The Role Of Credit Rating Agencies In India’s Bond Market
Credit rating agencies in India serve a simple role that actually seems a lot more complex from the outside. In simple words, these agencies are responsible for making people aware of the financial health of companies and government entities.
SEBI is a primary regulatory body that keeps the rating agencies in check for transparency, accountability, and fairness.
India’s bond market is on the boom, with corporate issuances touching the highest ever numbers, i.e., ₹9.9 trillion in FY25. In such a report from a credit rating agency, FY26 witnessed 214 upgrades and 75 downgrades, highlighting stronger credit trends throughout multiple sectors. The ratings are also influencing the lending costs, trust factor on ventures, and the entire financial health.
Types of Credit Ratings in India
India has multiple categories of credit ratings to check. While long-term ones evaluate long repayment ability, short-term ratings check the immediate dues.
The other one is an instrument rating that assesses the company and associated loans. Some of the key rating agencies in India are India Ratings, CRISIL, ICRA, CARE Ratings, India Ratings & Research, and Acuite Ratings.
| Category | What It Checks |
| Long-term Rating | Ability to repay over many years |
| Short-term Rating | Ability to meet immediate dues |
| Instrument Rating | Risk level of a specific loan or bond |
What Does Credit Rating Convey?
A credit rating signifies the chances of a borrower repaying their debts on time. A higher credit rating (AAA) means lower risk and more chances of repayment. A lower rating signifies the opposite, highlighting a higher risk.
| Rating Scale | CRISIL | ICRA | CARE |
| Highest Safety | AAA | AAA | AAA |
| High Safety | AA | AA | AA |
| Low Risk | A | A | A |
| Moderate Safety | BBB | BBB | BBB |
| Moderate Risk | BB | BB | BB |
| High Risk | B | B | B |
| Very High Risk | C | C | C |
| Default | D | D | D |
What Rating Agencies Evaluate Before Assigning a Rating
Credit rating agencies consider the actual business aspects, rather than focusing on numbers on paper, by analysing cash flow patterns, management standards, and sector stability.
In case a company has variable earning patterns, weak management, or increasing loans, the credit rating points can bring it down. Investors need to evaluate beyond credit ratings by checking various parameters such as
- Liquidity – Check the company’s lock-in timeline and exit procedures.
- Terms & Conditions – Check the legal parameters and a fee structure.
- Stress Testing – Perform an evaluation around the scenario for unfavourable economic situations.
- Manager Quality – Evaluate the manager’s track record and past experiences.
How SEBI Ensures Transparency in Rating Practices
SEBI puts a check on these rating companies to enforce fair, reliable, and responsible results. The agencies also need to share the specific parameters with SEBI to process the regulatory checks.
How Credit Ratings Impact Retail Investors
Most of the retail buyers of debt funds or corporate bonds check the credit ratings first. It gives the sense of stability along with a sense of positivity or negativity of the issuer.
A change in rating can impact the bond prices, making them important for people to keep an eye on.
How Companies Prepare for a Rating Review
Usually, companies focus on improving their financial positions before a credit rating review. Some of the ways to do that are to reduce debt, enhance cash flow, fix auditor concerns, etc.
These small steps can make a big impact on the final credit ratings of the venture.
Case Studies of Major Upgrades and Downgrades in India
There are a lot of examples highlighting major upgrades and downgrades because of rating changes. One is for companies like JSPL, where their financial performance improved because of the rating. Another is the downfall of IL&FS and DHFL because of credit ratings.
Common Myths About Credit Ratings
- The majority of people presume that AAA symbolises “no risk” in terms of credit rankings. However, such top companies can also have challenges.
- Another myth about credit ratings is that the numbers change very slowly. While the downfalls can sometimes happen overnight.
- Credit ratings are only responsible for reflecting the correct data or trends, rather than predicting anything in the future.
How Rating Trends Reflect India’s Economic Health
A credit rating getting upgraded for the entire sector is a clear symbol of growth and stability. However, if more verticals are getting downgraded in rankings, it is a sign of weak financial performance or less demand.
In one way, credit ratings show the entire picture of the overall financial economy.
Final Comments
Hence, credit rating agencies tend to keep the financial system of a nation organized and reliable for people. The ratings have a big impact on lending costs and other valuable signals related to companies and the government.
Although not perfect in every case, the credit ratings play a crucial role in shaping India’s financial structure.
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This analysis is for informational purposes only. Please consult a SEBI-registered financial advisor before investing.
– Chandan Pathak
Equity Research Analyst, StockYaari