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SUBMITTED BY: ANIKET MAKHIJA (01) DIVYA BHARGAVA (12) RASIKA IBHAD (34) SWAPNIL BABEL (42)

Acknowledgement
This project has definitely been a major event in our educational career, the knowledge imbibed through this experience has been tremendous and will go a long way in shaping our careers. This project has given us much more than just knowledge on The Indian Credit Rating Industry, it has also taught us to approach a topic in a way in which we ourselves were enamored by the topic and were surprised to find the impact it has on the economy. This project has also given us a better understanding of CRISIL the company and its employees. CRISIL has been a leader in this industry since its inception and it was great to learn the way the company functions in whatever little time we could spend at the company under the guidance of eminent intellectual professionals with whom sharing event a little bit of time has raised the benchmark of performance and determination in all of us. We would like to thank Mr. Prasad Koparkar- Head of Rating Criteria & Product development and Mr. Mukesh Agarwal- Director of Business Development, for not only providing us their valuable time and great understanding on the topic but also inspiring us to be better and d helping us realize and better our potential. We are grateful to Mrs. Smita Kumar, her guidance and help to us not only during the lecture but also at any time of the week. Her immense confidence and support in us has been an instrumental reason in us being able to understand the topic and do justice to it. This project is a result of her enduring knowledge and patience, which she has shared, and we have been lucky to receive. Madam will always be the professor we look up to derive inspiration and strength

EXECUTIVE SUMMARY

TOPIC 1- This topic gives us an insight into what is Credit Rating and a bit about the Credit Rating Agency.

2- This chapter talks about the Credit Rating Industry in India, the different agencies in the market, the factors involved in Credit Rating.

Topic 3- This chapter gives more information on the topic of credit rating with underlining its objectives, role of Credit Rating Agencies, Rating Approach/Components of Rating, disseminating of information etc.

Topic 4-This chapter is about the importance of credit rating in assessing the risk of default for lenders.

Topic 5- This chapter talks about the limitation of Credit Rating as

Topic 6- This chapter talks about Debt market and briefly states Rating employed by agencies. Topic 7- This topic educates about the ratings used by Standard & Poors, the bifurcation in long term & short term ratings.

Topic 8- This chapter is a study of the Basel II norms and their impact on ratings, in the second part there is a study of its impact on India with a reference to the banking system in India

Topic 9: This chapter gives an introduction of CRISIL, the company, its values and objective.

Topic 10: This topic explains the business of CRISIL

Topic 11: This chapter describes the methodology adopted by CRISIL to execute its business. Topic 12: This chapter informs us about the top management of the company, the important people involved in decision making

Topic 13: This chapter is about the innovations by CRISIL, the challenges anticipated by them and the solution to meet the same

Topic 14: This topic is about the ratings adopted by CRISIL, its range of services, track record of CRISIL, its affiliation with Standard & Poors

Topic 15: This chapter explains te rating process adopted by CRISIL .

Topic 16: This chapter informs about the methodology adopted by CRISIL in its business

Topic 17: this chapter is about why investors trust CRISIL, a fact that it is a market leader in its industry, its strength

Topic 18: this chapter gives an account as why CRISIL is preferred by Issuers or Companies, its advantages and corporate friendly methods.

Topic 19: This topic is educates us about the rating models adopted by CRISIL, the strengths of each model and its description.

Topic 20: This topic dwells into the model designed by TCS for CRISIl, the reasons for the same and a brief explanation of the model. Topic 21: This chapter is about the information which CRISIL requires from the company to make a preliminary report which is forwarded to the second team. Topic 22: This topic is an attempt to answer rthe question of the difference between Indian Credit Rating Agencies particularly CRISIL and other global Agencies like S&P.

Topic 23: This topic is the excerpts of the interview we had with the 2 CRISIL professionals, their explanation on the topic. Topic 24: This topic is the most important part of the project, infact it is the object of the whole exercise, our learnings & inferences during the project.

Topic 25; These are annexure to the report.

Topic 1: INTRODUCTION
"AN OBJECTIVE ASSESSMENT OF THE RISK ATTACHED TO A FINANCIAL TRANSACTION WITH RESPECT TO AN INDIVIDUAL AT A GIVEN POINT OF TIME." Your personal CREDIT RATING touches your life in many, many ways. When you apply for a home mortgage , bank loan , car loan , or any of the modern bank credit facilities and convenience credit cards , your CREDIT RATING has direct impact on whether or not you will be granted that loan or credit account. It also affects the interest rate that you will be

charged. The importance of your CREDIT RATING does not stop here. When you attempt to rent an apartment or house, the landlord will often check your CREDIT REPORT to see if you are likely to pay the rent on time. Negative entries on your personal CREDIT REPORT may prompt the landlord to deny you that place to live. When you apply for a job, your prospective employer may also check your CREDIT REPORT to gain insight into your character, and what type of employee you may be. A good CREDIT RATING enables you to take your financial credentials anywhere in the world, to conduct business or purchase the products you want and need. Without it, you would find it almost impossible to do business with anyone that you didn't know personally. Credit rating is, essentially, the opinion of the rating agency on the relative ability and willingness of the issuer of a debt instrument to meet the debt service obligations as and when they arise. Credit rating is an opinion expressed by an independent professional organisation, after making a detailed study of all relevant factors. Such an opinion will be of great assistance to investors in making investment decisions. It also helps the issuers of debt instruments to price their issues correctly and to reach out to new investors. Regulators like Reserve Bank of India (RBI) and Securities & Exchange Board of India (SEBI) often use credit rating to determine eligibility criteria for some instruments. For example, the RBI has stipulated a minimum credit rating by an approved agency for issue of Commerce Paper. In general, credit rating is expected to improve quality consciousness in the market and establish, over a period of time, a more meaningful relationship between the quality of debt and the yield from it. Credit Rating is also a valuable input in establishing business relationships of various types. A credit rating is a professional opinion given after studying all available information at a particular point of time. Nevertheless, such opinions may prove wrong in the context of subsequent events. Further, there is no privity of contract between an investor and a rating agency and the investor is free to accept or reject the opinion of the agency. Nevertheless, rating is essentially an investor service and a rating agency is expected to maintain the highest possible level of analytical competence and integrity. In the long run, the credibility of a rating agency has to be built, brick by brick, on the quality of its services. . Rating does

