CRISIL’s Strategic Move: Joining Forces with AIRA to Elevate India’s Credit Rating Landscape

In a significant recent development, CRISIL, India’s largest listed player in the Credit Rating Agencies sector by market capitalization, has announced its strategic decision to become a key player in the Association of Indian Rating Agencies (AIRA) by subscribing to an equity stake ranging from 14% to 15%. This move is not only a financial investment but also a strategic maneuver to foster collaboration and industry engagement with fellow credit rating agencies in the country. Let’s dive deeper into the implications of this decision and what it means for the future of India’s credit rating landscape.

CRISIL’s Move Towards Industry Collaboration 

CRISIL Ratings Limited, a wholly-owned subsidiary of CRISIL Limited, has taken a bold step by formally approving its participation in AIRA. This decision underscores CRISIL’s commitment to the industry’s collective interests and the desire to enhance industry standards. While the financial details of this equity acquisition indicate a cash consideration of approximately Rs 50,000 to 60,000, the revenue figures for AIRA in FY March 2023 remain undisclosed due to its Section 8 company status.

A New Chapter in India’s Credit Rating Industry 

The credit rating industry in India has been undergoing a significant transformation, driven by the need to enhance standards and instil confidence among all stakeholders. AIRA, established as a not-for-profit organization under the Companies Act 2013, is playing a pivotal role in this transformation. It was founded in 2021, with founding members Care Ratings and Acuité Ratings & Research, and plans to onboard two additional rating agencies.

The Vision of AIRA 

AIRA aims to bridge the gap between stakeholders in the credit rating ecosystem. Its objectives include extensive engagement with regulators, policymakers, and government bodies to promote the orderly development of the debt market through increased credit rating utilization. The association seeks to disseminate information on the rating industry, conduct research, and promote the adoption of best practices to ensure high-quality and comparable credit ratings.

Enhancing Credit Rating Standards 

CARE Ratings’ Managing Director and CEO, Ajay Mahajan, serves as the first Chairman of AIRA, with the Chairmanship set to rotate among members. This proactive industry response highlights the commitment to enhancing credit rating standards and fostering trust with investors and issuers in India.

The Bigger Picture 

Currently, seven credit rating agencies are registered with SEBI, covering ratings for over 57,000 entities. AIRA’s mission is to collectively represent their interests while elevating industry standards, and the inclusion of CRISIL Ratings is a significant step in this direction.

A Look at CRISIL’s Stock Performance

For investors interested in CRISIL, the stock has delivered returns of 38% in the last one year, demonstrating its strong position in the market.

Future Prospects 

CRISIL’s decision to join AIRA is poised to provide a common platform for industry-wide engagement with regulators and further strengthen the Indian credit rating landscape. As of now, November 22, 2023, has been set as a record date for the payment of the Third Interim Dividend for the financial year ending December 31, 2023, if approved by the Board of Directors at their Meeting to be held on November 7, 2023, with the payment scheduled for December 5, 2023.

In conclusion, this strategic move by CRISIL is not only a financial investment but a pivotal step towards fostering collaboration, enhancing industry standards, and contributing to the ongoing transformation in India’s credit rating landscape. The Association of Indian Rating Agencies (AIRA) is at the forefront of these changes, serving as a bridge between stakeholders and promoting the adoption of best practices. This collaborative effort is a testament to the industry’s commitment to excellence and trust-building among investors and issuers in India.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions