Understanding Credit Rating for Businesses in India

September 27, 2023
credit rating in india

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Welcome to the world of credit ratings! A good credit rating is essential for securing financing and investments. Lenders and investors look at your credit rating to determine if you are a reliable and trustworthy borrower.

Additionally, a good credit rating in India can help you get better terms and interest rates on loans. So, it’s important to maintain a good credit rating to ensure that your business can access the capital it needs to thrive!

Unless you’re an experienced financial expert, it can be a tricky terrain to navigate. But don’t worry – this guide post will help you understand all the nuances of credit rating in India. At the end of the post, we’ll provide quick tips that you can use to make sure your business’s credit rating stays in good shape. Join us and take the first step towards mastering the world of credit rating in India!

What is a Credit Rating?

Your credit rating is an indicator of your financial risk for credit rating agencies. They assess your business and finance risk and other factors such as your ability to repay debt to give you a rating.
This rating can then be used by lending entities to determine how much of a risk you pose. There are two types of credit rating in India:

Investment Grade

Investment grade ratings indicate that the investment is reliable and the issuer is likely to fulfill repayment obligations. These investments are usually priced lower than speculative-grade investments.

Speculative Grade

Speculative-grade investments are high-risk investments that come with higher interest rates.

Difference Between a Credit Rating and a Credit Score

People tend to use the two terms interchangeably. The table explains the crucial difference between credit rating and credit score so that you don’t get confused.

Credit Rating  Credit Score 
Credit ratings are assigned to corporate/government entities Credit scores are assigned to individuals. 
These are alphabetical codes that range from AAA to D. These are three-digit-long numeric codes that range from 300-900. 
Credit ratings are looked at by stock market investors, other businesses, and investment banks. Lenders and potential guarantors look at credit scores. 

Factors Considered in Credit Rating in India

Major factors that affect the credit rating process in India:

Company’s History

The credit rating agency takes a close look at your company’s past when it comes to taking loans and making repayments. If you’re not up-to-date on payments, your credit rating can take a major hit.

Loan Portfolio

The type of loans a company is servicing matters. If the company’s more focused on paying off secured loans, it’ll have a better credit rating overall. On the flip side, if the majority of the loan portfolio is made up of unsecured loans, it could take a toll on the rating.

Company’s Future Potential

A company’s potential future performance is taken into account when determining its rating. If the projections and current results look good, they’ll get a positive rating. If not, they’ll get a negative one.

Importance of Credit Rating in India

Importance of credit rating in India for money lenders and borrowers:


Lenders can rest assured that their money is in good hands when they invest in a high credit rating. Not only will they get their money back, but they can expect to receive interest payments on time, too!

Better Investment Decision

Banks and money lending companies don’t like an entity that seems like a risky bet. But with credit rating, they can get an idea of the creditworthiness of the company borrowing the money. They become familiar with the risk factor associated with them.

Competitive Rate of Interest

A company’s credit rating has a big impact on the rate of interest they pay. The higher their credit rating, the lower the rate they’ll receive.

Faster Loan Approvals

Having a good credit rating can be a huge advantage for you when it comes to borrowing money. Banks will view you as a responsible borrower, and be more likely to approve your loan application or credit cards.

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How to Maintain a Good Credit Rating

It is essential to maintain a good credit rating in India, It helps you to avail of business loans from NBFCs and other financial institutions. By following a few simple steps, you can keep your business credit high

Credit Balance Must be Low

It’s important to keep your credit balance low. Aim for a credit utilization rate of 30% or less. That means if you have a 10 lakh INR credit line, you should try to use no more than 3 lakh INR at any given time
If you need to withdraw more, you can, but be sure to pay it back promptly to keep your credit rating up.

Avoid Cancelling Old Credit Accounts

Having a long credit history is a valuable asset for any business. Keeping your credit accounts open will demonstrate a level of stability to lenders.

It will also show that you’ve been trusted by your suppliers and vendors over a long period. Plus, you won’t lose out on the value of that history, as it can be included in your credit rating calculation

Maintain a Good Payment History

Having a good payment history is essential when it comes to applying for a business loan. Your credit report reflects your creditworthiness and helps lenders decide the terms, conditions, and interest you’re offered.

It records the credits taken, repayment of these loans, length of credit history, and your capability of repaying debt.

To ensure your payment history is in good standing, it’s important to pay your dues on time.

