A Credit Rating Agency a Necessary Evil?

1. What is a Credit Rating? A. Credit rating means giving an expert opinion by a rating agency on the relative willingness and the ability of the issues of a debt instrument to meet the debt servicing obligations in time and in full. Credit ratings are judgments about a firms financial and business prospects. It can be 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 rated. RBI has also made it obligatory and compulsory for banks to evolve their own in-house internal credit rating system to rate its borrowers with a limit or advance above the threshold limit of Rs. 25lac and above, to have risk perception about the customers.

2. Origin of Credit Rating A. Credit Rating originated in USA when John Moody issued his first rating in 1909. Presently rating agencies exist in Canada, Australia, Japan, UK, France, Sweden, Portugal, South Korea, Philippines, Spain and Chile. The history of CR in India is very short. It started with the establishment of Credit Rating Information Services of India Ltd. (CRISIL) in January 1998. It was followed by establishment of the investment Information and Credit rating Agency of India (IFCI). The other accredited credit rating agencies created the Credit Analysis and Research (CARE) established in 1993 as a subsidiary of IDBI and Duffs and Phelps Credit Rating, India (DCRI) established for rating non-banking financial companies for fixed deposits.