency in India that has a sectoral specialiSation. CRISIL ratings help to assess creditworthiness and investment worthiness by investors and the public at large. CRISIL ratings are seen as a benchmark and a sign of trust and security.
2. Research: CRISIL provides research, analysis, and forecasts on the Indian economy, industries, and companies to more than 500 Indian and international clients. CRISIL also partners with government bodies to conduct research and conduct economic analyses which are useful for economic growth.
3. Mutual Fund Rating: CRISIL provides fund evaluation services and risk solutions to the big and important mutual fund industry. CRISIL in 2014 started its function to assess mutual funds and since then they have captured around 80% of the market.
4. Equity Research: CRISIL has added equity research to its wide domain of expertise, by acquiring IREVNA which is a leading global equity research and analytics company. IREVNA offers investment research services to the world's leading investment banks and financial institutions which helps to identify and analyse potential in equity.
5. Advisory: CRISIL also offers risk Solutions and risk management solutions, and also advice to Banks and Corporates by leveraging the experience and skills of CRISIL in the areas of credit and market risk. It provides policy advisory, regulatory, and transaction-level advice to governments and the public sector for effective policy formulation.
6. Abide by the Regulatory Framework: CRISIL is regulated by SEBI (Security and Exchange Board of India) which regulates all the credit agencies as well, SEBI establishes general guidelines that are to be followed by all agencies in assessing any fund or company and CRISIL has to ensure that their clients are following appropriate regulatory and legal framework. SEBI has a strict monitoring and regulation process after some recent financial fiascos like IL&FS.
What is CRISIL Rating?
CRISIL rating means is a rating assigned by the company to a whole spectrum of debt instruments and financial institutions. The credit rating given by CRISIL for an instrument or an institution under consideration provides information about the creditworthiness using different tools and analytical metrics and financial track record of the entity. These institutions include manufacturing companies, banks, NBFCs, PSUs, financial institutions, state government, urban local bodies, and mutual funds. CRISIL Rating facilitates issuers and borrowers in enhancing their access to funding while seeking various funding and investment options. The rating also optimizes the cost of funds for the financial institution.
What are CRISIL Rating Criterion?
CRISIL assigns credit ratings to banks and financial institutions (FIs) based on their financial health. They use a framework called CRAMEL which considers factors like capital adequacy, asset quality, profitability, and liquidity. These factors affect a bank or FI's ability to manage risk and ensure growth. Other things like market position and management are also taken into account but have a lesser influence on the rating. CRAMEL stands for:
- Capital Adequacy: This refers to the amount of capital a bank or FI has to absorb losses and support growth.
- Resource Profile: This refers to the ability of a bank or FI to raise funds at competitive rates.
- Asset Quality: This refers to the riskiness of a bank or FI's loans and other investments.
- Management: This refers to the experience and competence of the bank or FI's management team.
- Earnings: This refers to the profitability of the bank or FI.
CRISIL considers some of these parameters more important than others:
1. Core Parameters (High Influence):
- Asset Quality
- Capital Adequacy
- Earnings
- Resource Profile
2. Supplementary Parameters (Lower Influence):
- Market Position
- Liquidity
- Management
For banks, a strong retail deposit base is a positive factor, while for FIs, access to diverse funding sources is important. CRISIL also considers,
- Public sector banks and FIs with a policy role may receive government support in times of trouble.
- CRISIL is increasingly looking at how banks and FIs manage ESG risks and opportunities.
By considering all of these factors, CRISIL can assign a credit rating to a bank or FI. This rating indicates the risk of default on the bank or FI's debt obligations.
How to Get CRISIL Rating?
CRISIL ratings help investors understand the creditworthiness of banks and FIs. Here's a breakdown of the process to obtain a CRISIL rating:
Step 1. Initiate Contact
Reach out to CRISIL Ratings through their website or by phone. Discuss your rating needs and the type of instrument you want rated (debt instruments, bank loans, etc.).
Step 2. Information Gathering
CRISIL analysts will request various financial documents from your bank/FI. You'll need to provide comprehensive information to support your rating request. This may include:
- Financial statements (balance sheets, income statements)
- Risk management policies
- Corporate governance structure
- Future growth plans
Step 3. Rating Analysis:
CRISIL analysts will assess your bank/FI using the CRAMEL framework. They will also consider supplementary factors like market position and liquidity.
Step 4. Rating Committee Review
A CRISIL rating committee will review the analyst's assessment and proposed rating. The committee may request additional information or clarification if needed.
Step 5. Rating Assignment and Report
Once finalized, CRISIL will assign a credit rating to your bank/FI. You'll receive a detailed rating report outlining the rationale behind the assigned rating.
Step 6. Rating Surveillance
CRISIL will continue to monitor your bank/FI's performance even after the rating is assigned. They may revise the rating if there are significant changes in your financial health or risk profile.
