Default Studies of CRA :

The CRA, should publish information about the historical default rates of CRA rating categories and whether the default rates of these categories have changed over time, so that the public can understand the historical performance of each category and if and how rating categories have changed, and be able to draw quality comparisons among ratings given by different CRAs. The default rates shall be calculated in the following manner:

• One Year Default Rate is the weighted average of default rates of all possible 1 year static pools in the 5-year period.

• Cumulative Default Rate: The cumulative default rate (CDR) represents the likelihood of an entity that was rated at the beginning of any multi-year period defaulting at any time during the multi-year period. Three-year cumulative default rate shall be computed as: Three-year CDR for rating category X = No. of issuers which defaulted over the three-year period / No. of issuers outstanding at the beginning of the three-year period.
Here,

Static Pool: Non-defaulted ratings that were outstanding at the beginning of any period.

Default: Non-payment of interest or principal amount in full on the pre-agreed date. A
CRA shall recognize default at the first instance of delay in servicing of interest
or principal on the rated debt instrument.

Default Rate: The number of defaults among rated entities in the static pool as a percentage
of the total number of entities in the static pool.

Averaging: All averaging across static pools for default rate computations must be based
on the weighted average method where the weights are the number of ratings
in each static period.