not come out of a pre-determined mathematical formula, which fixes the relevant variables as well as the weights attached to each one of them. Rating agencies do a great amount of number crunching, but the final outcome also takes into account factors like quality of management, corporate strategy, economic outlook and international environment. To ensure consistency and reliability, a number of qualified professionals are involved in the rating process. The Rating Committee, which assigns the final rating, consists of professionals with impeccable credentials. Rating agencies also ensure that the rating process is insulated from any possible conflicts of interest. In India, ratings are undertaken only at the request of the issuers and only those ratings, which are accepted by the issuers, are published. But there is a view that the rating agencies should publish all ratings, even those found unacceptable by the issuers. This is a matter for further discussion, so that a generally acceptable industry practice emerges. Once a rating is accepted, it will be published and subsequent changes emerging out of the monitoring by the agency will be published even if such changes are not found acceptable by the issuers. In a situation where an issuer is unhappy with the rating assigned, he may request for a review, furnishing additional information, if any, considered relevant. The rating agency will, then, undertake a review and thereafter indicate its final decision. Unless the rating agency had overlooked critical information at the first stage, (which is unlikely), chances of the rating being changed on appeal are rare. Credit rating is essentially, business analysis, which has a much broader connotation than financial analysis. One significant factor, which adds value to the analysis of a rating agency, is that the rating is normally done at the request of and with the active co-operation of the issuer. So, the rating agency has access to unpublished information and the discussions with the senior management of issuers give meaningful insights into corporate plans and strategies. The rating agencies also make necessary adjustments to published accounts for the purpose of their analysis and juxtapose the issuer against the backdrop of the industry in question and the general economic environment. And, at the culmination of this detailed process, the rating emerges as the well considered view of a dozen or more highly qualified and experienced professionals. The rating agencies zealously safeguard their independence and scrupulously avoid any conflict of interest with the various players in the capital market. If any analyst or group of analysts is able to ensure all these, we probably have another rating agency in the making.

Standards of transparency in emerging markets have been improving in recent years. Moreover, during a rating exercise, issuers provide rating agencies with confidential information and insights into business strategy that are not normally available in the public domain, However, an experienced rating agency can arrive at a reasonably accurate credit rating based on publicly available information, peer analysis and an understanding of the industry. CRISIL believes that in an emerging market, interactions with an issuer's management are an important and necessary feature of the credit rating exercise. As a policy, CRISIL does not assign ratings without issuer interaction except when a previously rated instrument is outstanding or when a specific investor asks for a private exercise

Topic 2: The Credit Rating Industry


Credit rating is the process of assigning standard scores, which summarize the probability of the issuer being able to meet its repayment obligations for a particular debt instrument in a timely manner. Credit rating is integral to debt markets as it helps market participants to arrive at quick estimates and opinions about various instruments. In this manner it facilitates trading in debt and money market instruments especially in instruments other than Government of India Securities. Rating is usually assigned to a specific instrument rather than the company as a whole. In the Indian context, the rating is done at the instance of the issuer, which pays rating fees for this service. If it is unsatisfied with the rating assigned to its proposed instrument, it is at

liberty not to disclose the rating given to it. There are 4 rating agencies in India. These are as follows: CRISIL - The oldest rating agency was originally promoted by ICICI. Standard & Poor, the global leader in ratings, has recently taken a stake in CRISIL. ICRA - Promoted by IFCI. Moodys, the other global rating major, has recently taken a stake in ICRA. CARE - Promoted by IDBI. FITCH INDIA- Promoted by FITCH, one of the leading credit rating agencies in the world. CRISIL is believed to have about 65% market share followed by ICRA with about 10%, and CARE and FITCH have 10-15% each Grading system Each of the rating agencies has different codes for expressing rating for different instruments; however, the number of grades and sub-grades is similar eg for long term debentures/bonds and fixed deposits, CRISIL has 4 main grades and a host of sub grades. In decreasing order of quality, these are AAA, AA+, AA, AA-, A+, A, A-, BBB-, BBB, BBB+, BB+, BB, BB-, B+, B, B-, C and D. ICRA, CARE and Duff and Phelps have similar grading systems. The following table contains a key to the codes used by CRISIL and ICRA. Credit rating is a dynamic concept and all the rating companies are constantly reviewing the companies rated by them with a view to changing (either upgrading or downgrading) the rating. They also have a system whereby they keep ratings for particular companies on "rating watch" in case of major events, which may lead to change in rating in the near future. Ratings are made public through periodic newsletters issued by rating companies, which also elucidate briefly the rationale for particular ratings. In addition, they issue press releases to all major newspapers and wire services about rating events on a regular basis.

Factors involved in credit rating Credit rating depends on several factors, some of which are tangible/numerical and some of which are judgmental and intangible. Some of these factors are listed below:

Overall fundamentals and earnings capacity of the company and volatility of the same Overall macro economic and business/industry environment Liquidity position of the company (as distinguished from profits) Requirement of funds to meet irrevocable commitments Financial flexibility of the company to raise funds from outside sources to meet temporary financial needs Guarantee/support from financially strong external bodies

Level of existing leverage (borrowings) and financial risk Ratings are assigned to instruments and not to companies and two different ratings may be assigned to two different instruments of the same company eg a company may be in a fundamentally weak business and may have a poor rating assigned for 5 year debentures while its liquidity position may be good, leading to the highest possible rating for a 3 month commercial paper. Very few companies may be assigned the highest rating for a long term 5 or 7 year instrument e.g. CRISIL has only 20 companies rated as AAA for long term instruments and these companies include unquestionable blue chips like Videsh Sanchar Nigam, Bajaj Auto, Bharat Petroleum, Nestle India apart from institutions like ICICI, IDBI, HDFC and SBI. Credit rating is an opinion expressed by an independent professional organization, after making a detailed study of all relevant factors. Such an opinion will be of great assistance to investors in making investment decisions. It also helps the issuers of debt instruments to price their issues correctly and to reach out to new investors. Regulators like Reserve Bank of India (RBI) and Securities & Exchange Board of India (SEBI) often use credit rating to determine eligibility criteria for some instruments. For example, the RBI has stipulated a minimum credit rating by an approved agency for issue of Commerce Paper. In general,

credit rating is expected to improve quality consciousness in the market and establish, over a period of time, a more meaningful relationship between the quality of debt and the yield from it. Credit Rating is also a valuable input in establishing business relationships of various types.