Also Read: Empowering Women Entrepreneurs: A Comprehensive Guide to Business Loan for Women

Manage Your Company’s Debt

Being in debt can hurt your business credit rating and make lenders wary of working with your company.
Before taking out a new business loan, make sure to pay off any existing debts to keep your credit rating high. Managing your company’s debt efficiently is key to success!

Top Credit Rating Agencies in India

Credit Rating Agencies (CRA) are like the financial equivalent of the ‘judges of the court’. They weigh in on the creditworthiness of organizations and different entities. In simpler terms, these agencies analyze a debtor’s ability to repay the debt and rate their credit risk based on that.

SEBI is the regulator of credit rating agencies in India. Here are the top credit rating agencies in India:

Credit Rating Information Services of India Limited (CRISIL)

CRISIL is a well-established credit rating agency in India. It was founded in 1987 and went public in 1993. In 2017 it acquired an 8.9% stake in the CARE credit rating agency. In 2018, CRISIL launched India’s first index to measure the performance of FPIs in the fixed-income market. CIRSIL’s portfolio is also diversified, offering services such as mutual fund rankings, ULIP rankings, and the CRISIL coalition index.

ICRA Limited

Established in 1991, ICRA Limited is a public limited company based in Gurugram, India. ICRA was initially a joint venture between Moody’s and several Indian financial and banking service organizations. It went public in April 2007. ICRA’s main shareholder is Moody’s Investors Service, an international credit rating agency. The ICRA Group has four subsidiaries. They offer a wide range of credit ratings including corporate debt, financial rating, and market-linked debentures

Credit Analysis and Research Limited (CARE)

CARE is an established credit rating agency founded in 1993 in Mumbai. It provides services such as corporate governance and financial sector ratings. Additionally, CARE offers valuation services. They include equity, debt instruments, and market-linked debentures.

Most recently, CARE launched ARC Ratings. ARC is their new international credit rating agency. It is in partnership with four other partners from South Africa, Brazil, Portugal, and Malaysia. ARC Ratings has already issued sovereign ratings for various countries, including India

Brickwork Ratings (BWR)

Established in 2007, Brickwork Ratings is a Canara Bank-supported credit rating agency. It is also recognized by the RBI as an External Credit Assessment Agency (ECAI). BWR has expertise across a wide range of industries, from banking and capital markets to real estate and education. Brickwork Ratings offers ratings for everything from bank loans and corporate governance to IREDA, MFI, and MNRE

India Ratings and Research Pvt Ltd

India Ratings is a subsidiary of the esteemed Fitch Group. It provides credit rating in India for a wide range of entities, including insurance companies, banks, and urban local bodies
India Ratings is recognized by SEBI. It also holds the distinction of being acknowledged by the RBI and the National Housing Bank.

Navigating Credit Rating in India

We hope we’ve shed some light on the basics of credit ratings as well as the role of credit rating agencies in India.

Remember, when assessing credit risk for a particular business, it’s best to work with a qualified credit risk management advisor. Doing this will ensure that you’re making the best informed and most accurate decisions when it comes to the creditworthiness of your business.

Now, it’s time to take what you’ve learned and enlighten the business world with your newfound knowledge of Indian credit ratings. After all, arming yourself with this information will give you an edge when it comes to running a successful business!

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Frequently Asked Questions (FAQs)

What is a credit rating and why is it important?

A credit rating in India is a score that lenders use to determine the creditworthiness of an individual. It’s important because lenders use it to decide if they should lend money to an individual, how much they should lend, and what interest rate they should charge. Having a good credit rating can make it easier to get a loan and can result in lower interest rates.

How are credit ratings calculated?

A business credit rating in India is calculated by taking into account a variety of factors, such as payment history, the size of the company, and its financial strength. The ratings are based on publicly available information and the creditworthiness of the business itself. The credit rating scale in India range from AAA to D, with AAA being the highest, and D being the lowest.

What factors affect my credit rating?

A business credit rating in India is determined by a variety of factors. It includes payment history, credit utilization and business size. Payment history looks at how well you manage payment on loans, credit cards, and other obligations. Additionally, Credit utilization, and the size of your business are also taken into account when calculating your business credit rating.

How can I maintain a good credit rating?

The key is to make sure you pay all your bills on time, avoid taking out too many loans, and keep your credit utilization ratio low. Additionally, you should review your credit report regularly and make sure there are no errors or fraudulent activity

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