Another Credit Rating Agency was set up later, namely, The Investment Information and Credit Rating Agency of India Limited, registered in 1991, sponsored by the IFCI and a number of other financial institutions. It has its headquarters at Delhi, while the CRISIL has its headquarters in Mumbai.
Credit Rating is now mandatory for all debt instruments – issued by the companies both short-term and long-term. The debentures of both convertible and non-convertible nature require credit rating, if they are not convertible within 18 months.
Debentures, bonds, preference shares and fixed deposits are eligible to be rated. The rating is instrument wise but not for the whole company. The ratings given by the credit rating agency like ICRA are indicators of the correct opinion of the relative capability of timely servicing of debts and obligations by the company.
The ratings given are AAA, AA or A for safety, BBB, BB or B for less safe investments C and D indicate no safety and default respectively. But as equities are essentially risky and investor is willingly entering the risky investment of equity, credit rating for equity is neither possible nor necessary. Only in respect of debt instruments, investor wants to avoid risk and so he should know the extent of the risk, he is taking. Equity holder is the owner and takes risk voluntarily while the debenture holder is creditor and he does not want to take risk in respect of interest or in payment of the principal.