Topic 3: More on Ratings


Rating Objectives/Benefits The intended objective as well as benefits accruing from the exercise are thought of as below: 1. It is expected to spur growth of professionally managed entities as business development and opportunities would result from such an exercise. 2. Investors interest may gain more importance as this would be a factor to be considered while taking a rating decision. Investors would be knowledge investors and will be informed about the standing of the entity. 3. Rated entity would be in a position to brand its image and capitalize the same for generating more business.

4. Benchmarking with others in the field is expected to constantly improved and upgrade the performance. 5. Risk management systems and procedures are expected to improve as this will be a vital rating criteria. 6. Process of consolidation of entities is expected to start as focus would be either to shape up or ship out. 7. Overall compliance standards are expected to improve as a result. 8. In a nutshell, the product may accrue significant benefits to all stakeholders including the investors, stockbrokers themselves, the regulators and others who will benefit from the transparency and the consequential focus on efficiency. Role of Credit Rating Agencies Rating of intermediaries based on well defined parameters would be done by the credit rating agencies registered by SEBI under SEBI (Credit Rating Agencies) Regulations, 1999. Rating agencies interested in doing rating exercise would be required to develop suitable rating process, methodology and parameters in this regard. Rating parameters are expected to cover the entire process flow and operations of the rated entities so as to take a holistic view while awarding a particular rating. Rating- Optional or Mandatory While the product for rating of intermediaries would be encouraged to be introduced in the markets, it is felt that the demand for the product should come from the market itself instead of any imposed obligation on the intermediaries to go for it. Further with the relative maturity of the markets and self imposed code of discipline, which arises out of

such maturity, the demand for product is expected to rise as more and more intermediaries would like to get themselves rated and measured, both for internal evaluation and introspection and for giving an insight into its affairs to the outside world and for marketing its services. It is further observed that a similar approach has been followed by the rating agencies while introducing Corporate Governance and Wealth Creation and Management Index. While the index has not been mandated, companies in their pursuit to achieve higher and higher levels of governance standards are on their own getting themselves rated. Similarly, for market intermediaries also, as the process of consolidation and need to shape up gains momentum, the role and significance of such an index would be felt more and more by them. The rating product is also expected to shore up the interests of investors in the capital markets as a highly rated entity is expected to be more concerned with protection of investors interests in all its dealings.

Rating Approach/Components of Rating It is expected that rating methodology should invariably cover the following points while taking a rating decision:

1. Organization structure: Legal structure of the firm, ownership pattern, organization structure which would include physical and technological infrastructure, adequacy and competence of personnel, qualification and professionalism of the top management who are at the helm of affairs, checks and balances built into the system, flow pattern of information, clear definition of job profiles, proper delegation of authority and well laid down accountability and responsibility statement.

2. Risk Management Policy and System: The risk management practices and risk appetite of the entity, systems and procedures for managing different types of risk including market risk, systemic risk, credit risk, operational risk, policy on giving exposure to and collection of margin and pay-ins from clients, sub brokers etc. This would also include analysis of clients mix (retail/institutional), extent of proprietary trading, day trading, etc.

3. Policy on Investors interest The Management policy on ensuring fair dealing for clients, time taken to make pay- out of money as well as securities to clients including the end clients of sub brokers, policy on handling investors grievances, time taken to settle the complaints and steps taken to ensure non repetition of the same, dealing with arbitration matters, promptness in attending to such matters, quantitative assessment of the organizations approach towards investors protection.

4. Organization process and procedures: The flow of work pattern in the organization, possible bottlenecks which may affect the performance of functions, procedures adopted by the entity in dealing with different facets of operations including opening of new accounts, executing trades, issuance of contract notes/bills to clients, executing agreements, obtaining clients information, operating bank accounts, DP account, dealing with sub brokers etc.

5. Management policy on compliance: The importance attached to the concept of compliance in the organization, role and relative importance of the compliance officer, information flow from/to compliance officer, actual compliance with various rules/regulations/circulars/bye laws of SEBI/stock exchanges etc., steps taken by the management to ensure that problematic areas are addressed promptly etc.

6. Financials: The financial strength of the entity as judged from its net worth, capital structure, gearing and other operating ratios, exposure taken by the entity based on financials, policy on short term and long term borrowing, extent of leveraging for proprietary trading, transparency and quality in disclosures relating to operations, quality of disclosure in directors reports, any adverse reporting by the auditors and steps taken to rectify the same etc. 7. History/Background: Factors would include an analysis of factors like imposition of fines/penalties etc. by regulators/stock exchanges/other SROs, action taken by government authorities, repetition of violations which resulted in such imposition/action etc.

8. Firms Positioning: Factors which may be analyzed would include the market structure, size of the market and level of competition, number of players in the field, core competence of the entity, dominance of players, market share, trend in market size and market share, comparative analysis with others firms on different parameters.

