Financial Sector Ratings


Acuité is gradually increasing its coverage in the financial sector with ratings on banks and non-banking financial companies (NBFCs), housing finance companies (HFCs), security brokerages among others.

Acuité has set up a separate analytical team which focuses only on financial sector ratings and research. This is helping us to build strong expertise and understanding of the financial sector which will be of great value to the clients and investors. The senior leadership in the ratings team has very extensive experience in financial sector ratings having experience of rating a large number of banks and NBFCs in their earlier roles.

Acuité employs the standard "CRAMEL" framework for rating of financial sector players. The key parameters for evaluation in the sector are capital, resource mobilisation ability, asset quality, profitability, liquidity and management. The rating criteria for the sector is provided in:


Banks and non-banks raise a wide variety of debt instruments which include vanilla NCDs (senior debt) or capital bonds of either the Tier I or Tier II category.

The vanilla NCDs or bonds are primarily raised by NBFCs/HFCs from institutional investors typically at a cheaper rate as compared to bank loans. For most of the large non-bank lenders in the market today, NCDs are a key source of funding. While banks are permitted to raise long term resources from the market through instruments such as infrastructure bonds, they largely prefer to raise resources through either retail or wholesale deposits.

Capital (Tier I/II) bonds are primarily raised by the banking sector to strengthen capital adequacy although it also helps to mobilise long term funds and reduce asset-liability mismatches. Tier-I/II instruments under Basel III are hybrid capital instruments with loss absorption features which may lead to a notch-down in their ratings vis-a-vis the senior debt. NBFCs and HFCs also raise subordinate debt, perpetual bond or preference shares to augment their capital but the volume of such issuances are typically limited as compared to banks.

Acuité has already rated senior and subordinated debt instruments of NBFCs and has the capability to rate such instruments for banks.


Acuité rates the short term debt instruments in the financial sector which are typically:

  • Certificates of Deposits (CDs) of banks
  • CP/STD programme of NBFCs and HFCs (including episodic borrowings for IPO finance)

Acuité has a specific mapping of the long term rating scale to the short term scale for the financial sector. All short term ratings will have a linkage to the long term rating (may not be assigned but remain implicit) of the issuer. While the rating methodology for both long and short term ratings is largely identical, there are additional factors that are given due weightage such as the liquidity and the asset-liability mismatch (ALM) position of the borrower and the availability of back-up funding mechanisms in case of a disruption in the markets. 


Acuité also rates the other debt categories in the financial sector, namely, bank facilities and fixed deposits (FD).

We already rate bank facilities of several NBFCs and HFCs where the methodology is largely similar to the rating of their long term senior debt.

With respect to deposits, Acuité rates the FD programme of both banks and non-banks. It is rated on both the short term and the long term scale depending on the tenure of the FDs. If its a longer term FD with contracted maturity of more than a year, then it is rated on a 11-point rating scale including modifiers (ACUITÉ FAAA to ACUITÉ FD). This is a dedicated rating scale for FDs as per the guidelines of RBI.

While the rating methodology for a FD rating will reflect the fundamental credit quality of the bank/NBFC and will be largely similar to that for a long term rating, it will closely look into aspects such as its FD repayment profile, FD renewal rate, diversity in funding sources and its liquidity position. The FD rating is mapped to the long term rating and can be higher by 1-2 notches than the latter depending on the liquidity assessment of the entity.