Credit Rating Services

Nature, Features, Process, and Agencies Providing Such Services in India

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Credit Rating : The Concept

Credit rating is a specific activity of Assessing the credit worthiness of a firm in terms of Grade or Standard It provides reliable financial information and increased disclosure to the investors to buy securities with confidence . According to Standard & Poors Credit Overview, Credit Rating is a current assessment of the creditworthiness of an enterprise with respect to specific obligation

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Features of Credit Rating

It is not a recommendation for purchasing, selling

or holding of debt security because it focus only on the credit risk of the security. It is not a general evaluation of the company but relates to particular debt security of the firm. It does not create any legal relationship between the credit rating agency and user of that rating. It is not a constant or fixed for a longer period, and hence to be reviewed from time to time.

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Types of Credit Rating

Bond Rating Equity Shares Rating Preference Shares Rating Public Deposit Rating Commercial Papers Rating Borrowers Rating

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Credit Rating : Historical Background

In the year 1909, three major rating firms of United States i.e. Standard and Poor, Moody's and Fitches grade bonds for their level of default risk. In India under the Chairmanship of DR.D.N.Ghosh State Bank of India got a rating from Moodys rating agency followed by Standard and Poor and proved Surprisingly comfortable.

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Credit Rating Agencies in India

Indias first Credit Rating Agency was established in Jan.1,1988 by ICICI and UTI named as Credit Rating Information Services of India Ltd. (CRISIL) Another Credit Rating Agency was established by Industrial Finance Corporation of India (IFCI) named as Investment information and Credit Rating Agency of India Ltd. (IICRA) in 1991. Third important rating agency promoted by Industrial Development Bank of India named as Credit Analysis and Research Ltd. (CARE).

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Credit Rating Symbols

1. 2. 3. 4. 5. 6. 7.

8.

AAA : Highest Safety AA : High Safety A : Adequate Safety BBB : Moderate Safety BB : Inadequate Safety B : High Risk C : Substantial Risk D : In Default

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