Credit rating is one of the fee based financial services which are provided by specialized
agencies like CRISIL, ICRA and CARE. It is a mechanism by which the reliability and viability
of a credit instrument is brought out. It is usually the effort of investors in financial instrument
to minimize or eliminate default risk. Credit rating service is useful to the investors.
According to Securities Exchange Board of India, credit rating is a compulsory mechanism
for listing of the companies in the stock market and also it is essential to the corporate
sectors who want to raise capital with the help of issue of fixed deposits, commercial papers
and other short-term instruments.
Meaning of Credit Rating
Credit rating is an act of assigning values to credit instruments by estimating or assessing the
solvency, and expressing them through predetermined symbols.
“Credit rating is designed exclusively for the purpose of granting bonds according to
their investment quality”.
Corporate or municipal debt rating is a current assessment of the credit worthiness of
the obligator with respect of a specific obligation.
Objectives of Credit Rating
These are the important objectives of the credit rating:
• To impose a healthy discipline on borrowings.
• To lend greater belief to financial and other representations.
• To facilitate formulation of public guidelines on institutional investment.
• To help merchant bankers, brokers and regulatory authorities.
• To encourage the information disclosure, better accounting standards, etc.
• To reduce interest cost for highly rated company
Basis for Credit Rating
Credit rating agencies consider the following important informations for granting the rating
symbol to the borrowing company;
1. Historical background of the company.
2. Track record of the company.
3. Financial efficiency and profitable position.
4. Operational efficiency.
5. Market share of the company.
6. Labour efficiency and their turnover.
7. Future prospects.
Credit Rating Information Service of India Limited (CRISIL)
Credit Rating Information Service of India Limited was the first credit rating agency in
India, in January 1988 jointly by ICICI, UTI, LIC, GIC and ADB. The following are the
major objectives of the Credit Rating Information Service of India Limited.
(a) To rating of companies debentures, fixed deposits programmes, short-term
(b) To provide corporate reports to business concern.
(c) To conduct industry studies.