Credit Rating Agencies (CRAs) play a vital role in financial markets by providing independent assessments of a borrower’s creditworthiness. These agencies evaluate the ability and willingness of companies, financial institutions, or governments to repay debt obligations. In India, the credit rating industry is tightly regulated and forms an essential part of capital market infrastructure.
Why Are Credit Rating Agencies Required?
- Assessment of Credit Risk
Credit rating agencies analyze various financial, operational, and business metrics to assign ratings to debt instruments. These ratings help investors gauge the level of default risk. - Investor Confidence & Transparency
Investors, especially institutions like mutual funds and pension funds, rely on these ratings to make informed investment decisions without conducting deep due diligence for every issuer. - Regulatory Compliance
SEBI mandates credit ratings for certain public debt issues. Ratings are also crucial for compliance with RBI and IRDAI guidelines in banking and insurance. - Access to Capital Markets
A favorable rating improves access to funding and reduces borrowing costs for issuers. - Monitoring & Early Warning Signals
CRAs periodically review ratings. Downgrades serve as early alerts for stakeholders about deteriorating credit profiles. - Standardized Benchmarking
Ratings offer a common language for comparing credit risk across sectors and geographies.
How Many Credit Rating Agencies Exist in India?
As of June 2025, SEBI has licensed seven credit rating agencies:
- CRISIL Limited
- ICRA Limited
- CARE Ratings Limited (now operating as CareEdge Group)
- India Ratings & Research Pvt. Ltd.
- Brickwork Ratings India Pvt. Ltd.
- Acuité Ratings & Research Limited
- SMERA Ratings Ltd. (under Acuité umbrella)
Only these SEBI-registered CRAs can rate securities listed or proposed to be listed in the Indian markets.
Financial Performance Comparison of Listed CRAs
Among the seven licensed agencies, three major players are publicly listed: CRISIL, ICRA, and CARE Ratings. Here’s a comprehensive financial comparison:
| Metric | CRISIL | ICRA | CARE Ratings |
| Market Cap | ₹42,057 cr | ₹6,460 cr | ₹ 5412 cr |
| Revenue (FY24) | ₹3,335 crore | ₹498 crore | ₹402 cr |
| Net Profit (FY24) | ₹706 crore | ₹171 crore | ₹140 crore |
| Promoter Holding | 66.6% (S&P Global) | 51.86 % (Moody’s) | Professionally managed |
| Book Value Multiple | 16.4x | 6.13x | 6.7x |
| Ratio | CRISIL | ICRA | CARE Ratings |
| 5-Year Avg ROE | 30.5% | 13.7% | 14.3% |
| 5-Year Avg ROCE | 41.2% | 18.6% | 19.4% |
| Operating Margin | ~21% | ~31% | ~34% |
| Net Margin | ~21% | ~31% | ~34% |
| Asset Turnover | 1.5x | 1.1x | 1.2x |
| Performance Metric | CRISIL | ICRA | CARE Ratings |
| 1-Year Return | 20% | 25% | 25% |
| 6-Month Return | -2.83% | Positive | Positive |
| Distance from 52-week high | 36.08% | Lower | Lower |
| 5-Year CAGR | 13.63% | 15.2% | 16.8% |
Shareholder Information of Listed Credit Rating Agencies
CRISIL Limited
- Promoter: S&P Global Inc. holds a controlling stake of approximately 66.6%.
- Institutional Investors: Mutual funds, foreign institutional investors (FIIs), and insurance companies collectively hold significant stakes, approximately 20-25%.
- Public Shareholding: Remaining shares are held by retail investors and smaller institutional holders.
- Implication: Strong backing by a global rating giant (S&P) provides CRISIL with access to global best practices, capital, and brand strength.
ICRA Limited
- Promoter: Moody’s Corporation owns about 50.4% stake.
- Institutional Investors: FIIs, mutual funds, and insurance companies together hold approximately 35-40%.
