What is ICRA rating and how important it is while making an investment decision?

by Aman Khanna Finance

An ideal world, where everyone has enough money to take care of their needs seems a far-fetched thought as of now. So facing the reality, most of us have no option but to take credit to meet our life goals, especially the ones involving a huge amount like taking a car, home, etc. One needs to have a good credit history which is determined by not only credit score but also credit rating. When you are going for an investment option, it is important to assess the credibility of the instrument with the help of the ratings given to it by credit rating agencies.

What are Credit Rating Agencies?

Before investing in a debt instrument, you must determine the amount of risk involved. Being aware of these risks enables smarter investment decisions, avoid losses, and ensures that you earn higher returns on your investment. Credit rating agencies can help you get the right information and guidance about the best financiers for investments before you start investing. CRISIL, CARE, SMERA, ICRA are some of the credit rating agencies in India. ICRA Ratings, formerly known as the Investment Information and Credit Rating Agency of India Limited, is one such credit rating agency. ICRA is independent and professional investment information and Credit Rating Agency.

An assessment of the borrower (be it an individual, group or company) would tell whether the borrower will be able to pay the loan back on time, as per the loan agreement. Needless to say, a good credit rating depicts a good history of paying loans on time in the past. This credit rating influences the bank’s decision of approving your loan application at a considerate rate of interest. It is usually expressed in alphabetical symbols. Although, it is a new concept in Indian financial market slowly its popularity has increased. It helps investors to recognize the risk involved in lending the money and gives a fair assessment of the borrower’s credibility.

What is the role of ICRA or other ratings?

ICRAs’ credit ratings help in accessing the risk types that affect the relative ability of financiers to service their interest payment obligations and principal repayments. With ICRA’s ratings, issuers can enhance the marketability of the instrument, and help depositors and borrowers make an unbiased opinion on the relative safety of the sum on a debt instrument.

ICRA’s credit ratings can be a boon in several ways. They are designed to:
     • Guide and educate institutional and individual creditors or investors
     • Enable borrowers and issuers to tap more resources from a wider range of the investing public, by accessing the financial and capital market
     • Promote transparency in financial markets
     • Make fund-raising processes easy for intermediaries

With an unbiased and clear opinion about debt instruments, issuers can enhance the marketability of their instruments, thereby alleviating their financial standing in the market.

Also, Read This: What are the benefits of Form 15G/15H?

What are the Rating Criteria for ICRA?

The asset quality reflects the financier’s ability to manage their asset portfolio, and the credit quality of their clients. ICRA’s ratings enable depositors to take the right investment decisions, by acting as a measure to indicate the highest degree of safety for a fund.
These ratings are awarded on the basis of several factors, which include the available information, the analysis made, and interactions with the Management.

Here’s a look at ICRA’s rating system for Fixed Deposit ratings:

Rating	Meaning
MAAA	Highest credit quality
MAA	High credit quality
MA	Adequate credit quality
MB	Inadequate credit quality
MC	Risk-prone credit quality
MD	Lowest credit quality

ICRA’s credit ratings are a measure of safety, using which you can get an assurance on whether the obligations will be repaid on time. You can also form an informed opinion on the probability of default on the instruments. For instance, Bajaj Finance, a reputed NBFC has a credit rating of MAAA from ICRA for Fixed Deposits, which suggests that the company displays the highest credit quality.

Online Fixed deposits Accounts are generally, safest investment instruments that enable you to gain stable returns over a fixed period of time. Often, the lure of higher returns makes us choose financiers, offering higher interest rates. However, this can pose an additional risk, where depositors may also lose the money they invest.