A STUDY ON CONUNDRUMS IN FINANCIAL SERVICES - CREDIT RATING AGENCIES AND ITS PARADIGMS * 1 DR. M VENKATA SUBBA REDDY ** 2 Dr.KRISHNA C.Y.S MBA, Ph.D.,

A credit rating is technically an ‘opinion’ on the relative degree of risk associated with timely payment of interest and principal on a debt instrument. It is ‘informed’ indication of the likelihood of default of an issuer on a debt instrument, relative to the respective likelihood of default of other issuers in market. It is therefore an independent, easyto-use measure of relative credit risk. Given the universal reliance on rating, and hence the power of the opinion, credit rating is expected to increase the efficiency of the market by reducing information asymmetry and lowering costs for both borrowers and lenders. A simple alphanumeric symbol is normally used to convey a credit rating. Ordinarily the company which issues the debt instruments is not rated. It is the instrument which is rated by the rating agency. But the issuer company which has the debt instrument gets strength and credibility with the grade of rating awarded to the credit instrument it intends to issue to the public for raising funds. Though the purpose of rating is to rate instruments, a general perception may be gathered that the organization issues a highly rated instrument is also sound and a highly rated entity. Thus, credit rating is a mechanism whereby an independent third party makes an assessment, based on different sources of information on the credit quality of the assessed.