Credit rating is a codified rating assigned to an issue by authorized credit rating agencies. These agencies have been promoted by well-established financial Institutions and reputed banks/finance companies. Credit rating is a relative ranking arrived at by a systematic analysis of the strengths and weaknesses of a company and debt instrument issued by the company, based on financial statements, project analysis, creditworthiness factors and future prospectus of the project and the company appraised at a point of time.
Objectives of Credit RatingCredit rating aims to:
- Provide superior information to the investors at a low cost;
- Provide a sound basis for proper risk-return structure;
- Subject borrowers to a healthy discipline, and
- Assist in the framing of public policy guidelines on institutional investment.