FULL FORM OF CRISIL

            

WHAT IS CRISIL

CRISIL is a credit rating agency established 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 or company. 

Full Form of CRISIL

The full form of CRISIL is Credit Rating Information Services of India Limited. CRISIL rates numerous financial sector entities, such as banks and non-banking financial institutions, housing finance companies, etc. CRISIL has a large client base to serve ranging from micro, small, and medium companies to large corporations, investors, and top global financial institutions.

                           

Some facts about 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 important decisions to manage and reduce the risks, make pricing and valuation decisions, generate more revenue, and enhance returns.

• CRISIL has three major area of functions which are Corporate sector ratings, Structured finance ratings, and Financial sector ratings.

• CRISIL also function with government bodies to formulate policies and draft frameworks for efficient economic growth and development.

Credit Rating Agencies assess the creditworthiness and perform deep analysis of businesses, funds, and even rates countries to provide the creditworthiness about them so that investors can utilise them to make right  decisions. There are several credit agencies present in India, such as 

• 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

FUNCTION OF CRISIL

1. Rating: CRISIL is the only rating agency in India that has a sectoral specialisation. CRISIL ratings help to assess financial health and investment worthiness by investors and the public at large. CRISIL ratings are seen as a benchmark and a sign of trust and financial security.

2. Research: CRISIL provides research, analysis, and forecasts on the Indian economy, industries, and companies. CRISIL also collaborate with government bodies to conduct research and conduct economic analyses which are useful for economic growth of the country.

3. Mutual Fund Rating: CRISIL provides fund evaluation services and risk analysis to the big and important mutual fund industry.

4. Equity Research: CRISIL has added equity research to its wide area 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 making and implementation.

6. Abide by the Regulatory Framework: CRISIL is regulated by SEBI ( security exchange of Board of India) which regulates all the credit agencies as well, SEBI has formulated 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. 

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 financial health using different tools and analytical metrics and financial track record of the company/Institution. These institutions comprise of manufacturing companies, banks, NBFCs, PSUs, financial institutions, state government, urban local bodies, and mutual funds. CRISIL Rating facilitates issuers and borrowers in increasing their access to funding while seeking various funding and investment options. The rating also optimizes the cost of funds for the financial institution.

CRISIL Rating Criterion

CRISIL assigns credit ratings to banks and financial Institution (FI) 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. The full form of CRAMEL are-

• Capital Adequacy: This indicates the amount of capital a bank or FI has to absorb losses and support growth.

• Resource Profile: This indicates 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  and financial healtof the bank or FI.

Some Important parameter which CRISIL consider-

1. Core Parameters (High Influence):

• Asset Quality

• Capital Adequacy

• Earnings

• Resource Profile

2. Supplementary Parameters (Lower Influence):

• Market Position

• Liquidity

• Management.

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  renowned  companies. 

Types of Ratings Issued by CRISIL

1. Long-Term Instruments: CRISIL issues ratings for long-term instruments such as  bonds, debentures ,bank loans, other debt securities, and fund-based instruments. 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 which have a maturity of more than one year. These instruments having 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 normally seen as a benchmark and guiding principle by investors before investing in any fund. CRISIL Ratings affirms 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 financial health 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 report which helps investors and other market participants to updated 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 to  choose a fixed deposit scheme with the highest possible degree of security. A higher rating of a company FD denotes better financial health and well-being which will replicate 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 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. 

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 before their investment.

Conclusion

CRISIL has an important role to function the research and analysis the financial health 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 decide their investing decisions.