CRISIL rating process can take several weeks, depending on the complexity of your case. CRISIL charges fees for its rating services. The fee structure depends on the type of instrument being rated and the size of your bank/FI. Maintaining a good relationship with CRISIL is crucial. This allows for open communication and a smoother rating process in the future.
Note: CRISIL does not issue ratings directly to the public. Their ratings are meant for institutional investors and other professional users.
How to Check CRISIL Rating?
CRISIL does not make its ratings public. Instead, you could look at the annual report of a company or get in touch with the company to find out if it has publicly stated its CRISIL rating. Some financial news websites may carry reports on CRISIL ratings given to well-known companies.
Types of Ratings Issued by CRISIL
1. Long-Term Instruments: CRISIL issues ratings for long-term instruments such as debentures, bonds, bank loans, other debt securities, and fund-based facilities. The deciding factor for selecting any instrument to be a long-term instrument is that the maturity of these instruments is greater than one year. The long-term ratings are allocated on a 20-point scale from CRISIL AAA to CRISIL B. CRISIL AAA indicates the highest safety.
2. Short-Term Instruments: CRISIL issues ratings for short-term instruments such as a certificate of deposits, commercial paper, short-term debentures, etc. The deciding factor for selecting any instrument to be a short-term instrument is that the maturity of these instruments is less than one year or equal to one year. D is used as a prefix to denote default. The short-term ratings are allocated on a 9-point scale from CRISIL A1 to CRISIL A4 and CRISIL D.
3. Dual Ratings: CRISIL also allocates dual ratings to some debt instruments that have a maturity of more than one year. These instruments contain a put option that is exercisable within one year from their date of issue. The dual ratings can be on long-term and short-term scales. Some of the dual ratings are CRISIL AA+ and CRISIL A1+.
4. Structured Obligation Ratings (SO): CRISIL also rates long-term and short-term structured finance instruments. An instrument with a maturity greater than one year is given long-term ratings, and they are allocated ratings between CRISIL AAA (SO) to CRISIL D (SO). Instruments that have a maturity of one year or less are given ratings from CRISIL A1 (SO) to CRISIL D (SO).
5. Credit Enhancement Ratings (CE): CRISIL rates all long-term and short-term instruments of credit enhancement that are external. CRISIL assigns a CE suffix to denote credit enhancement. An instrument with a maturity greater than one year is allocated long-term ratings, and they are allocated between CRISIL AAA (CE) to CRISIL D (CE). An instrument with a maturity of one year or less is given the short-term ratings between CRISIL A1 (CE) to CRISIL D (CE).
6. Fixed Deposit (FD): CRISIL also rates fixed deposits of banks, financial institutions, and corporates. The FD ratings are assigned on a 14-point scale and the F prefix is used to denote fixed deposits. The ratings are allocated from FA to FD.
Effects of CRISIL
1. Benchmark and a Sign of Trust: The CRISIL ratings are generally seen as a benchmark and guiding principle by investors before investing in any fund. CRISIL Ratings assure about the entity’s financial obligations and financial health which defines its credibility. CRISIL rating allows investors to analyse funds and instruments.
2. Highlights Creditworthiness: One of the main effects of CRISIL is that it helps to provide information about the creditworthiness of different companies, organisations, and financial instruments which helps investors, lenders, and other market participants make informed decisions about whether to invest or advance any lending. Banks and other financial institutions consume huge chunks of CRISIL analysis.
3. Financial Awareness: CRISIL also conducts and publishes general market research which helps investors and other market participants to stay informed about recent developments in various sectors and helps them make better investment decisions.
4. Effect on Fixed Deposits: CRISIL ratings for fixed deposits help investors choose a fixed deposit scheme with the highest possible degree of safety. A higher rating of a company FD denotes better financial health and well-being which will translate to the company’s share prices whereas a lower rating FD may lead to offering higher interest rates to attract investors but it would be way more riskier.
5. Effect on Capital Level: CRISIL is recognised by RBI as an eligible external credit assessment institution. Banks use CRISIL ratings to compute the capital levels that they need to maintain on rated credit exposures. CRISIL rates fund and non-fund-based facilities extended by banks which are used by stakeholders.
6. Default Rating: CRISIL outlines the default recognition principle to all financial instruments, long-term and short-term debt, which ensures transparency and investors may follow CRISIL ratings to look after the risk associated with the financial instrument.
Conclusion
CRISIL has an important role to function the research and analysis of business and funds. CRISIL ratings are reliable and are trusted to the extent that out of every two companies one is rated by CRISIL. CRISIL analysis provides insights and solutions that are used by investors to perform their investing decisions. Not only CRISIL but all credit agencies have a vital and impactful role to perform, so there is a strong need for continuous monitoring, regulation, and accountability as their doings have an impact on the public at large.