Study of Competition among Credit Rating Agencies in India

India has a very advanced G-sec market, but its corporate bond market is relatively under developed. Size of the corporate debt market is infinitesimal compared to the world debt market. There are seven registered credit rating agencies (CRAs) in India which rate debt securities out of which three rating agencies i.e. CRISIL, CARE and ICRA hold 80% of the market share. Debt market in India has increased over years. Number of rating and grading services offered by the rating agencies have also expanded considerably. This will eventually lead to more competition among rating agencies in India. It would be beneficial to measure competition among rating agencies and market concentration. This paper measures competition and market concentration using Herfindahl-Hirschman Index (HHI) and HHI inverse. It is a quantitative measure of industry concentration that accounts for both the number of firms in the industry and each firm’s market share. This measure takes into rating revenues of credit rating agencies and number of outstanding securities in each category. This study used secondary data and the required data are taken from the regulatory disclosures made by the CRAs. The period of the study include five years from 2011-12 to 2015-16. Based on rating revenue, this study found that market is highly concentrated and the majority of the market share is held by three CRAs namely CRISIL, CARE and ICRA. Based on number of outstanding securities in each category of securities, it is found that market is a) highly concentrated in government securities and financial institutions; and b) moderately concentrated in corporate securities and structured obligations. It is also found that the market concentration has been increasing/decreasing over the years for categories such as corporate/FIs/SO/Govt. It is believed that a lack of competition, in part the result of regulatory barriers, along with mandated usage by many financial market participants has resulted in a dysfunctional credit ratings industry in India