What is the Full-Form of CRISIL?
The full form CRISIL is Credit Rating Information Services of India Limited. It is regarded as the global analytics business which services the financial markets and helps them function in the most transparent and efficient manner. It believes in the principle of agile and innovation and provides solutions in terms of data research and credit ratings.
- In the year 1987, CRISIL was incorporated by ICICI and UTI. These two institutions additionally acted as the promoters of CRISIL.
- In the year 1989, It provided ratings for the program of commercial papersCommercial PapersCommercial Paper is a money market instrument that is used to obtain short-term funding and is often issued by investment-grade banks and corporations in the form of a promissory note.. It was the first rating agency to do so.
- Additionally, it was the first rating agency in the period of 1992 to provide ratings for debt instruments of banks and financial institutionsFinancial InstitutionsFinancial institutions refer to those organizations which provide business services and products related to financial or monetary transactions to their clients. Some of these are banks, NBFCs, investment companies, brokerage firms, insurance companies and trust corporations. and asset-backed securities.
- In 1992, it offered assistance of technical nature to the Israeli Securities rating agency. It covered the location of Maalot and Malaysia Berhad.
- With the intent of developing its skills and streamlining its processes, it collaborated with the Standard and Poors in 1996.
- In the period May 2005, S&P acquired major stakeholdership of CRISIL, after which it was classified as the company of S&P.
- It launched and brought in the concept of real estate star ratings in the period of 2010.
- In the year of 2011, it further introduced ratings on education, solar grading, gold rating, and GILT index rating.
- In the year of 2012, it acquired UK based business that offered services of analytics to the global investment banks.
- In the year of 2013, it launched the CRISIL foundation that works towards the promotion of financial awareness and efforts towards environment conservation. This initiative helped in the enhancement of financial literacyFinancial LiteracyFinancial literacy refers to an investor's knowledge and understanding of various financial products that help him with money management, personal finances, investment, and tax planning. It examines how prudently an individual manages his finances, therefore building the necessary requirements such as an emergency fund, a retirement fund, and how they plan to handle insurance, estate planning, paying for education, etc. among business owners and prospective investors.
- In the period 2015, it pursued the conservation of the environment by taking the help of the foundation and employee volunteers.
- In the year 2014, it additionally rated the first mortgage-backed securities that were introduced in India.
- In the year 2014, it launched its ratings on fund management’sFund Management'sFund management is the process of a company taking a person's, company's, or another fund management company's financial assets (generally high net worth individuals) and investing them in companies that use those funds as an operational investment, financial investment, or any other investment in order to grow the fund. capability for the mutual fund.
- It has broad application in developing and providing comprehensive ratings.
- It believes in excellence, teamwork, integrity, and accountability to drive an ethical business of ratings.
- It serves business in eight countries consisting of India, China, Hong Kong, Poland, Argentina, Singapore, USA, and the UK.
- Currently, it serves in 86 countries, having a customer base of 100,000.
- It reduces substantial levels of information asymmetry prevalent in the financial marketsFinancial MarketsThe term "financial market" refers to the marketplace where activities such as the creation and trading of various financial assets such as bonds, stocks, commodities, currencies, and derivatives take place. It provides a platform for sellers and buyers to interact and trade at a price determined by market forces..
- Therefore, as a credit rating agency, it provides necessary support to the consulting business, financial services, commercial and investment banks, insurance companies, asset management corporations, and private equity players.
- It offers independent insights and opinions, which in turn becomes a constructive solution.
- It facilitates business to take up comprehensive and conclusive business and investment decisions.
- It additionally helps small lenders to take up the right lending calls and allow them to take correct business decisions.
- In order to arrive at a comprehensive rating, the agency performs extensive due diligence and financial analysis.
- The process of due diligence may comprise the gathering of information from several research-based websites, followed by a meeting with the top management.
- The rating agency provides both long-term and short-term ratings.
- The rating starts from AAA and ends with SD.
- It provides credit rating for long term scale, short term scale, structured finance, credit enhancement, fixed deposit scale, corporate credit scale, etc.
- The agency’s rating rationale would focus on drivers that establish ratings, recent news and developments, update on business performance, credit factors, and key performance indicators.
- To supplement the rationale, it provides financial commentary, the risk profile of a business.
- The AAA rating is of the highest order, and it indicates that the borrowers make timely payment. It ensures that the issuer makes timely payments.
- The AA rating is the rating that indicates the instrument issued of low risk, and it makes timely payments on its due obligations.
- The A rating is the rating that indicates the instrument issued of low risk, and it has adequate safety with minor lapses in servicing obligations.
- The BB rating is the rating that indicates that the instrument issued is of very high risk and may default.
- The C rating is the rating wherein the instrument can be regarded as a highly risky instrument and has a high probability of default.
- This rating of D indicates that the issuer of the financial instrument has defaulted on its due obligations.
- It also applies SD rating, which indicates that the financial instrument’s issuer has made defaults on the selective asset classes.
- The rating offered by the CRISIL helps complete elimination of information asymmetry and adverse selection.
- Information asymmetry arises when in a financial transaction happening between two entities, one entity holds more information corresponding to the other entity involved in the business or financial transactionBusiness Or Financial TransactionA business transaction is the exchange of goods or services for cash with third parties (such as customers, vendors, etc.). The goods involved have monetary and tangible economic value, which may be recorded and presented in the company's financial statements..
- Adverse selection arises when an investor makes an investment in low-grade instruments.
- The Ratings, therefore, raises the credibility of the borrower or the issuer of the financial instruments.
- It helps the investor make sound investments as they now have access to readily available information.
- It additionally helps the issuer to get access to funds from the financial markets at a lower cost.
- Since the application of a good rating on the issuer raises its credibility, it also ensures that the default risk premium applied to the interest rates or finance costsFinance CostsFinancing costs refer to interest payments and other expenses incurred by the company for the operations and working management. An enterprise often borrows money from different financing sources to run their operations in return for interest payments and capital gains. is reduced considerably.
- Default risk premiumDefault Risk PremiumThe default risk premium is an additional amount of interest rate paid by a borrower to lender/ investor as compensation for the higher credit risk of the borrower assuming his failure to pay back the principal amount in future. can be defined as the premium, which is applied to the interest rate when the lender feels that there are chances of default at the hands of borrowers.
This is the most popular credit rating agency in India. Standard and Poor’s is the parent organization of CRISIL. It helps in the allocation of ratings by employing its comprehensive rating rationale. This ensures the reduction of information asymmetry and thereby helps the business and investors to make better investment decisions.