Rating agency ICRA Ltd has announced the country’s new credit rating system for the infrastructure sector, in line with the announcement made in the Budget 2016 document.
“The new rating framework will be a comment on the expected loss of a project entity, which would factor in the probability of default and the recovery prospects,” the agency said in a media statement.
The new credit system was part of the 2016 Budget announcements made for the infrastructure sector. The new system was to give emphasis to various inbuilt credit enhancement structures instead of relying upon a standard perception of risk which may result in mispriced loans due to a lower credit rating.
The new system for infrastructure projects has been developed in consultation with the Ministry of Finance and associated stakeholders. “The new rating system will focus on the overall recovery of dues by the investor/lender, a metric that can be evaluated subsequently, making this scale amenable to get itself evaluated for its differentiating and predictive capability,” the note said. Under the new rating scale, final ratings will be assigned on expected Loss on the scale from [Infra] EL 1 to [Infra] EL 7, where instruments rated ‘EL 1’ would be considered to be having the lowest expected loss and instruments rated ‘EL 7’ the highest.