Introduction
Credit ratings play a vital role in global financial markets by bridging the gap between borrowers and lenders. They provide an independent opinion on the creditworthiness of governments, corporations, and debt instruments. But credit ratings didn’t always exist. Their history spans nearly two centuries, beginning in the U.S. and evolving into a structured, regulated system worldwide, including India.
As India’s Largest Credit Rating Advisory & Leading IPO Advisory firm, FinMen Advisors explores the journey of credit ratings from their origins to their present-day significance in India’s financial ecosystem.
Global Origins of Credit Ratings
19th Century – The Beginning
- In 1841, Lewis Tappan established the Mercantile Agency in New York to collect and share credit information about merchants.
- This laid the foundation for organized credit reporting.
Early 20th Century – First Credit Rating Agencies
- In 1909, John Moody published analyses of railroad company securities, leading to the formation of Moody’s Investors Service.
- By the 1920s, other agencies like Standard Statistics (later S&P) and Fitch Publishing entered the market.
- These agencies rated bonds, providing investors with a way to compare risk and make informed decisions.
Post-WWII Expansion
- Credit ratings expanded globally after World War II, supporting cross-border investments.
- By the 1970s, ratings became crucial for international bond markets.
Modern Era – Regulation and Criticism
- Events like the 2008 global financial crisis raised questions about overreliance on ratings and conflicts of interest.
- Since then, stricter regulations have been implemented, such as oversight by the U.S. Securities and Exchange Commission (SEC) and the European Securities and Markets Authority (ESMA).
Evolution of Credit Ratings in India
1980s – Entry of Credit Rating Agencies
- India’s first rating agency, CRISIL (Credit Rating Information Services of India Ltd.), was established in 1987, marking the formal introduction of credit ratings.
- This was followed by ICRA (1991), CARE Ratings (1993), India Ratings (part of Fitch, 1995), and later Brickwork Ratings (2007).
SEBI Oversight
- The Securities and Exchange Board of India (SEBI) regulates credit rating agencies in India.
- Guidelines ensure transparency, accountability, and disclosure in rating methodologies.
Role in Debt and Equity Markets
- Credit ratings became integral to the growth of India’s corporate bond market.
- Banks and investors rely heavily on ratings to evaluate borrower risk.
SME and IPO Ecosystem
- Over time, ratings expanded beyond large corporates to include SMEs, structured finance, infrastructure projects, and IPO grading (introduced in 2007, later discontinued but significant for market discipline).
Key Milestones in Indian Credit Rating Landscape
- 1987 – CRISIL launches as India’s first CRA.
- 1991–1995 – Entry of ICRA, CARE, and India Ratings.
- 2007 – SEBI introduces IPO grading.
- 2010s – Growth of SME ratings and sector-specific methodologies.
- 2020s – Increasing focus on transparency, ESG (Environmental, Social, Governance) ratings, and digital transformation.
Why Credit Ratings Matter Today
- For Borrowers: Ratings influence cost of borrowing, investor confidence, and access to capital.
- For Investors: They offer a standardized measure of default risk.
- For Regulators: They maintain market discipline and investor protection.
The Indian Advantage
India’s rating system has matured significantly, with domestic agencies building credibility alongside global players. Today, ratings are central not only to large corporates but also to SMEs and mid-market businesses seeking structured finance or IPO preparation.
How FinMen Advisors Supports Businesses
Understanding this historical evolution helps businesses appreciate the weight that ratings carry. But preparing for them requires expertise in financial analysis, presentation, and strategic positioning.
FinMen Advisors, India’s Largest Credit Rating Advisory & Leading IPO Advisory firm, has supported 6,500+ assignments across 31+ industries over the last 15+ years. By bridging business strengths with rating expectations, FinMen ensures companies are well-prepared to face credit rating agencies confidently.
Disclaimer: FinMen Advisors provides advisory services only and does not influence or guarantee any specific credit rating outcome.
FAQs
Q1: Who introduced credit ratings in India?
CRISIL, established in 1987, was India’s first credit rating agency.
Q2: Why were credit ratings introduced globally?
They emerged to help investors assess the risk of lending to companies, starting with railroad bonds in the U.S.
Q3: Are credit ratings and IPO grading the same?
No. IPO grading was a SEBI initiative to assess IPO fundamentals, while credit ratings assess debt repayment capability.
Q4: Who is India’s largest credit rating advisor?
FinMen Advisors is India’s Largest Credit Rating Advisory & Leading IPO Advisory firm, with nationwide presence and unmatched expertise.
Conclusion
From humble beginnings in 19th-century America to becoming a regulated pillar of India’s financial markets, credit ratings have continuously evolved. Their history underscores their importance in building trust, supporting investment, and enabling businesses to grow.
As businesses prepare for the future, FinMen Advisors remains a trusted partner, guiding companies across India through the complexities of credit ratings and IPO readiness.