It may be noted that the above factors are only illustrative and not exhaustive and rating industry may devise their own models and methodologies for rating a broker. Further appropriate weightages may be given to these and other factors as may be deemed fit to provide for a level playing field to smaller as well as big brokers while undergoing rating exercise. DISSEMINATION OF RATING The rating awarded by the rating agency to the intermediary may be disseminated by such intermediary on its website and advertisements subject to necessary approvals, for business promotion and to brand its image. However disclosure of rating obtained would be optional for the intermediary. Rating agencies would also need to obtain prior approval from the rated entity before disclosure of rating awarded to the entity. ACTION PLAN Ratings may be made optional and not compulsory. Growth in demand and greater maturity and understanding of the issue would automatically spur interest to go for the rating in due course of time. Ratings should invariably cover all the memberships of the entity so as to present a holistic picture. If the entity is also registered as an intermediary in other capacities, suitable rating exercise may need to be carried out to measure the overall level of performance across different activities and hence rating product would need to be evolved over a period of time to cover the entire gamut of activities being undertaken by the rated entity. Initially ratings may be given for a period of one year and then revised. However if required ratings may be kept under surveillance/reviewed earlier also. Rating agencies would draw out a detailed rating criteria, methodology and process for evaluating brokers.

Rating instruments and symbols should make it amply clear that rating is not intended to induce people to trade through a particular entity. It is only a reflection of the performance of the entity. Rating rationale and rating process may be disseminated to general public.

Topic 4: How important is credit rating in assessing the risk of default for lenders?

Fundamentally Credit Rating implies evaluating the creditworthiness of a borrower by an independent rating agency. Here objective is to evaluate the probability of default. As such, credit rating does not predict loss but it predicts the likelihood of payment problems. Credit rating has been explained by Moody's a credit rating agency as forming an opinion of the future ability, legal obligation and willingness of a bond issuer or obligor to make full and timely payments on principal and interest due to the investors. Banks do rely on credit rating agencies to measure credit risk and assign a probability of default. Credit rating agencies generally slot companies into risk buckets that indicate company's credit risk and is also reviewed periodically. Associated with each risk bucket is the

probability of default that is derived from historical observations of default behavior in each risk bucket. However, credit rating is not fool-proof. In fact, Enron was rated investment grade till as late as a month prior to it's filing for Chapter 11 bankruptcy when it was assigned an indefault status by the rating agencies. It depends on the information available to the credit rating agency. Besides, there may be conflict of interest which a credit rating agency may not be able to resolve in the interest of investors and lenders. Stock prices are an important ( but not the sole ) indicator of the credit risk involved. Stock prices are much more forward looking in assessing the creditworthiness of a business enterprise. Historical data proves that stock prices of companies such as Enron and WorldCom had started showing a falling trend many months prior to it being downgraded by credit rating agencies.

Topic 5: Limitation of Credit Rating

Limitations of credit rating - rating downgrades Rating agencies all across the world have often been accused of not being able to predict future problems. In part, the problem lies in the rating process itself, which relies heavily on past numerical data and standard ratios with relatively lower usage of judgment and understanding of the underlying business or the country economics. Data does not always capture all aspects of the situation especially in the complex financial world of today. An excellent example of the meaningless over reliance on numbers is the poor country rating given to India. Major rating agencies site one of the reasons for this as the low ratio Indias exports to foreign currency indebtedness. This completely ignores two issues firstly, India gets a very high quantum of foreign currency earnings through remittances from Indians working abroad and also services exports in the form of software exports which are not counted as "merchandise" exports. These two flows along with other "invisible" earnings accounted for almost US$11bn in FY 99. Secondly, since India has tight control

on foreign currency transactions, there is very little error possible in the foreign currency borrowing figure. As against this, for a country like Korea, the figure for foreign currency borrowing increased by US$50bn after the exchange crisis began. This was on account of hidden forward liabilities through swaps and other derivative products. In general, Indian rating agencies have lost some amount of their credibility in the last two years due to their inability to predict defaults in many companies, which they had rated quite highly. Sometimes, some of the agencies had an investment grade rating in place when the company in question had already defaulted to some of the fixed deposit holders. Further, rating agencies resorted to mass downgrading of 50-100 companies as a reaction to public criticism, which further eroded their credibility. The major reasons for these downgrades are as follows Corporate earnings fell very sharply due to persistent recessionary conditions prevailing in the economy. Many of the corporates are in commodity sectors where fluctuations in selling prices of products can be very sharp - leading to complete erosion of profitability. This problem was compounded by the Asian crisis, which led to increased competition from cheap imports in many product categories. Rating agencies substantially overestimated financial flexibility of corporates especially from traditional corporate houses. Much of the financial flexibility was implicit on raising money from new issues from the capital market, which has been impossible in the last 3 years. In the case of finance companies, widespread defaults like CRB and tightening of regulations made it virtually impossible for them to raise money in any form. These finance companies had been in the habit of investing in longer term, illiquid assets by borrowing shorter term fixed deposits. When the flow of credit stopped, they faced liquidity problems. These were further compounded by defaults by some of the companies to which they had on lent money. The experience is no different from the international scenario where reputed and highly experienced rating agencies like Standard & Poor (S&P) and Moodys were unable to

predict the Asian crisis and had to face the embarrassment of seeing the credit rating of South Korea as a country go from A+ to BB+ in a short span of 3 months. By and large, the rating is a very good estimate of the actual creditworthiness of the company; however, it is not able to predict extreme situations such as the ones described above, which are unlikely to have been predicted by most investors in any case. Investors should realize that a credit rating is not sacrosanct and that one has to do ones own due diligence and investigation before investing in any instrument. They should use the rating as a reference and a base point for their own effort. One good way of doing this is examining the behavior of the stock price in case the stock is listed. As a collective, the market is far smarter at predicting problems than any credit rating agency. Witness the sharp erosion in stock prices of companies much before their credit ratings were downgraded. Witness also the fact that foreign currency bonds from Indian issuers trade at yields lower than countries which have been rated higher by rating agencies.

