Role of Credit Rating Agencies in India

Credit rating is the symbolic indicator of the current opinion of rating agencies regarding the relative capability of issuer of debt instrument, to service the debt obligations as per contract .The credit rating agencies today have ample opportunities to play a unique role in strengthening the capital market and building the investors? confidence in the financial system. Credit Rating Agencies use their understanding of companies business and operations and their expertise in building frameworks for relative evaluation, which are then applied to arrive at performance grading of various instruments of the companies, without disclosing the private information of the issuer companies. A rating is one of the inputs that are used by the investors to make an investment decision. Credit rating facilitates the borrower company or the issuer of securities to mobilize savings from the prospective investors. Rating helps investors to compare the issues by providing them a short and clear guide. A fair and impartial rating motivates the investors to invest their savings in various securities. In this paper an attempt is made to introduce the role and importance of credit rating agencies in Indian economy.