As the number of companies borrowing directly from the capital market increases, and as the industrial environment becomes more and more competitive and demanding, investors find that a borrower's net worth or name is no longer sufficient to ensure successful raising of funds from the market. In such a scenario, to enable the investors to take informed decisions, 'Credit Rating' has emerged as one of the most important financial services. Credit rating provides an impartial and objective opinion on the credit quality of debt obligations of different companies and assists investors, individuals and institutions in making investment decisions.
Credit Rating is defined by some well-known credit rating agencies in various ways.
Credit Rating Information Services of India Ltd. (CRISIL) Rating: "Credit rating is an unbiased, objective and independent opinion as to an issuer's capacity to meet its financial obligations. The CRISIL rating symbols indicate its current opinion in a summarized manner as to the relative safety of timely payment of interest and principal on a debenture, preference share, fixed deposit or short-term instrument."
Moody's Investor Service (USA): "Rating is designed exclusively for the purpose of grading bonds according to their investment qualities."
Standard and Poor's (USA): "A Standard and Poor's corporate or municipal debt rating is a current assessment of the creditworthiness of an obligor with respect to a specific obligation."