If your business borrows several crore, your bank may ask you to get an external credit rating. Many owners see it as one more fee. But for larger loans, the rating can move your interest rate, and banks may charge more if you stay unrated. For smaller loans, it may change nothing. This guide explains how ratings feed into loan pricing, using rate grids that banks publish, as of October 2026.
What is an external credit rating?
A credit rating agency studies your business and gives an opinion on how likely it is to repay a loan on time. For bank loans, the rating is often given for the specific facility, such as your cash credit or term loan. Long-term ratings run from AAA (highest safety) through AA, A, BBB, BB and B down to C and D (default). Short-term facilities get ratings such as A1+, A1, A2 and A3.
RBI's January 2023 notice lists six domestic agencies whose ratings banks may use for capital purposes: Acuité Ratings & Research, CARE Ratings, CRISIL Ratings, ICRA, India Ratings and Research, and INFOMERICS Valuation and Rating. Check RBI's website for any later change.
Why do banks care about your rating?
Banks must hold capital against the loans they give. Under RBI's capital adequacy directions, the capital needed for a loan to a company can depend on its rating from an accepted agency. A better rating can mean the bank needs less capital for your loan, which may let it charge you less. A weak rating, or none, can work the other way.
Ratings also give the bank an independent view of your risk, alongside its own internal rating.
Does a rating actually change your interest rate?
For larger loans, published bank grids show it can. Canara Bank's MSME rate page (as shown in October 2026) sets a credit risk premium over its repo-linked rate (RLLR) by external rating, for externally rated loans above ₹25 crore:
| External rating | Credit risk premium over RLLR |
|---|---|
| AAA | 1.25% |
| AA | 1.50% |
| A | 1.75% |
| BBB | 2.50% |
| BB | 3.25% |
| B | 4.80% |
| C and D | 6.00% |
The same page adds a liquidity premium for longer loans. It also adds 0.25% for unrated exposures above ₹25 crore up to ₹100 crore, and 0.50% above ₹100 crore, until an external rating is obtained.
Other banks use ratings in different ways. Bank of Baroda's MSME rate page, for example, prices rupee export credit over a T-bill benchmark, with separate spreads for each external rating grade and for unrated borrowers. Check the bank's current page and Key Facts Statement for the figures.
Rates are set by each bank and change often. These grids show how ratings are used, not what you will be offered.
What if your loan is small?
Below these sizes, banks usually price on their own assessment, not an external rating. Published examples:
- Bank of Baroda: for MSME loans above ₹25 lakh up to ₹7.5 crore, spreads depend on your CIBIL MSME Rank (CMR) and hard security cover.
- Canara Bank: for ₹2 crore to ₹25 crore, spreads depend on its internal risk grade and collateral cover.
So for many small businesses, a clean CMR (1 is best, on a 1–10 scale, for businesses with credit exposure up to ₹50 crore), good financials and timely repayment matter more than an external rating. Ask your bank directly whether a rating would change your rate before you pay for one.
Worked example: is a rating worth paying for?
Take a medium enterprise with total loans of ₹30 crore at a bank that adds 0.25% for unrated exposures of this size, like the Canara grid above.
| Item | Yearly amount |
|---|---|
| Unrated surcharge: 0.25% × ₹30,00,00,000 | ₹7,50,000 |
| Each further 0.25% of spread on ₹30 crore | ₹7,50,000 |
| Gap between AAA (1.25%) and BBB (2.50%) on ₹30 crore | ₹37,50,000 |
If the rating's yearly cost is well below the yearly saving, it may pay. But the outcome is not known in advance. A BB rating sits at 3.25% on the Canara grid, so a weak rating could cost more than staying on the bank's internal grade. Ask the bank how it would price you at each likely rating before you start.
What does a rating cost, and what else should you know?
- Fees vary. Each agency sets its own fees, which may depend on the size of the loans being rated. There may also be a yearly fee to keep the rating under review. Ask at least two agencies for the first-year fee and any yearly fee, in writing.
- Ratings may be public. The agency may publish the rating it assigns, so customers, suppliers and other lenders could see it. Ask about the agency's policy before you start.
- Some loans require one. A bank's scheme may make a rating a condition, for example to keep a concessional rate. Check the sanction terms and the lender's current Key Facts Statement.
How can you improve your rating and your rate?
- File audited accounts on time and keep them clean and consistent with GST returns.
- Pay every EMI and interest charge on time; avoid overdrawing your limits.
- Keep debt at a level your cash flow can carry. A healthy DSCR (debt service coverage ratio) helps.
- Check your CMR and the promoters' credit reports, and fix errors early.
- After a rating upgrade, write to your bank and ask for the spread to be revised. For external-benchmark loans at commercial banks, RBI's directions let the credit risk premium change when your credit assessment changes substantially, as agreed in the loan contract.
Do it in 10 minutes, free
Use the free DSCR calculator on LowerMyEMI to see the cash-flow cover lenders and raters look at, and the Cash Credit Cost calculator to put a rupee value on a spread cut. Both export to Excel or PDF. Then LowerMyEMI can draft a letter to your own bank, and one email per lender, asking for a lower rate. You send them from your own email. It is free, and we are not a lender, loan agent or rating agency.