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The act of assigning values to credit instruments by assessing the ability of the
borrower to repay debt and indicating the values through pre-determined symbols
is called Credit Rating.
Credit rating may also be defined as grading bonds with accordance with
their investment quality. It is the current assessment of credit worthiness of the
issuer of the credit instrument with respect to its obligation to repay debt. It is a
means which provides the lenders or investors with a simple gradation system to
judge the relative abilities or capacities of the companies to make timely
repayment of interest and principal on a particular kind of debt.
2. Gradation : Credit rating is designed for the purpose of grading the bonds
in accordance with their investment quality.
3. Assessment of solvency: Credit rating estimates or assesses the vales of
credit instruments by applying specialized and expert knowledge to assess
the solvency position of the borrower or issuer of the credit instrument.
7. Country Rating: The credit rating extends to the country rating which is
also known as ‘Sovereign rating’. Here the whole country or nation is rated
to assess its solvency or credit worthiness.
There was belated beginning of credit rating in India. It began in India in 1988 and
its progress was slow at its inception but In recent times, credit rating has gained
importance in India.
ii) ICRA (Investment Information and credit rating Agency of India Ltd.)
High safety AA
Adequate Safety A
Inadequate Safety BB
High risk B
Subtantial Risk C
Default D