Topic 6: Debt market and Rating


Structure of the wholesale debt market There is no single location or exchange where debt market participants interact for common business. Participants talk to each other, conclude deals, send confirmations etc. on the telephone, with clerical staff doing the running around for settling trades. In that sense, the wholesale debt market is a virtual market. The daily transaction volume of all the traded instruments would be about Rs5bn per day excluding call money and repos. In order to understand the entirety of the wholesale debt market we have looked at it through a framework based on its main elements. The market is best understood by understanding these elements and their mutual interaction. These elements are as follows: Instruments ie the instruments that are being traded in the debt market. Issuers ie entities which issue these instruments. Investors ie entities which invest in these instruments or trade in these instruments. Interventionists or Regulators ie the regulators and the regulations governing the market. Each of these is discussed below in separate sections. There is an inevitable degree of overlap in each of these sections as it is often difficult to talk about one without the other Instruments Traditionally when a borrower takes a loan from a lender, he enters into an agreement with the lender specifying when he would repay the loan and what return (interest) he would provide the lender for providing the loan. This entire structure can be converted into a form wherein the loan can be made tradable by converting it into smaller units with pro rata

allocation of interest and principal. This tradable form of the loan is termed as a debt instrument. Therefore, debt instruments are basically obligations undertaken by the issuer of the instrument as regards certain future cash flows representing interest and principal, which the issuer would pay to the legal owner of the instrument. Debt instruments are of various types. The key terms that distinguish one debt instrument from another are as follows:

Issuer of the instrument Face value of the instrument Interest rate Repayment terms (and therefore maturity period/tenor) Security or collateral provided by the issuer

Before you decide whether to invest into a debt security from a company or foreign country, you must determine whether the prospective entity will be able to meet its obligations. A ratings company can help you do this. Providing independent objective assessments of the credit worthiness of companies and countries, a credit ratings company helps investors decide how risky it is to invest money in a certain country and/or security.

Credit in the Investment World As investment opportunities become more global and diverse, it is difficult to decide not only which companies but also which countries are good investment opportunities. There are advantages to investing in foreign markets, but the risks associated with sending money abroad are considerably higher than those associated with investing in your own domestic market. It is important to gain insight into different investment environments but also to understand the risks and advantages these environments pose. Measuring the ability and willingness of an entity - which could be a person, a corporation, a security or a country -

to keep its financial commitments or its debt, credit ratings are essential tools for helping you make some investment decisions.

The Raters There are three top agencies that deal in credit ratings for the investment world. These are: Moody's, Standard and Poor's (S&P's) and Fitch IBCA. Each of these agencies aim to provide a rating system to help investors determine the risk associated with investing in a specific company, investing instrument or market.

Ratings can be assigned to short-term and long-term debt obligations as well as securities, loans, preferred stock and insurance companies. Long-term credit ratings tend to be more indicative of a country's investment surroundings and/or a company's ability to honor its debt responsibilities.

For a government or company it is sometimes easier to pay back local-currency obligations than it is to pay foreign-currency obligations. The ratings therefore assess an entity's ability to pay debts in both foreign and local currencies. A lack of foreign reserves, for example, may warrant a lower rating for those obligations a country made in foreign currency.

It is important to note that ratings are not equal to or the same as buy, sell or hold recommendations. Ratings are rather a measure of an entity's ability and willingness to repay debt.

The Ratings Are In

The ratings lie on a spectrum ranging between highest credit quality on one end and default or "junk" on the other. Longterm credit ratings are denoted with a letter: a triple A (AAA) is the highest credit quality, and C or D (depending on the agency issuing the rating) is the lowest or junk quality. Within this spectrum there are different degrees of each rating, which are, depending on the agency, sometimes denoted by a plus or negative sign or a number.

Thus, for Fitch IBCA, a "AAA" rating signifies the highest investment grade and means that there is very low credit risk. "AA" represents very high credit quality; "A" means high credit quality, and "BBB" is good credit quality. These ratings are considered to be investment grade, which means that the security or the entity being rated carries a level of quality that many institutions require when considering overseas investments. Ratings that fall under "BBB" are considered to be speculative or junk. Thus for Moody's a Ba2 would be a speculative grade rating while for S&P's, a "D" denotes default of junk bond status.

Sovereign Credit Ratings As previously mentioned, a rating can refer to an entity's specific financial obligation or to its general creditworthiness. A sovereign credit rating provides the latter as it signifies a country's overall ability to provide a secure investment environment. This rating reflects factors such as a country's economic status, transparency in the capital market, levels of public and private investment flows, foreign direct investment, foreign currency reserves, political stability, or the ability for a country's economy to remain stable despite political change. Because it is the doorway into a country's investment atmosphere, the sovereign rating is the first thing most institutional investors will look at when making a decision to invest money abroad. This rating gives the investor an immediate understanding of the level of

risk associated with investing in the country. A country with a sovereign rating will therefore get more attention than one without. So to attract foreign money, most countries will strive to obtain a sovereign rating and they will strive even more so to reach investment grade. In most circumstances, a country's sovereign credit rating will be its upper limit of credit ratings. A credit rating is a useful tool not only for the investor, but also for the entities looking for investors. An investment grade rating can put a security, company or country on the global radar, attracting foreign money and boosting a nation's economy. Indeed, for emerging market economies, the credit rating is key to showing their worthiness of money from foreign investors. And because the credit rating acts to facilitate investments, many countries and companies will strive to maintain and improve their ratings, hence ensuring a stable political environment and a more transparent capital market

Topic7: Standard & Poor's Ratings Definitions


ISSUE CREDIT RATING DEFINITIONS

A Standard & Poor's issue credit rating is a current opinion of the creditworthiness of an obligor with respect to a specific financial obligation, a specific class of financial obligations, or a specific financial program (including ratings on medium-term note programs and commercial paper programs). It takes into consideration the creditworthiness of guarantors, insurers, or other forms of credit enhancement on the obligation and takes into account the currency in which the obligation is denominated. The issue credit rating is not a recommendation to purchase, sell, or hold a financial obligation, inasmuch as it does not comment as to market price or suitability for a particular investor. Issue credit ratings are based on current information furnished by the obligors or obtained by Standard & Poor's from other sources it considers reliable. Standard & Poor's does not perform an audit in connection with any credit rating and may, on occasion, rely on unaudited financial information. Credit ratings may be changed, suspended, or withdrawn as a result of changes in, or unavailability of, such information, or based on other circumstances. Issue credit ratings can be either long term or short term. Short-term ratings are generally assigned to those obligations considered short-term in the relevant market. In the U.S., for example, that means obligations with an original maturity of no more than 365 days? including commercial paper. Short-term ratings are also used to indicate the creditworthiness of an obligor with respect to put features on long-term obligations. The result is a dual rating, in which the short-term rating addresses the put feature, in addition to the usual long-term rating. Medium-term notes are assigned long-term ratings.

