How Does CRISIL & ICRA Rating Affect Your Fixed Deposit Investment?
How Does CRISIL & ICRA Rating Affect Your Fixed Deposit Investment?

Fixed Deposit (FD) is one of the highly preferred investment vehicle in India for the people of all ages and profession. The reason behind the popularity of the Fixed Deposit is due to three primary factors. First, your return rate is known well in advance before you invest in Fixed Deposit. Second, there is a protection of the investment amount (principal amount). Third, it offers high liquidity – as and when you need your money, you can break the Fixed Deposit by paying the required penalty charges or take a loan against it.

Earlier only conventional banks were trusted sources for providing the facility to open an FD. This was because financial companies defaulted in repaying the invested money then. Today, non-banking financial providers are evaluated by dedicated financial institutions like CRISIL and ICRA to determine the financial health of the provider and publish it for the benefit of the depositors. CRISIL rating and ICRA rating are considered to be reliable regarding the non-banking financial providers.


CRISIL Rating for Fixed Deposit

CRISIL (Credit Rating Information Services of India Limited) rates Fixed Deposits of banks and financial institutes in six major rating scales: FAAA, FAA, FA, FB, FC, and FD. The highest level of safety and repayment capability is indicated by FAA, which means “Very Strong” degree of safety for timely payment of interest and principal repayment. The investors looking for a safety with higher interest than the bank can deposit the money into FAAA rated fixed deposits of reputed NBFCs (Non-Banking Finance Companies) like Bajaj Finance. The next standard is FAA, which means “Strong” degree of safety for timely payment and interest of the principal. However, the degree of safety is lower than the FAAA rated instrument. The next standard FA indicates a “Satisfactory” rating. As we move from FAAA to FD, the degree of safety reduces. FB indicates “Inadequate” safety, while FC indicates “High Risk” possibility. The FD rating indicates a high possibility of “Default.”

The financial institutions having a rating lower than FAAA offers a higher rate of interest, but your capital may not be as safe as FAAA rated Fixed Deposit. Hence, the investors looking for safety, regular income, and high liquidity should opt for FAAA rated Fixed Deposits only.


ICRA Rating for Fixed Deposit

Similar to CRISIL, another reputed rating company for Fixed Deposit is ICRA Limited. It rates fixed deposit as medium-term rating scale that is applicable for every public deposit. The scale starts from MAAA indicating the highest credit quality and the lowest credit risk. The next level is MAA, indicating high credit quality and low credit risk. The further levels are MA meaning “Adequate” safety, MB meaning “Inadequate” safety, MC meaning “Very high credit risk” and MD meaning “Very low prospects of recovery.” Apparently, the investors looking for highest possible safety of their money should only trust MAAA rated Fixed Deposit from ICRA.

Similar to CRISIL rating, the financial institutions having ICRA rating lower than MAAA have to offer a higher rate of interest to attract more investment. However, the credit quality of the deposits lower than MAAA will be much lower. The investors must be careful and conscious before investing in such instruments.


Why Bank Deposit is Not an Attractive Alternative

Your deposits in banks are insured by DICGC (Deposit Insurance and Credit Guarantee Corporation) up to amount of INR 1 lakh, any amount over and above this threshold is not insured. Moreover, banks fixed deposits usually pay a lower interest rate as compared to AAA rated fixed deposits by NBFCs.


How to Choose a Fixed Deposit based on rating?

To ensure the highest possible safety level of your investment, you should select AAA rated fixed deposit. The rate of return may be few basis points lower, but in rupee term, it could be a difference of few hundred rupees. You can calculate the interest amount in each FD by using online FD Interest rate Calculator. Before investing, you can check the rating of the fixed deposit by CRISIL and ICRA both. If the financial instruments qualify for FAAA rating from CRISIL and MAAA rating from ICRA, then you may choose to invest your money in their Fixed Deposit. Moreover, the ratings of many institutions may change frequently based on their financial performance over time. Hence, it is recommended to vouch for several years’ credit rating and repayment history of the borrower before you take a final call.

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