How ICRA Ratings Work And Why They Matter For Bond Investors
ICRA Limited is one of the most prominent credit rating agencies in the country. An ICRA rating assesses how likely an entity is to meet its financial obligations-whether it’s a company, a government body, or a financial instrument such as a bond. Based on its analysis, ICRA assigns a rating that reflects the level of credit risk involved, helping investors and lenders evaluate the creditworthiness of the issuer and make informed decisions
Hence, rating agencies in India like ICRA promote analytical and informed decision-making and can help investors in understanding the risks in a more comprehensive way.
ICRA Limited: Background, Authority And Global Affiliation
ICRA limited is one of the leading rating agencies in India. Investors can take full advantage of the ratings offered by the rating agencies in India by understanding their methodology.
What Is ICRA Limited?
Investment Information and Credit Rating Agency (ICRA) Limited was established in 1991, just before India began a period of major economic reform1. Around this time, the government started reducing trade restrictions, devalued the rupee to support exports, and began moving away from a tightly controlled economy.
The Industrial Finance Corporation of India (IFCI), then a leading development finance institution, promoted the formation of ICRA in Delhi. Leading the charge was Mr. D.N. Ghosh, a senior IFCI official who not only became ICRA’s first Chairman but also its very first employee.
Today, ICRA provides credit rating services to its vast client base. The company employs varied measures to ensure its accuracy and quality. For instance, the ICRA credit rating agency utilises the expertise of the renowned credit rating agency Moody’s through a technical service agreement.
Global Strength
ICRA Limited operates primarily in India, and it also serves international clients. The company has a strategic partnership with the international credit ratings agency Moody's. Moody’s holds a 51.86% stake in ICRA as of March 2025 quarter2.
The company, through its wholly owned subsidiary ICRA Analytics, provides market analytics and risk management services to clients internationally as well as domestically. Some prominent clients of the company include Titan Limited, Trent limited and RamaKrishna Forgings Limited.
Regulatory Oversight
The Securities and Exchange Board of India, or SEBI, regulates all the credit rating agencies operating in India. This includes ICRA, as well as others. Regulations by SEBI ensure that:
- Transparency: SEBI has mandated credit rating agencies to disclose their rating methods and criteria.
- Conflict of Interest: The regulator ensures that the rating agency does not have any potential conflict of interest with their clients.
The presence of a regulator makes the credit rating process more rigorous, and it increases reliability.
How ICRA Assigns Credit Ratings
ICRA rating agency provides ratings to debt instruments issued by manufacturing companies, financial companies, commercial banks, and municipalities. The company follows a strict process to rate companies.
Evaluation Criteria
ICRA Limited provides rating to debt instruments primarily based on the following criteria:
1. Financial Health: The financial health of the institution that is issuing debt is an important consideration. An issuer with good cash flow, low debt and good earnings can easily repay its debt obligations and can receive higher credit ratings.
For example, for automobile manufacturing companies ICRA uses certain parameters like strong market capitalization above INR 5000 crores, diversified revenue streams, and must have more than 20 dealer outlets3.
2. Debt Profile: An issuer must have manageable debts. Having excessive debt can increase the probability of defaults. So, ICRA considers the debt profile of the issuer and how easily can the issuer repay the debt.
For example, IRCA limited provides a higher rating to companies in the automobile sector if their debt to profit ratio is less than 0.5 and indebtedness ratio is less than 0.9.
3. Management Quality: A company with experienced and quality management that ensures transparency and has no past track record of debt defaults or governance issues usually receives higher credit ratings as compared to others.
How The ICRA Rating Scale Works
ICRA uses a rating system with eight rating levels starting from AAA to D for credit ratings of bonds in India. Take a look at this table to understand the ICRA Credit rating scale.
Investors should consider credit ratings of a bond while looking for investment opportunities. Platforms like Grip Invest, helps investors in comparing bonds with different credit ratings and gives investors smart picks without unnecessary risk.
ICRA’s Process For Rating Monitoring and Updates
ICRA regularly monitors and updates the credit rating of debt issuers. The financial positions of the issues are reviewed at least once every year, and changes are made if necessary4.
If the financial position of an issuer is deteriorating, the credit ratings agency can lower the ratings, and if the financial performance has improved, then the ratings can also be upgraded.
