What is credit rating?
A rating is an opinion of the credit rating agency (CRA), on the future ability of the company under question to
make timely payments of principal and interest on the obligation. Expressed as a symbol, it measures the
probability that the issuer will default on the security over the life of the instrument.

What are the different kinds of ratings in India?
Ratings can be of debt instruments whether fixed deposits, bonds, loans, future receivables, mutual funds,
insurance companies and real estate developers etc.

What are the ratings based on?
A rating is based on a quantitative study of the company financials and qualitative factors such as management
quality and integrity, the strength of its brands etc. The CRA attempts to measure the relative ability of the
issuer of the instrument to service the obligations due Industry risk often determines the cap for most ratings.
For instance, most non-banking financial services and agro-plantation cos are unable to get high ratings
because of the high sectoral risk attached to these sectors. Stable businesses with stable or increasing market-
shares usually get favourable long-term ratings and vice versa.

What does a rating not constitute?
A rating is neither a general evaluation of the issuer nor an assessment of the credit risk to be involved in all
the debts contracted by concerned entity. Thus ratings on different instruments for the same co may differ on
the tenure and the in-built protection for that instrument.

The rating is also not a recommendation to buy, hold or sell an instrument. This means that before deciding to
purchase an instrument, you have to ensure the suitability of the investment to your risk profile.
Besides, since ratings change, it is always better to ask for the latest rating outstanding on the instrument,
available on web-sites of CRISIL, CARE and ICRA.

What does the suffix ‘+’ or ‘ - ’ with the rating mean?
The financial flexibility of the co determines the relative strength of the instrument within a rating category
indicated by the suffixes ‘+’ and ‘-’. The ‘+’ suffix denotes a relatively higher standing within the category while
the ‘-’ rating indicates a relatively lower standing. Thus any instrument from the highest to the lowest grade
can have a ‘+’ or a ‘-’ suffix.

What is the procedure for obtaining a rating?
While in the US, where rating began, it is issued both on the request of the co intending to issue the
instrument and the CRA on its own initiative, in India ratings are only undertaken at the issuer’s request. Also,
in the USA all ratings whether accepted or not for use by the issuer are made public, while in India the rating is
first communicated to the issuer and on its acceptance, it is made public.

However, a rating once accepted can be downgraded or upgraded by the CRA with prior notice to the issuer. In
this case the issuer does not have the right to request that the downgrade or upgrade not be made public.