How is Credit Rating in India Actually Done?

There is no fixed formula for rating a company, country or any other debt instrument. Globally, rating agencies came under fire after the 2008 financial crisis, in which they rated several companies the way they should not have. Or to be fair to these companies, they did rate the best they could, but, nobody anticipated the housing collapse in the US.

In India credit ratings are based on a comprehensive evaluation of the strengths and weaknesses of a company fundamentals, country or debt instruments. In case of a country, much would depend on the economic factors including growth, fiscal deficit current account deficit, inflation, government finances, interest rates etc.

For companies it would be financials as the most important thing along with industry background, regulatory and political environment etc.

In India, Crisil also ranks mutual fund. Here again the rating agency uses some of the best known industry practices before rating them.

Rating Symbols

Each rating agency in India uses their own symbol. For example, most of them use the "AAA" rating plus for the finest rating. The plus or minus sign in the rating is used as a more finer rating. For example, a AAA plus rating would be much better than the AAA minus rating.

Very important to check rating

Many foreign investors check the country's sovereign rating before investing in India. On the other hand before investing in a company debt especially an unsecured debt like a company fixed deposit it is best to check the rating. This would reduce the risk of a default in case there is one. Credit rating agencies have come to become more reliable in the last few years and a lot of investors seek guidance from ratings.

It's best to check for one before investing.

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