Global, national AAA ratings not comparable:CRISIL

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By construct, credit ratings can have – and do have – different scales. That’s because they are relative assessments of credit risk. And the relative benchmarking can be national, global or regional.

Comparing the 276 AAA ratings that Indian credit rating agencies (CRAs) have assigned with nine by S&P Global Ratings or 53 by Moody’s is erroneous, and would tantamount to equating differing scales such as Celsius and Fahrenheit.

Investors in developed economies such as the US and Europe consider investment options across the world. Credit risk assessments that benchmark issuers across the world on a global scale (AAA to D) offer comparable information to them and enables their investment decisions.

If ~32,500 rated Indian companies were to be assessed on the global scale, their ratings will be boxed on a far narrow bound between BBB category and D on the global scale, because India’s sovereign rating (in the BBB category) will usually serve as a ceiling.

On the other hand, a national rating scale affords granular benchmarking of domestic issuers on a 20-point scale (AAA to D) and the sovereign, which has the flexibility to print local currency, is pegged at AAA on this scale. This provides valuable information to investors in local currency domestic debt such as insurers, pension funds, banks and mutual funds.

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