Provisional rating

A credit rating is normally assigned once the rating committee has everything it needs to form a view. Sometimes, though, a borrower wants a rating before every last piece of paperwork is in place — a compliance still pending, a document still to be executed.

SEBI's answer is not to refuse a rating outright, but to label it honestly: a provisional rating, clearly marked as provisional rather than final, until the missing pieces are complete.

A rating is treated as provisional, and not final, in cases where certain compliances crucial to the assignment of the credit rating are yet to be complied with, or certain documentation remains to be executed at the time the rating is assigned.

All provisional ratings — whether long term or short term debt instruments — must be prefixed with the word "provisional" before the rating symbol itself, in every communication: the rating letter, the press release, and the rating rationale. There is no exception for internal or informal communications — the prefix travels with the rating symbol wherever it is quoted.

Devbhoomi Infra Ltd is issuing a Rs 300 crore long-term bond, structured with a security package that depends on a mortgage still being registered with the sub-registrar. The rating agency's committee is otherwise satisfied with the credit and assigns a rating — but the mortgage documentation is not yet executed.

The rating is issued as "Provisional AA", not a plain "AA". Every document that quotes it — the rating letter to Devbhoomi, the press release, the detailed rating rationale published on the agency's website — carries the same "Provisional" prefix.

Once the mortgage is registered and the agency confirms the security is perfected, the agency reissues the rating as a plain "AA", dropping the provisional tag. Until that happens, an investor reading only "AA" without checking for the prefix would be missing that the underlying security package is not yet complete.

Chapter 3, section 3.6 (Credit Rating), in the discussion of SEBI's detailed guidelines on provisional ratings, immediately before the standardised rating symbols table. Expect a question on what makes a rating provisional (pending compliances or documentation) and on where the "provisional" prefix must appear (every communication — rating letter, press release and rationale).

• "Provisional" describes a gap in compliance or documentation, not a weaker credit view. A provisional AA is not automatically riskier than a final AA — it simply means something procedural is still pending.
• The prefix is mandatory on every communication, not just the first rating letter — press releases and rating rationales carry it too.
• Do not confuse a provisional rating with a rating watch or rating outlook, which signal a possible future change in the rating itself rather than an incomplete formality.
• The provisional/final distinction applies to both long-term and short-term rating symbols equally.