The Hindu Business Line : Default rates decline for Crisil-rated companies

Crisil's rated companies' default rates for the last five years average 2.27 per cent, lower than their average default rate of 2.95 per cent over the last 13 years.

Default rates are on the decline, according to a study done by Crisil - the first such by any rating agency in the country, said Mr R Ravimohan, Managing Director and CEO, Crisil.

The proportion of investment grade companies in the non-default category in Crisil's rated portfolio has been increasing consistently and is at an all-time high of 97 per cent for 2005, the study said, which draws on Crisil's ratings history of 13 years.

Crisil's study is not going to be of direct commercial use to the agency, but the recognition of default would be factored in while making pricing decisions which are based on the probability of default, in provisioning and in risk management systems, said Mr Ravimohan.

Crisil would henceforth publish default statistics periodically, he said.

Since it is not mandatory for listed companies to report default, as it is in some countries, Crisil has relied on various sources for default reports. One is the surveillance done by Crisil itself which tracks an instrument continuously till it matures; the second source consists of investors who write in and complain; indeed Crisil has a database of investors, said Mr Ravimohan.

The third is from monthly reviews done by Crisil analysts who interview every month the companies that are rated.

Mr Ravimohan said the definition of default is ambiguous across rating agencies. But Crisil's own definition takes default to be any missed payment on a rated instruments, even if the delay be by a single day and the shortfall by a single rupee. This is why Crisil has 120 companies on the default list, higher than other rating agencies', he said.

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