This would ensure that a three-year default rate is greater than the one-year rate. “The current method could result in a three-year default rate being lower than a one-year default rate, which is counter-intuitive and erroneous," rating agency Crisil said in an emailed statement. For an AAA-rated paper, for instance, the probability of default for a 1-year and 2-year paper should be zero; for a three-year paper, a 1% default probability would be accepted. In line with global standards, the regulator in November had asked rating agencies to track deviation in bond spreads. Sebi has also asked rating agencies to disclose all factors to which ratings are sensitive.

Source: Mint June 13, 2019 12:29 UTC