Crisil's claim: Skirting the issue

Suresh Krishnamurthy

AT THE fag end of the last week, a Crisil press release made the following claim: No AAA fixed deposit or long-term debt rating of Crisil had ever defaulted. It also said that no such issue had ever been downgraded below the AA category.

Crisil indicated that even in the case of international credit rating agencies there had been cases of AAA rated companies defaulting later.

The claim comes at a time when Apple Finance was downgraded to default by ICRA, Crisil's rival credit rating agency. Interestingly, Apple Finance was once rated AAA by ICRA. In such a backdrop, if Crisil's intention was to underline the fact that it is better than its rivals in the rating business, then such a claim appears justified even if some may dismiss this as in bad taste.

However, an unintended consequence of this claim could be to add insult to the injury where some investors are concerned. The memory of Crisil downgrading nine top-rated non-banking finance companies at one go is still fresh. Of course, adverse developments did not occur in the case of all these NBFCs at the same time. Crisil was then in the process of restructuring its portfolio of ratings. Events did overtake Crisil, but the history of rating of companies then, especially NBFCs, left a lot to be desired. Quite a few companies rated A by Crisil proceeded to default and a few companies rated AA had difficulty repaying investors.

When Crisil states that even international credit rating agencies have had once AAA rated companies eventually defaulting, one would like to consider Crisil's performance in the category AA. If one enters a debate on the performance of ratings in India in the past, then more than a few skeletons would tumble out of Crisil's cupboard. Just underlining the performance of Crisil in a single category when taken outside the context of the default by Apple Finance is misleading and could have been easily avoided.

Crisil and the other rating agencies are doing a much better job now than in the past. Their ratings provide meaningful information to investors now. But to suggest they were doing a similarly meaningful job in the past would be unfair to a lot of investors. Rating agencies would do better to leave the past alone and carry on with their work or, perhaps, improve.