LONG-TERM ISSUE CREDIT RATINGS Issue credit ratings are based, in varying degrees, on the following considerations:

Likelihood of payment?capacity and willingness of the obligor to meet its

financial commitment on an obligation in accordance with the terms of the obligation;

Nature of and provisions of the obligation; Protection afforded by, and relative position of, the obligation in the event

of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors' rights. The issue rating definitions are expressed in terms of default risk. As such, they pertain to senior obligations of an entity. Junior obligations are typically rated lower than senior obligations, to reflect the lower priority in bankruptcy, as noted above. (Such differentiation applies when an entity has both senior and subordinated obligations, secured and unsecured obligations, or operating company and holding company obligations.) Accordingly, in the case of junior debt, the rating may not conform exactly with the category definition. AAA An obligation rated 'AAA' has the highest rating assigned by Standard & Poor's. The obligor's capacity to meet its financial commitment on the obligation is extremely strong. AA An obligation rated 'AA' differs from the highest-rated obligations only to a small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong. A An obligation rated 'A' is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong. BBB An obligation rated 'BBB' exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.

BB, B, CCC, CC, and C Obligations rated 'BB', 'B', 'CCC', 'CC', and 'C' are regarded as having significant speculative characteristics. 'BB' indicates the least degree of speculation and 'C' the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions BB An obligation rated 'BB' is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation. B An obligation rated 'B' is more vulnerable to nonpayment than obligations rated 'BB', but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation. CCC An obligation rated 'CCC' is currently vulnerable to nonpayment, and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation. CC An obligation rated 'CC' is currently highly vulnerable to nonpayment. C A subordinated debt or preferred stock obligation rated 'C' is currently highly vulnerable to nonpayment. The 'C' rating may be used to cover a situation where a bankruptcy petition

has been filed or similar action taken, but payments on this obligation are being continued. A 'C' also will be assigned to a preferred stock issue in arrears on dividends or sinking fund payments, but that is currently paying. D An obligation rated 'D' is in payment default. The 'D' rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's believes that such payments will be made during such grace period. The 'D' rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized. Plus (+) or minus (-) The ratings from 'AA' to 'CCC' may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. N.R. This indicates that no rating has been requested, that there is insufficient information on which to base a rating, or that Standard & Poor's does not rate a particular obligation as a matter of policy.

Rating Outlook Definitions A Standard & Poor's rating outlook assesses the potential direction of a long-term credit rating over the intermediate term (typically six months to two years). In determining a rating outlook, consideration is given to any changes in the economic and/or fundamental business conditions. An outlook is not necessarily a precursor of a rating change or future CreditWatch action. Positive means that a rating may be raised. Negative means that a rating may be lowered. Stable means that a rating is not likely to change. Developing means a rating may be raised or lowered.

Topic 8: IMPACT OF BASEL II NORMS

Basel II with its three-pillar approach to risk management is far more complex than Basel I. It will require comprehensive data collection and analysis, which is difficult and expensive. Some key questions need to be asked as India enters the consultation stage of implementing Basel II,

Background to Basel II The 1988 Basel Capital Accord is a commitment by regulatory authorities within the G-10 to specify a minimum capital requirement for banks. The Accord was simple in structure and implemented not just by G-10 countries but also most others as well. Basel II, on the other hand, with its three-pillar approach to risk management, is far more complex. In the advanced approaches under Pillar 1, capital requirements are based on

banks' own measures of risks. This requires comprehensive data collection and analysis, which is difficult and expensive to implement. Pillar 2 (Supervisory Review Process) and Pillar 3 (Market Discipline) norms will require significant changes to the internal systems and processes of banks and enhancements in the role of regulators. The following key questions need to be asked as India enters the consultation stage of implementing Basel II. Should not the accord be uniformly applied to all banks and development financial institutions? As per the RBI document, the provisions of the new Capital Accord are applicable only to scheduled commercial banks. This can have an undesirable outcome. Institutions under the new Capital Accord may charge customers a higher price for day-today banking activities to make up for the additional cost of operational risk capital. As a result, customers could be driven to institutions charging lower rates. Typically, such institutions will be able to charge a lower rate because they won't be required to adopt the new RBI capital adequacy norms. This may create a situation where customers have an incentive to opt for riskier banks. This surely is not the intention of the RBI. Should there not be a clear roadmap to move towards the advanced approaches in the Basel Accord? The covering letter to the RBI document mentions that "after adequate skills are developed, both in banks and at supervisory levels, some banks may be allowed to migrate to Internal Rating Based (IRB) approach after obtaining the specific approval of the Reserve Bank". It is in the interest of the financial community to seek clarity from the regulator on some questions. One, what will the criteria be for allowing banks to migrate to the advanced

approaches under Basel II? And, two, is there a roadmap the banks can follow to comply with these approaches? By laying down clear guidelines the RBI will be assisting banks in planning their resource allocation to adopt the advanced approaches. Without such guidelines, adoption of the approaches may be delayed as banks will not be clear on when and how they will get returns for making the additional investments. Is the RBI being too conservative? By not allowing use of the advanced approaches under Basel II, the RBI might be being too cautious and missing an opportunity to upgrade the banking risk management practices. The RBI document states, "Banks in India will be allowed to use only the standard supervisory haircuts for both the exposure as well as the collateral." Not allowing development of internal haircuts under the Standardised Approach may prevent the development of internal modelling and analysis capabilities. What can be done to move forward on known concerns in the existing Basel Accord? Basel II norms have been debated for quite some time now. Some issues are outstanding and are being discussed in various forums. The current RBI document does not vary from the existing Basel II position. The following instances come to mind. Double default: The impact of credit-protection like guarantees does not take into account the extra safety because of the need for a double default (that is, both the obligor and the guarantor need to default) before a loss is incurred. Portfolio diversification effects: Both the Basel Accord and the RBI's document ignore the diversification benefits of a portfolio of assets. That diversification reduces risk a well-known golden rule in risk management. Why then should this not be practised for capital adequacy calculations?

