Expected Loss Rating
Supporting the initiatives of the Ministry of Finance, ICRA has developed a new credit rating system for the infrastructure sector. Infrastructure projects in India have seen limited participation from long-term investors and bond markets on account of higher perceived risks and lower credit ratings. Given the focus on timely servicing of financial obligations, the conventional rating scale has limitations in providing adequate weights to unique features of infrastructure project SPVs, thereby resulting in relatively lower ratings for the infrastructure projects. In order to overcome these limitations and provide broader information on associated risks to the prospective investors, a new credit rating system for infrastructure projects has been devised. The new rating framework will comment on the expected loss (EL) of a project entity, which would factor in the probability of default (PD) and the recovery prospects. The inclusion of the recovery perspective, in ICRAʼs view, allows a distinction to be made between entities with favourable fundamentals and recovery prospects and those without.