Since 1987, credit rating has made headway into the Indian capital market. Since their inception, credit rating agencies have played a significant role in the Indian capital market as have their counterparts abroad. At the same time, the working of the rating agencies has been criticized by many for not having been able to accomplish the coveted goal of investor interest protection as they failed in predicting the fall of big corporate concerns. Rating agencies were also under the scanner during the current global financial crisis. Against the backdrop of their role and criticism, the paper makes an attempt to elicit and analyze the opinion of investors on the working of credit rating agencies in India and offers some suggestions to enable the rating system to be efficient and effective.

The economic growth of any country depends, to a greater extent, on a vibrant capital market as it facilitates the transformation of savings into investment. It may be noted that the development of capital market depends, among other factors, on the dissemination of complete information and the existence of knowledgeable investors.

The growth story of the Indian capital market started in the mid-1980s. The Indian economy has been growing fast since the adoption of the Liberalization Policy in mid-1991. At present, the Indian economy is integrating with the global economy. In tandem with the economy, the capital market is also growing fast. Over the years, various tailor-made financial instruments have been introduced in the capital market to cater to the needs of diverse investors. The growth of the capital market and increase in the varieties of instruments created not only opportunities for the investors, but also complexities in the market as, even the reputation of the issuer-company is no longer a guarantee to the quality of the financial instrument which it (i.e., the company) issues. Hence, a general caution to the customers, caveat emptor (buyer beware), is also applicable to investors.

To demystify the complexity of the financial instruments in the capital market, to facilitate the investors to take informed investment decisions and to enable the issuer-companies/institutions to mobilize the required funds (at reasonable cost), various agencies like Moody's Investor Services, Standard and Poor's, Fitch Ratings, etc., work in the US markets.

The success stories of credit rating agencies in the US (particularly, in debt capital market) encouraged a few Indian and foreign financial institutions and banks to establish rating agencies in India. Credit rating in India is the brain child of CRISIL (Credit Rating and Information Services of India Limited). CRISIL was incorporated in January 1987 and commenced its rating activities in January 1988. Its first rating was released in March 1988. ICRA (Investment Information and Credit Rating Agency of India Limited) is the second rating agency established in India (January 1, 1991) at a time when the country was all set to embrace the economic liberalization policy. CARE (Credit Analysis and Research Limited)) is the third credit rating agency to be set up in India (April 1993). Duff and Phelps Credit Rating India Limited (DCR) is the fourth, but the first private sector rating agency which commenced its operations in India in 1995. Duff and Phelps, and Duff and Phelps India Private Limited merged in November 2001 to form a new entity called, Fitch India Limited, a 100% subsidiary of Fitch IBCA. Brickwork Ratings India Private Limited is the fifth credit rating agency (second private rating agency) registered with SEBI in 2007.

Behavioral Finance Journal, Credit Rating Agencies, Indian Capital Market, Economic Liberalization Policy, Information Services, Debt Capital Market, Financial Instruments, Economic Liberalization, Financial Obligations, Initial Public Offerings, Equity Markets, Decision-Making Process.