- Public Shareholding: The balance is with retail investors and other institutional players.
- Implication: The backing by Moody’s aligns ICRA with global methodologies and enhances credibility.
CARE Ratings Limited
- Promoter: CARE Ratings is professionally managed with no single dominant promoter.
- Institutional Investors: Several private equity firms and institutional investors hold stakes; notable among them is TPG Growth and other venture investors.
- Public Shareholding: CARE is listed on stock exchanges, and shares are widely held by retail and institutional investors.
- Implication: This diversified ownership structure offers operational flexibility but requires strong governance to maintain investor confidence.
Role of Credit Rating Agencies in Past Financial Crises & Conflict of Interest
Credit Rating Agencies have faced intense scrutiny during past financial crises such as the GFC (2008 global financial meltdown) and the IL&FS crisis in India. Key lessons include:
- Conflicts of Interest: The issuer-pays business model may incentivize CRAs to provide favorable ratings to retain clients, compromising impartiality.
- Over-Reliance on Ratings: Investors and regulators sometimes rely excessively on ratings without conducting independent due diligence.
- Rating Failures: Delayed downgrades and overly optimistic assessments contributed to mispricing of risk and amplified crises.
These issues have led to calls for:
- Stronger regulatory oversight
- Enhanced transparency and disclosure of rating methodologies
- Better governance and separation of rating from advisory functions
Future Growth Drivers for CRAs
Despite challenges, the CRA sector in India is poised for growth driven by:
- Rising Corporate Debt: Increased bond issuances and NBFC financing demand more credit assessments.
- Regulatory Expansion: SEBI’s widening mandates on rating requirements for varied debt instruments.
- ESG Ratings: Growing importance of Environmental, Social, and Governance metrics creates new service lines.
- Technology Integration: Use of AI/ML for risk modeling, big data analytics, and automation to enhance rating precision.
- SME Segment Focus: Specialized rating models for small and medium enterprises.
- Globalization: Cross-border issuances requiring dual or global ratings.
AI/ML in Credit Ratings: Disruption or Compliance Tool?
While data availability and AI/ML models can improve risk assessment, AI/ML may not fully disrupt CRAs because:
- Accountability & Responsibility: Knowing the human experts behind ratings is paramount for trust and regulatory acceptance.
- Compliance Requirement: AI/ML tools will likely become part of the compliance infrastructure rather than a standalone basis for investment decisions.
- Limitations on Consumer Use: Retail investors and institutions will still depend on credible agencies for certified assessments.
Hypothesis: Would Structural Separation Benefit ICRA and CARE Ratings Compared to CRISIL?
If regulators mandate structural separation between Rating and Research/Advisory arms, CARE Ratings might benefit more than CRISIL due to:
| Aspect | CRISIL | ICRA or CARE |
| Integrated Business Model | High dependency on combined research and ratings synergy | Primarily ratings-focused, less reliant on advisory |
| Operational Impact | Potential disruption and loss of synergy | Minimal operational disruption |
| Market Perception | Possible scrutiny on rating independence | Seen as a pure-play, conflict-light rating agency |
| Competitive Position | Slight dilution of advantage | Improved relative position |
| Valuation Impact | Potential compression | Possible re-rating upwards |
Trends in the USA and EU
| Aspect | USA | EU |
| Issuer-Pays Model | Dominant with SEC oversight | Dominant with ESMA regulation |
| Structural Separation | Internal firewalls; no legal split | Functional segregation; no legal split |
| Regulatory Focus | Transparency, conflict mitigation | Governance, disclosures, conflict management |
| Alternative Models | Proposed, no major change | Discussed, no fundamental shift |
| Enforcement | Increased SEC enforcement actions | Ongoing ESMA supervision |
Both jurisdictions emphasize transparency and governance but have not mandated full structural separation of rating vs research/advisory arms.
