Credit Rating:An Important Tool for Investor's Decision Making

Abstract

Credit rating is a process of evaluation of creditworthiness of an individual/money or capital market instrument. Credit rating always helps in corporate investment flows and it has also other advantages as it increases ROI and plays an important role in risk management. Credit ratings also has some disadvantages. It involves a series of steps which are quite tough and complex in nature. The use of rating is obvious for investors, issuers, investment banks, broker dealers and governments. Now many credit rating agencies provide "credit rating advisory services" and according to which it may advise an issuer how to structure its bond offerings. The system of credit rating was started at first in the USA but now it has spread throughout the world. In India the application of credit rating is not very old. In India there are four credit rating agencies as CRISIL, ICRA, CARE and joint venture between Duff and Phelps. It has been laid down in SEBI guideline that before debt issue credit rating must be obtained from any credit rating agency. Overall, if can be said that it is "guidePost" for lay investors.