1. What is a credit rating?

A credit rating represents the rating agency's opinion on the likelihood of a rated
debt obligation being repaid in full and on time. A simple alphanumeric symbol is
normally used to convey a credit rating.
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2. How does a credit rating agency differ from a credit bureau?
A credit rating agency provides an opinion relating to future debt repayments by
borrowers. A credit bureau provides information on past debt repayments by
borrowers.
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3. Is a credit rating a recommendation to invest in a debt instrument?
A credit rating is not a recommendation to buy, hold, or sell a debt instrument. A
credit rating is one of the inputs used by investors to make an investment
decision.
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4. What is the difference between credit rating and equity research?
Credit ratings are assigned to debt instruments, while equity research relates to
equity shares. A credit rating is focused on the risk of non-payment, the primary
variable in debt instruments. Equity research is focused on growth possibilities,
for that is what drives equity valuations.
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5. How does a credit rating differ from an audit?
A credit rating agency relies on a variety of information sources, including
published annual reports. An audit process is designed to detect fraud or
misrepresentation of information, whereas the credit rating process is not.
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6. How does a rating agency operate when issuers' disclosure levels are
low?
During a credit rating exercise, issuers provide rating agencies with confidential
information and insights into business strategy that are not normally available in
the public domain. As a policy, CRISIL does not assign credit ratings without
issuer interaction, except when a previously rated instrument is outstanding or
when a specific investor asks for a private exercise. In cases where CRISIL
believes that the information is inadequate to assign a rating, it may not do so.
Also, for rated clients, if subsequent information is not adequate, CRISIL may
suspend the rating and inform the investors.
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7. Does a credit rating assure repayment?
A credit rating is not an assurance of repayment of the rated instrument. Rather,
it is an opinion on the relative degree of risk associated with such repayment.

This opinion represents a probabilistic estimate of the likelihood of default.

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8. Who pays for a credit rating?
Most credit rating agencies across the world use a revenue model where the
issuer pays for the credit rating. Alternative revenue models (such as the one
based on investor fees) pose numerous challenges in terms of ease and
practicality of implementation that have not yet been overcome.
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9. If the issuer pays for the rating, how does a credit rating agency
maintain its independence?
Although the issuer pays for the rating, the investor uses it. Like any other
product or service, the 'value' of the rating depends entirely on the perceptions of
the investor. Investor perceptions are based on the credibility of the past ratings
assigned by each rating agency. (Please also refer to section - How CRISIL
manages Conflict)
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1 Who regulates a rating agency?
0. The capital market regulator regulates rating agencies in most regions. In India,
the capital markets regulator, the Securities and Exchange Board of India (SEBI),
regulates the rating agencies in the country.
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1 Is competition desirable in the credit rating industry?
1. Competition in the credit rating industry is desirable to meet the 'better service
at a cheaper price' objective on an ongoing basis. However, it is essential to
guard against some undesirable effects of competition, such as lax ratings or
sub-optimal quality of research and analysis.
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1 How do investors benefit from a credit rating?
2. Credit ratings help investors facilitate comparative assessment of investment
options, complement the investors' own credit analysis, and allow asset
monitoring.
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1 What do the various credit rating symbols mean?
3. CRISIL uses simple alphanumeric symbols to convey credit ratings. CRISIL assigns
credit ratings to debt obligations on three basic scales: the long-term scale, the
short-term scale, and the fixed deposit scale. To illustrate, CRISIL's long-term
credit rating scale and the description associated with each category on the
rating scale is given below:

Symbol
(Rating
category).

Description (with regard to the likelihood of

meeting the debt obligations on time)

AAA

Highest Safety

AA

High Safety

Adequate Safety

BBB

Moderate Safety

BB

Inadequate Safety

High Risk

Substantial Risk

Default

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1 Does the minus sign in a rating symbol have negative connotations
4. relating to the issuer's performance or its debt-servicing capability?
Plus and minus symbols are used to indicate finer distinctions within a rating
category. The minus symbol associated with ratings has no negative connotations
whatsoever.
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1 What are Structured Obligation (so) ratings? Are they different from
5. other credit ratings?
Structured Obligation (so) ratings are ratings that are based on a 'credit
enhancement' mechanism and/or a structured payment mechanism. A suffix in
the form of '(so)' indicates the presence of non-credit risk in the form of risks
associated with the instrument structure.
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1 What is the validity period of a credit rating?
6. Credit ratings are assigned either to specific instruments or to the general debt
obligations of issuers. CRISIL assigns credit ratings to debt obligations. A rating is
valid until the rated debt obligation is fully paid.
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1 How are credit rating changes communicated?
7. Once a credit rating is assigned and published, CRISIL keeps the credit rating
under surveillance until the instrument is fully repaid. The surveillance process
may result in credit rating changes from time to time. All changes in CRISIL's

credit ratings are communicated publicly through CRISIL's website

(www.crisil.com) and media releases.
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1 Why do credit ratings change?
8. Credit ratings are assigned based on certain expectations and assumptions about
variables that impact the issuer's performance. However, these variables can
change, causing the rated entities' performance to deviate materially from
expectations. This is reflected in their changed credit ratings.
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1 If a credit rating is downgraded, does it mean that a default is
9. imminent?
Not necessarily. In most cases, a downgrade does not mean that a default is
anticipated. All it indicates is that the risk associated with the debt obligation is
relatively higher than what it was before the downgrade.
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2 Does the size of the rated debt obligation affect its credit rating?
0. No. What matters is the size of the total debt in the company, and not the
amount that is sought to be rated.
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2 What are 'Provisional' ratings?
1. In case completion of certain critical steps/documentation is pending at the time
of rating assignment, CRISIL will assign provisional ratings to such instruments
which will be characterised by a prefix 'Provisional' to the rating symbol. To
elaborate, a prefix of 'Provisional' to a CRISIL-assigned rating indicates that the
rating centrally factors in the completion of certain critical steps/documentation
by the issuer for the instrument; without this, the rating would either have been
different or not assigned. The provisional nature of such ratings will be disclosed
by CRISIL in its communications, including rating letter and rating rationale. Once
the relevant steps/documents (as per expectations when the provisional ratings
were assigned) are in place, the provisional ratings will be converted into final
ratings.