Role of credit rating agencies in investment decision with reference to individual investors in Ranchi city

Credit rating, although a relatively new concept in the Indian financial market, has gained wide acceptance among investors. At the same time, casual and anecdotal evidence suggests that there are concerns among investors and regulators about the performance of rating agencies in India. This research paper examines investors’ awareness, perception, understanding level and usage of credit rating through a questionnaire based sample survey covering individual as well as institutional investors. Safety and Risk are two sides of the same coin. Descriptions of rating symbols provided by the rating agencies use "safety" in the upper end of the scale and the term "certainty" (or lack thereof) in the lower end of the scale. When a rating agency describes a speculative grade instrument as one with "an inadequate degree of certainty regarding timely payment of financial obligation", the description offers no precise estimate of the risk involved except on a relative scale. A majority of our respondents believe that a speculative grade is one, for which there is a likelihood of default, while a majority of our individual investors believe that a Speculative grade instrument is risky. This paper discovers a high diffusion of rating usage among all class of investors, though there is a perceptible disenchantment with reliability of ratings, propensity of subsequent downgrading and timeliness of rating surveillance. The survey also reveals that the investors possess not so greater knowledge and understanding about ratings by the credit ratings agencies. Thus, the survey underlines the need for rating agencies to work on educating the common investors to propagate proper understanding and usage of credit rating.