Credit rating means giving an expert opinion by a rating agency on debt instruments. The agency evaluates the repaying capacity of the issuer of such instruments. Ratings are denoted by symbols e.g. AAA – highly secured, BB-Moderate, c – high risk and D-default. It is defined as “a process by which a statistical service prepares various ratings identified by symbols which are indicators of the investment quality of the securities rate.”
Benefits of Credit Rating to
the Investor
Investors get expert opinion (credit rating agency) about the
quality of the debt instrument through easy and simple indicator (symbol).
It becomes guidance to the investors regarding the commitment towards
a particular debt instrument for better returns.
The risk and return relationship is established by the rating
agency.
The scale of risk is measured and indicated by way of symbols.
Benefits of Credit Rating to
the Issuer
Highly rated debt instruments get easy marketing access.
It helps pricing of securities.
Credit Rating Agencies in
India
Credit Rating and Information services of India (CRISIL)
Investment Information and Credit Rating Agency of India Limited
(IICRA)
Credit Analysis and Research Limited (CARE)
Onida Individual Credit Rating Agency of India Limited. (ONICRA)
Duffs and Phelps Credit Rating India (DCRI)
It is discussed in detail in Unit-5.