How Grip Invest Uses Ratings For Investor Confidence
Grip Invest through its platform ensures transparency and informed decision-making for investors. This revolves around offering products with high credit ratings as provided by agencies such as ICRA and others. Investors can easily compare ratings of different bond offerings on Grip Invest platform.
Pre-vetted Bonds Based On ICRA And Other Agency Ratings
The bond offerings on the Grip invest platform are the ones that are pre-vetted by rating agencies like ICRA. The bonds offered go through rigorous checks by the rating agencies.
The bond ratings on the Grip platform are from a broad spectrum ranging from AAA to BBB-. This ensures that investors are not limited only to premium bonds and can also have exposure to high-yield, high-risk bonds.
Transparency and Rigorous Due Diligence
To ensure investor safety and transparency, Grip Invest does not just depend on credit ratings issued by credit rating agencies. There are other factors, such as:
1. Due Diligence: Each bond listing goes through a detailed vetting process before being listed on the platform. This includes financial and other vetting processes apart from the credit ratings.
2. Documentation: For every instrument listed on the platform, Grip Invest gives proper documentation and information to the investors to ensure complete transparency.
3. Options Across The Rating Spectrum (AAA to BBB)
Grip offers a wide spectrum of bonds from AAA to BBB ratings. This way, Grip becomes the go-to platform for conservative investors who prefer high-quality bonds and for risk-taking investors who prefer high-risk and high returns.
However, bonds with ratings below BBB- are not listed on the platform, as the default risk of these bonds can be very high. This provides investors with pre-screened and higher-quality options to choose from.
Building A Risk-Aware Bond Portfolio With Ratings
Credit ratings can be a very efficient tool to understand the risks associated with a bond or a debt instrument and incorporating credit ratings in your analysis becomes important when selecting bonds for investment.
Using ICRA Ratings For A Balanced Bond Portfolio
Similar to stocks, diversification plays a key role in managing risk within a debt portfolio. For example, an investor can invest 60% of their portfolio in AAA-rated bonds for stability and 40% portfolio in BBB-rated bonds for high returns, this ensures diversification.
Blend Safe Bets With Smart Yield Picks
Depending on their risk tolerance investors can even create blended portfolios. Creating blended portfolios can help investors increase their returns without taking on significant additional risk. On the Grip platform, you can use Filters to identify bonds as per your risk taking capabilities.
Track Rating Changes For Smarter Risk Control
Investors usually invest in bonds for the long term, and there is a high possibility that after you purchase a bond and before its maturity, for some reason, the bond ratings change. Hence, it is essential to track the changes in the credit ratings in your bond portfolio to adjust for risk.
Conclusion
ICRA rating agency is one of the most trusted names for credit ratings of bonds in India. It rates debt instruments on a number of industry-specific factors, and the ratings range from AAA (highest) to D (lowest). Grip Invests uses the credit ratings provided by agencies and a host of other factors to provide a wide variety of high-quality bonds for customers.
If you want to add debt instruments and bonds to your portfolio , Sign up to Grip Invest and explore a wide range of 30+ corporate bond options!
FAQs On ICRA Rating Limited
1. Can ICRA ratings change over time?
Yes, ICRA ratings can change over time. ICRA reviews the rating at least once a year, and based on the review, ratings can change. Some factors that can result in a ratings change are: the financial position of the issuer, financial indebtedness, and track record of credit history. Ratings can improve or decrease for an issuer based on these factors.
2. How does ICRA ensure the dependability of its ratings?
ICRA is regulated by SEBI, which increases its reliability. Secondly, ICRA uses transparent rating methods that are clearly disclosed on its website to ensure transparency. ICRA is also in a strategic partnership with international credit ratings agency Moody’s, which makes it even more trustworthy.
3. How long is an ICRA rating valid?
An ICRA rating is valid for the life of the rated instrument, provided the instrument is issued, and the rating is accepted. ICRA continuously monitors the rating through a process called surveillance and may revise it if circumstances change. The rating is valid until a significant development prompts a change or withdrawal or until the maturity date.
References:
1. ICRA Limited, accessed from: https://www.icra.in/Home/Profile#profile
2. ICRA Limited accessed from: https://www.icra.in/InvestorRelation/Index#breadcrumbs
3. ICRA Limited, accessed from: https://www.icra.in/Rating/ShowMethodologyReport?id=920
4. ICRA Limited, accessed from: https://www.icra.in/Rating/RatingCategory?RatingType=CR&RatingCategoryId=5#sectionCorporateSection
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