The RBI should consider providing thought leadership in these areas and take proactive steps by moving forward on existing concerns with Basel II. What needs to be done to improve the supervisory review process? The supervisory review process is integral to Basel II under Pillar 2. This only gets a cursory mention in the RBI document. Pillar 2 is critical for the success of Basel II because it is the foundation for robust riskmanagement practices. That, after all, should be the real purpose of the new capital adequacy framework. The final Basel Accord puts the primary responsibility of assessing and maintaining capital requirements on banks. It suggests that banks put in place the necessary processes for doing this. The key processes to be put in place are senior management oversight, sound capital assessment, comprehensive assessment of risks, monitoring and reporting and internal controls review. The Accord emphasises the need for regulators to develop the capability to evaluate risk profile and capital adequacy of banks and take corrective action, where necessary. Similar guidelines would be invaluable for the Indian banking industry's journey towards better risk management. The need to improve risk management and control environment probably precedes the need to use advanced techniques. Should the RBI proposals not have provided guidelines for improving internal as well as external supervision? Why is the principle of risk differentiation not being applied to lending to banks? As per the RBI document, the claims denominated in Indian rupees on banks operating in India will be risk weighted as under:

(i) All exposures to scheduled banks will be assigned a risk weight one category less favourable than the Sovereign. Hence, all claims on these banks will be risk weighted at 20 per cent. (ii) All exposures on other banks will be assigned a risk weight of 100 per cent. If the RBI wishes to strengthen the banking system then the norms for risk weighting exposure should apply to bank exposures as well. Not all banks are on the same financial footing as others. Therefore, applying the same risk weight (20 per cent) on exposures to all banks does not offer banks any capital incentive to employ prudential practices while deciding on counterparty bank exposure limits. Bank failures are not new in India. In fact, a few examples from the recent past come readily to mind, Nedungadi Bank (merged with Punjab National Bank) and Global Trust Bank (merged with Oriental Bank of Commerce). Banks should be sensitised to the fact that lending to other banks is also fraught with risk. They should be just as diligent as when they are lending to corporates. Another positive fallout of using bank ratings for capital calculation is that banks will have to be rated by a recognised agency to benefit from a lower capital charge. This rating, once in the public domain, can serve as a risk indicator to investors and depositors. What do credit rating agencies have to do to be compliant? Under the Standardised Approach for credit risk, risk weights assigned to credit exposures will depend on the rating of the obligor or the particular issue. This makes the role of the credit rating agencies critical in the capital adequacy process. The RBI proposes to undertake the process of identifying eligible credit rating agencies "in due course". The RBI should specify the criteria for an eligible rating agency at the outset. For instance, the Basel II document proposes six parameters objectivity, independence, international access/transparency, disclosure, resources and credibility to evaluate credit rating agencies for eligibility.

A declaration of the criteria will enable credit rating agencies to prepare for their new role in the banking sector. For example, it will clarify to the credit rating agencies the resources that they will need to upgrade their internal rating methodologies. Developing rules and guidelines for the rating industry in India remains an unfinished agenda of the RBI. The rating and banking industry need to initiate the debate. Is an impact study needed to assess the additional capital requirements on

implementation of the new Accord? As adopting the new Accord may result in increased capital requirements for some banks, an impact study by the RBI on the additional capital requirement will benefit banks and the financial community. Such a study will help banks and investors prepare for the capital mobilisation that will follow. There is an air of reform in India today. India is becoming a significant global economic player. The engines of commerce are roaring. It is imperative for the financial service industry keep pace. Reforming the Indian banking sector is already on the political agenda. Therefore, it is paramount that the banking industry and all its stakeholders begin an earnest discussion on what needs to be done. The RBI's new capital adequacy proposal invites discussion. The banking industry will need to make itself heard. The business of a bank is to lend deposits to its customers. The interest earned from the loans is then used to pay for the deposits. While your deposits and interest are safe, the bank faces the risk of losing money on the loans they have given. Succinctly put, while a bank's assets (loans and investments) are risky and prone to losses, its liabilities (deposits) are certain. Bank failures are mainly caused by losses on its assets

in the form of default by borrowers (credit risk), losses on investments in different securities (market risk) and frauds, systems and process failures (operational risks). From the fundamental accounting equation we know that the assets should equal the external liabilities plus capital. A loss in bank's assets will have to be balanced by a reduction in the capital because the liabilities (the deposits) are to be honoured under all circumstances. Therefore, it should have sufficient capital at all times to absorb losses on account of credit, market and operational risks. Banks fail when their capital is wiped out by such losses. The rate of return that is expected on a bank's capital is higher than the interest it pays on deposits. Therefore, though sufficient capital is desirable to absorb losses, it comes with a high cost. This explains the low capital-to-assets ratio for banks vis--vis manufacturing companies. The 1970s saw banks operating on wafer-thin capital base. Under-capitalised banks were prone to failure, which could have dramatic consequences for the economy. Failure of banks with a presence across countries was even riskier as it could have cross-country effects. Several international banks, especially Japanese outfits, tried to get short-term competitive advantage by keeping low capital and charging lower interest rates on their loans and advances. The definition of regulatory capital also differed from country to country. The failure of the German Bank Herstatt in 1974 forced the central banks of the G-10 countries (Belgium, Canada, France, Germany, Italy, Japan, The Netherlands, Sweden, Switzerland, The United Kingdom and The United States) to delve deeper into the issue of under-capitalised banks and non-standardised banking regulations. These countries, along with Luxembourg, formed the "Basel Committee on Banking Supervision" under the aegis of the Bank of International Settlements (BIS) in 1974. Formed in 1930, the BIS is one of the oldest international financial institutions. It is actively involved in securing and maintaining international central banks cooperation.

