CRISIL rating and its effects on your fixed deposit

Fixed deposits are issued by banks and the India Post department of the government as well as by non-banking financial companies (NBFCs) and corporates. The main reason why this traditional investment avenue is still popular is because it poses zero to very little risk.

FDs allow you to park your savings safely and earn interest that is unaffected by market volatility. However, some FDs are considered safer than others.

Bank FDs are insured by the DICGC (Deposit Insurance and Credit Guarantee Corporation) for up to ₹5 Lakhs. On the other hand, Post Office fixed deposits are backed with the government’s sovereign guarantee. This makes both these types of FDs very safe.

That being said, NBFC and company FDs often offer you a higher interest rate as compared to bank and Post Office FDs. In this scenario, how do you assess their safety? Here’s where CRISIL ratings come into play.

Read on to know more about what CRISIL ratings for FDs are and why you should consider them before choosing a fixed deposit.

About CRISIL Ratings

CRISIL Ratings Limited is a subsidiary of CRISIL Limited, and assesses debt instruments. It was started in 1987 as a way to evaluate the credit quality of investments, and is very well-respected by issuers, regulators, lenders, investors and other intermediaries in the financial markets.

Thus, ratings issued by CRISIL are a crucial marker of both the price and trade of debt instruments. These include:

  • Bonds and commercial papers
  • Debentures
  • Debt securities
  • Certificates of deposit

CRISIL Ratings for Fixed Deposits

CRISIL also rates fixed deposit  schemes offered by NBFCs, banks and corporates. These ratings point to the credibility of the issuer and help you to choose the right fixed deposit to grow your wealth in a safe and secure manner.

The main criteria of CRISIL ratings for FDs is to check whether the issuer is likely to repay the debt on time and in full. This means that ratings allow you to ascertain if you will receive your FD interest earnings and initial deposit amount as per your chosen frequency and timeline.

Thus, checking the CRISIL ratings is very important before you choose a fixed deposit. However, keep in mind that these ratings reveal the latest opinion of CRISIL as a rating agency, based on their findings over 6 months to 2 years. They are based on the probability of default based on certain markers.

CRISIL ratings for fixed deposits help you choose a fixed deposit scheme with the highest possible degree of safety. A high CRISIL rating indicates that the issuer services its financial obligations on time and assures you of getting your dues back on time.

Some of the factors that affect FD ratings of banks and companies are:

  • Credit quality
  • Financing sources
  • Debt repayment profile
  • Liquidity
  • Ownership pattern
  • Granularity and maturity profiles of FD schemes

Overall, the issuer’ long-term credit rating is used to ascertain FD ratings.

Until June 2022, CRISIL had a 14-point scale for rating FDs. However, due to the recent guidelines of SEBI (Securities and Exchange Board of India) and RBI (Reserve Bank of India), it now uses a standardised scale for rating of FDs.

This scale applies only to schemes that mature in one year or more and now has 20 points. Take a look at the table below to get a snapshot of the  :

S.No. CRISIL Rating Meaning of Rating
1 CRISIL AAA Highest safety
2 CRISIL AA+  
3 CRISIL AA High safety
4 CRISIL AA-  
5 CRISIL A+  
6 CRISIL A Adequate safety
7 CRISIL A-  
8 CRISIL BBB+  
9 CRISIL BBB Inadequate safety
10 CRISIL BBB-  
11 CRISIL BB+  
12 CRISIL BB  
13 CRISIL BB-  
14 CRISIL B+  
15 CRISIL B  
16 CRISIL B-  
17 CRISIL C+  
18 CRISIL C High risk
19 CRISIL C-  
20 CRISIL D Default

 

Note that the ‘+’ and ‘-’ entries refer to relative positions within a particular category.

How CRISIL Ratings   FD Issuers and FD Interest Rate

CRISIL ratings are used to assess an issuer’s capital adequacy and help to measure the credit risk of lending activities. Since these ratings are so widely respected in the market, when CRISIL announces its ratings, they may affect the market position of the issuer and can also affect the FD interest rate that you get.

Here are some of its effects:

  1. A higher rating of a company FD can boost the company’s share prices
  2. A lower rating may lead an issuer to offer higher interest rates to attract investors

What to Check Before Finalising Your FD

Now that you know that CRISIL follows a proprietary framework to rate the fixed deposits offered by companies and banks, watch out for its ratings. When you choose an FD with CRISIL’s AAA rating, you are assured of getting your interest payout and initial deposit amount back on time and without any loss.

So, whether you are a new investor looking to reach a goal or a senior citizen looking to finance your retirement, checking CRISIL’s FD ratings is an important step to take.

For instance, CRISIL rates both the Bajaj Finance FD and the Mahindra and Mahindra Financial Services FD as AAA as of April and May 2023. Thus, you can choose a scheme from either of these reliable NBFCs and open and FD stress-free.

Apart from checking the CRISIL rating of the FD, check the following and book smartly:

  • Interest rates for different tenures
  • Interest rates for special tenures
  • TDS on FD as well as income tax you are liable to pay

Make sure to keep the TDS on FD in mind as it affects the earnings you receive from your deposit, and invest in a fixed deposit today!

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