The analytical method that ICRA follows for rating short-term instruments such as Commercial Paper is almost similar to the one it uses to assign long-term credit ratings. The main distinction between the two is that ICRA’s rating methodology for Commercial Paper programmes focuses primarily on evaluating the short-term liquidity position of the issuer, which in turn is determined by the business and financial risks that the issuer is exposed to. Although ICRA ratings are specific to the instruments rated, the short-term ratings in general have a linkage with the assigned or implicit long-term ratings of the issuers concerned.

The basic objective of credit rating is to provide an opinion on the relative credit risk associated with the instrument being rated. The process, in a nutshell, involves estimating the issuer’s capacity to generate cash from operations and assessing the adequacy of this estimate the issuer’s debt servicing obligations over the tenure of the instrument. Aditionally, the rating process also involves assessing the cash flow support that may be available to supplement the operational cash flows.