CRISIL | Origin | Objectives | Rating Symbols | Modus Operandi
Table of Contents
Origin of CRISIL
The need for starting credit rating agencies was felt during the 1980s in India as a number of non banking financial companies were accepting deposits by offering competitive interest rates. RBI felt the need for protecting the interests of depositors in these NBFCs and so it made credit rating mandatory for the instruments of NBFCs.
The first credit rating agency in India was set up in the year 1988. The Credit Rating Information Services of India Ltd (CRISIL) was started as as a subsidiary of ICICI and later it was followed by ICRA (Investment information and Credit Rating Agency of lndia – 1990) and CARE (Credit Analysis and Research Ltd – 1993).
Main Objectives of CRISIL
CRISIL has to rate the debt instruments of Indian companies and act as a guiding agent to Indian investors for providing them with proper advice on investment. It also reveals the risks involved in various debt instruments. Thus, CRISIL acts as a catalyst for channelizing investment in proper debt instruments.
There are 5 branches of CRISIL functioning at Delhi, Mumbai, Kolkatta, Chennai and Bengaluru. The Head office is located at Mumbai.
Rating Symbols of CRISIL
| Debt Category | Debt Instrument | Rating Symbols | Remarks |
| Long Term Instruments | Debentures, Bonds | AAA | Highest Safety |
| *AA | High Safety | ||
| *A | Adequate Safety | ||
| *BBB | Moderate Safety | ||
| *BB | Inadequate Safety | ||
| *B | Risk Prone | ||
| *C | Substantial Risk | ||
| D | Default | ||
| Medium Term Instrument | Fixed Deposits | FAAA | Highest Safety |
| *FAA | High Safety | ||
| *FA | Adequate Safety | ||
| *FB | Inadequate Safety | ||
| Short Term Instrument | Commercial Paper | *FC | Risk Prone |
| FD | Default | ||
| *P1 | High Safety | ||
| *P2 | Highest Safety | ||
| *P3 | Adequate Safety | ||
| *P4 | Risk Prone | ||
| P5 | Default | ||
| The suffix of '+' (plus) or '-' (minus) signs are used with the rating symbols to indicate the comparative positions of the instrument within the group covered by the symbol. | The suffix of '+' (plus) or '-' (minus) signs are used with the rating symbols to indicate the comparative positions of the instrument within the group covered by the symbol. | The suffix of '+' (plus) or '-' (minus) signs are used with the rating symbols to indicate the comparative positions of the instrument within the group covered by the symbol. | The suffix of '+' (plus) or '-' (minus) signs are used with the rating symbols to indicate the comparative positions of the instrument within the group covered by the symbol. |
Modus Operandi of CRISIL
When a company applies for credit rating, CRISIL adopts certain procedure. It applies the SWOT Analysis, taking into account the Strength, Weakness, Opportunity and Threat in prospect for the company.
In order to study these aspects, there are different types of staff employed by CRISIL. There are two teams which undertake the study of the company’s future prospects. The first team will assess the company’s rating on the basis of the benchmark of the industry.
A bench-mark company in an industry is one which denotes the standard company of the industry. Companies above the benchmark are considered to be performing very well. While companies below the benchmark are considered good.
The second team will also take into account the condition of the industry. Both these teams will interact with each other through internal committees. The internal committee will have senior analysts and they undertake an in-depth analysis of the data provided. Finally, the recommendations are referred to the rating committee which consist of six directors of the company.
The members of the rating committee will have no connection with the industry or investment agencies. So, an impartial opinion will be formed while finalizing the credit rating. This is kept confidential. Thus, the credit rating system of CRISIL is considered to be a multi-layered process.
Performance of CRISIL
Among the credit rating companies, CRISIL has the enviable position of rating maximum number of credit instruments, which is around 380 instruments touching around Rs. 34,500 crores. By 1995; it has doubled the value of instruments covered.
To assist the investors, CRISIL has come out with a Bond Yield Table which will give a fair idea on various debentures.
Publications of CRISIL
CRISIL Ratings Scan is a quarterly publication which gives details on the rating reports of instruments of various companies. ‘CRISIL Card‘ is a service provided by CRISIL which gives details about companies’ performance from various angles. It is a cull-out of information from the balance sheet of the companies in the past 4 years.
Conclusion
The reputation of CRISIL can be seen from the fact that even international agencies like Asian Development Bank has considered CRISIL for setting up credit rating agency in Thailand. CRISIL has also set up an information company in collaboration with Extel Financial Ltd., of U.K. called CRISIL Information Ltd.
The international rating company called Standard and Poor has also entered into collaboration with CRISIL for analytical and business development. Thus, at the international level, CRISIL has rated more than 1500 debt instruments which have a value of 30 billion dollars and it has rated more than 1,000 international companies.
