Why Two Rating Agencies Can Give Different Ratings

Two independent, equally reputable rating agencies can legitimately arrive at somewhat different ratings for the same company, and understanding why this happens — rather than assuming one agency must simply be wrong — helps companies and stakeholders interpret split ratings sensibly.

The Fundamental Reason: Independent, Not Identical, Analytical Judgement

Each rating agency conducts its own genuinely independent assessment, using its own methodology, its own analyst team's judgement, and its own internal rating committee's deliberation. Because credit risk assessment, while grounded in shared financial principles, involves real analytical judgement rather than a purely mechanical calculation, two independent, competent assessments of the same company can reasonably arrive at outcomes that differ by one or, less commonly, more notches, without either assessment being 'incorrect.'

This is analogous to how two experienced, independent professionals in many analytical fields — equity research analysts valuing the same company, or appraisers valuing the same property — can arrive at somewhat different, both individually well-reasoned, conclusions using broadly similar underlying methods.

Specific, Identifiable Sources of Divergence

•      Differences in how heavily each agency's published methodology weights a specific risk factor particularly relevant to the company in question

•      Differences in the specific timing of each agency's review — if one agency's assessment is based on slightly more recent information than the other, a genuine, real change in the company's position over that gap can account for the difference

•      Differences in how each agency's analyst team and committee interpret a specific qualitative factor, such as management quality or the strength of promoter support, where reasonable, informed observers can genuinely differ

•      Differences in each agency's specific sector benchmarking — since each agency's view of what constitutes strong or weak performance relative to peers is built from its own rated portfolio, which may include a somewhat different set of comparable companies

How Much Divergence Is Typical Versus Unusual

In practice, when two agencies rate the same company, the resulting ratings are, in the considerable majority of cases, either identical or within one notch of each other — reflecting the shared underlying facts and broadly convergent methodological foundation discussed elsewhere in this pillar. A wider divergence, while it does occur, is relatively less common and, when it happens, is generally traceable to one of the specific sources of divergence listed above, or occasionally to a genuine difference in the two agencies' access to or interpretation of a specific piece of qualitative information.

How the Market Generally Interprets a Split Rating

Lenders and investors are generally accustomed to interpreting a modest split rating (a one-notch difference between two agencies) as reflecting normal, expected analytical variation rather than a red flag, and often simply reference both ratings, or use whichever is more conservative for certain regulatory or internal risk-management purposes. A wider, multi-notch split, however, is more likely to prompt specific questions from lenders or investors about the source of the discrepancy, making it worthwhile for a company facing a wider split to understand and be able to explain the specific reason behind it.

Illustrative Example

A hypothetical mid-sized specialty engineering company obtains ratings from two different agencies for two different bank facilities, both assessed around the same time using substantially the same underlying financial information. One agency rates the company one notch higher than the other, and on reviewing both published rationales, the company's CFO identifies that the difference traces specifically to how each agency weighted the company's recently improved order book diversification — one agency's sector methodology places somewhat greater emphasis on near-term order book visibility as a business risk mitigant than the other's, which weights longer-term customer relationship durability more heavily. Understanding this specific, identifiable source of the split allows the CFO to explain the difference clearly and confidently when a lender raises the question, rather than treating it as an unexplained inconsistency.

Talk to FinMen Advisors — for help preparing for a rating exercise, write to marketing@finmen.in or call +91 77387 14680.

Disclaimer: This article is intended for general informational and educational purposes only and does not constitute financial, credit, investment, or legal advice. Credit ratings are assigned solely by SEBI-registered Credit Rating Agencies (such as CRISIL, ICRA, CARE Ratings, India Ratings, Brickwork, Acuite, and Infomerics) based on their own methodologies, policies, and the information available to them at the time of assessment. FinMen Advisors provides preparatory and advisory support to companies undergoing a rating exercise and does not issue, influence, or guarantee any rating outcome. Readers should exercise independent judgement and consult qualified professionals before making business or financial decisions.