How The CRISIL Rating Makes Your FDs Safer?

A credit rating is an assessment of the quality of a financial instrument. For investors, it tells them about the repayment ability of the instrument. The higher the credit rating, the better the repayment ability, and thus, the lower the risk making the investment that much safe.

Imagine this scenario: there’s a company which wants to raise money. But it has a poor reputation in the market due to which no one wants to invest in it. What can it do to attract investors’ attention? It can raise interest rates to a level that will entice people to invest. That is why opening a fixed deposit (FD) account just on the basis of high interest rates and considering it as safe as bank or investment grade corporate FD is a mistake because the risk associated with these companies is different.

In the example above, the ‘reputation' and ‘risk' we talked about is determined by credit rating agencies and is reflected in the rating they assign to an issuer. Every agency has its own scale which describes its assessment of the repayment ability of an issuer.

CRISIL is India’s first and largest credit rating agency. Before understanding how its rating can determine your decision to invest an FD or not, let’s look at its rating scale briefly.

CRISIL’s FD ratings

CRISIL has two rating scales for FD programmes:

    • Short-term (those FDs which have a contracted maturity of less than one year)

    • Long-term (FDs with a contracted maturity of more than one year)

Its FD rating scale for short-term investments ranges from CRISIL A1+ to CRISIL D. Meanwhile, for long-term FD programmes floated by banks, deposit-taking non-banking finance companies (NBFCs) and corporates in the non-financial sector, the agency has a 14-point rating scale which ranges from FAAA to FD.

CRISIL Rating believes that an issuer’s long-term ratings have an impact on the rating of its FD programme. It has a mapping system for the long-term ratings of the issuer and the resultant rating of its FD which works according to the table below:

	Mapping Between Long-term Credit Ratings and FD Ratings
	Long-term credit rating	Fixed deposit rating
		For banks	For non-bank entities
	CRISIL AAA	FAAA	FAAA
	CRISIL AA+	FAAA	FAAA
	CRISIL AA	FAAA	FAA+
	CRISIL AA-	FAA+	FAA
	CRISIL A+	FAA	FAA-
	CRISIL A	FAA-	FA+
	CRISIL A-	FA+	FA
	CRISIL BBB+	FA	FA-
	CRISIL BBB	FA-	FA-
	CRISIL BBB-	FA-	FA-
	CRISIL BB+	FB+	FB+
	CRISIL BB	FB+	FB+
	CRISIL BB-	FB+	FB+
	CRISIL B+	FB+	FB+
	CRISIL B	FB	FB
	CRISIL B-	FB-	FB-
	CRISIL C+	FC+	FC+
	CRISIL C	FC	FC
	CRISIL C-	FC-	FC-
	CRISIL D	FD	FD

How CRISIL ratings impact FDs

It is important to note that the credit rating of an issuer and its FD programme may be different. But at the same time, the former does have a large bearing on determining the latter.

The factors that CRISIL considers in rating an FD programme are as follows:

Issuer’s rating (which reflects its credit quality)

* Issuer’s liquidity

* The granularity of the FD programme

* The staggered maturity profile of deposits

* The renewal rate of deposits

The result of this exhaustive analysis based on the parameters mentioned above is the rating which can be trusted to make investment decisions.

You can look at an issuer’s rating and have a broad idea about the rating of the FD programme according to the table given above. For example, if the credit rating of company A is CRISIL AA- and it is not a bank, its FDs would mostly be rated FAA. The higher the rating on this scale, the less risk there is associated with the FD. However, it is essential that you look at the individual FD rating as well.

By investing in high rated FDs, you can relax and be hopeful that your capital will be protected. On the other hand, you should be aware of the risks you are taking to get a higher Fixed deposit interest rate if the FD is rated lower on the given scale.

Bajaj Finance FDs are rated FAAA/Stable, which means that they are among the best deposits out there. You need just Rs 25,000 to open an FD account with Bajaj Finance and enjoy an attractive rate of interest. Senior citizens get an additional benefit of higher interest rates. You can use the online FD calculator to calculate your returns in advance. The online application process, auto-renewal, and online account management make it easy for you to keep a track on your investments.