Parallel with Big 4 Auditors: Lessons for Credit Rating Agencies
The CRA industry’s conflict and governance challenges are analogous to those faced by Big 4 audit firms (Deloitte, PwC, EY, KPMG):
| Aspect | Big 4 Audit Firms | Credit Rating Agencies |
| Core Function | Independent financial audits | Independent credit assessments |
| Additional Services | Consulting, advisory, tax | Research, advisory, analytics |
| Conflict Risk | Auditing clients who buy consulting | Issuers paying for rating and advisory |
| Regulatory Push | Calls for audit-consulting split | Calls for rating-research split |
| Challenges | Revenue loss, operational complexity | Loss of synergy, market resistance |
Lessons from Big 4 reforms—such as governance enhancements, transparency, and possible operational splits—can guide the CRA industry in balancing independence with commercial viability.
SEBI’s Position on Structural Separation of Credit Rating Agencies
As of June 2025, SEBI has not issued any formal proposal or regulation mandating the structural splitting of credit rating agencies (CRAs) into separate entities for ratings and research/advisory businesses.
Current Regulatory Framework
- SEBI regulates CRAs under the SEBI (Credit Rating Agencies) Regulations, 1999, emphasizing:
- Independence and integrity of ratings.
- Governance norms including conflict-of-interest disclosures.
- Transparency in rating methodologies.
- Requirement for internal controls and segregation of rating and marketing functions to prevent undue influence.
- CRAs must maintain “Chinese walls” between rating analysts and marketing or advisory teams, but this is an operational, not structural, separation.
Industry and Regulatory Discussions
- Post-2008 global financial crisis and following domestic rating controversies (e.g., IL&FS), SEBI has increased oversight on governance and transparency for CRAs.
- There have been informal consultations and industry discussions about conflict of interest risks inherent in issuer-pays models and integrated advisory services.
- However, no official SEBI draft or consultation paper mandates a legal or organizational split of rating and advisory arms.
What to Watch For
- SEBI might consider stricter governance rules or enhanced disclosure norms for CRA business lines in the near future.
- Any move towards structural separation would likely involve extensive stakeholder consultations and impact assessments.
- Industry players are proactively enhancing compliance and internal controls anticipating possible regulatory tightening.
Conclusion
CRAs are essential to India’s capital markets. When it comes to choosing a credit rating agency, the preference depends on the specific use case. For most domestic bond issuances, Indian CRAs like CRISIL, ICRA, and CARE are generally preferred. If a company is raising funds through international bonds, then global agencies such as S&P, Moody’s, or Fitch are more appropriate. For SME lending, CARE Ratings tends to be favored due to its focus on that segment. When dealing with ESG-linked instruments or structured finance products, investors often rely on CRISIL or ICRA for their analytical depth. And in cases where both domestic and international recognition is needed—such as Masala Bonds or offshore debt—a dual rating from ICRA and a global CRA is typically required.
While CRISIL dominates due to scale, trust, and S&P backing, ICRA is emerging as a strong contender in an era of increasing regulatory oversight. CARE Ratings, despite past setbacks, may benefit structurally if rating and advisory services are mandated to be split.
As the industry matures, trust, transparency, and adaptability to reform will define the next phase of growth for CRAs.
Note
This article is an amalgamation of multiple sources, including publicly available reports, internet research, annual reports (AR), investor presentations, usage of AI using Perplexity AI, GPT, and informed opinions. While this article gives me a structured overview of India’s credit rating industry, I recognize that it’s not enough to base an investment decision on. To build true conviction, I plan to analyze the past 15–20 years of annual reports, particularly around major events such as the Global Financial Crisis (2008), the IL&FS default (2018), and the COVID-19 period. Based on my experience with other industries, understanding how CRISI, CARE, and ICRA ratings responded to the changing business landscape, regulatory and compliance needs, and shifts in business models will help me evaluate their approach and governance quality. I intend to complement this with detailed financial modeling, contextual analysis, and a deeper regulatory review to make a more informed decision.