In July 1988, the Basel Committee came out with a set of recommendations aimed at introducing minimum levels of capital for internationally active banks. Though these proposals were not legally binding on the signatory countries, more than hundred supervisors from different countries agreed to implement the Basel norms with modifications suited to their domestic economies. This first series of recommendations by Basel Committee are popularly known as Basel I norms. These norms required the banks to maintain capital of at least 8 per cent of their riskweighted loan exposures. Different risk weights were specified by the committee for different categories of exposure. For instance, government bonds carried risk-weight of 0 per cent, while the corporate loans had a risk-weight of 100 per cent. The Basel Committee also laid down standard definitions for different types of capital. Capital was categorised as Tier I and Tier II capital. Tier I capital is mainly the permanent capital like equity. Tier II capital is the supplementary capital like subordinate debt. Easy to implement, the norms were quickly adopted by many developed and developing countries. The norms were successful in improving the capitalisation ratios of the banks worldwide. In India, the banks were required by the Reserve Bank of India to maintain a higher capital-to-risk-weighted-assets ratio (CRAR) of 9 per cent. That almost all Indian and internationally active banks are sufficiently capitalised now is a testimonial to the success of the norms. Despite these achievements, these norms were becoming increasingly ineffective to address the fundamental changes in the banking sector over the past decade. There was a need to revise the Basel I norms. The one-size-fits-all approach of using a single rate of CRAR did not take into consideration the actual risks faced by different banks. The norms used a simplified approach with only four broad risk-weights for credit risk measurement. Consequently, it could not provide enough granularity in risk measurement.

The increasing use of financial innovations such as securitisation and credit-risk derivatives allowed the banks to manipulate their balance-sheet figures in such a way that capital requirements were lowered without significant reduction in actual risks. There was an inherent disincentive for banks to keep high-quality loans on their balancesheets. This was because the high-quality loans offered low returns but required the same capital as that of a low-quality-high-return loan. Also, Basel I focused strictly on financial risk but failed to recognise other risks (such as operational ones). To set right these aspects, the Basel Committee came up with a new set of guidelines in June 2004, popularly known as the Basel II norms. These new norms are far more complex and comprehensive compared to the Basel I norms. Also, the Basel II norms are more risk-sensitive and they rely heavily on data analysis for risk measurement and management. These norms are based on the three pillars of Capital Requirement, Supervisory Review and Market Discipline. The new norms are a formidable challenge for the regulators and banks to understand and implement. These are expected to change the banking landscape and the way banks manage their risks. On the customer's side, there will be winners and losers depending on their risk profile. For India, these norms provide massive opportunities in the form of software services, outsourcing and consultancy services. To emphasise the point, the Basel II recommendations are to banks what Duckworth-Lewis is to cricket, equally debatable and controversial. Though it is statistically estimated to perform well, though the Basel II recommendations enhance the business of the bank by better management of its risk, but it has such pitfalls as pro-cyclical nature of the recommendations, loan portfolio polarisation, potential hurdle for the emerging securitisation market and increased capital requirement. But it is certain that these norms are going to have a tremendous effect on our lives by changing the way banks do business with us.

It is by now well recognised that India is one of the fastest growing economies in the world. Evidence from across the world suggests that a sound and evolved banking system is required for sustained economic development. India has a better banking system in place vis a vis other developing countries, but there are several issues that need to be ironed out. In this article, we try and look into the challenges that the banking sector in India faces. Interest rate risk Interest rate risk can be defined as exposure of bank's net interest income to adverse movements in interest rates. A bank's balance sheet consists mainly of rupee assets and liabilities. Any movement in domestic interest rate is the main source of interest rate risk. Over the last few years the treasury departments of banks have been responsible for a substantial part of profits made by banks. Between July 1997 and Oct 2003, as interest rates fell, the yield on 10-year government bonds (a barometer for domestic interest rates) fell, from 13 per cent to 4.9 per cent. With yields falling the banks made huge profits on their bond portfolios. Now as yields go up (with the rise in inflation, bond yields go up and bond prices fall as the debt market starts factoring a possible interest rate hike), the banks will have to set aside funds to mark to market their investment. This will make it difficult to show huge profits from treasury operations. This concern becomes much stronger because a substantial percentage of bank deposits remain invested in government bonds. Banking in the recent years had been reduced to a trading operation in government securities. Recent months have shown a rise in the bond yields has led to the profit from treasury operations falling. The latest quarterly reports of banks clearly show several banks making losses on their treasury operations. If the rise in yields continues the banks might

end up posting huge losses on their trading books. Given these facts, banks will have to look at alternative sources of investment.

Interest rates and non-performing assets The best indicator of the health of the banking industry in a country is its level of NPAs. Given this fact, Indian banks seem to be better placed than they were in the past. A few banks have even managed to reduce their net NPAs to less than one percent (before the merger of Global Trust Bank into Oriental Bank of Commerce, OBC was a zero NPA bank). But as the bond yields start to rise the chances are the net NPAs will also start to go up. This will happen because the banks have been making huge provisions against the money they made on their bond portfolios in a scenario where bond yields were falling. Reduced NPAs generally gives the impression that banks have strengthened their credit appraisal processes over the years. This does not seem to be the case. With increasing bond yields, treasury income will come down and if the banks wish to make large provisions, the money will have to come from their interest income, and this in turn, shall bring down the profitability of banks.

Competition in retail banking The entry of new generation private sector banks has changed the entire scenario. Earlier the household savings went into banks and the banks then lent out money to corporates. Now they need to sell banking. The retail segment, which was earlier ignored, is now the most important of the lot, with the banks jumping over one another to give out loans. The consumer has never been so lucky with so many banks offering so many products to choose from. With supply far exceeding demand it has been a race to the bottom, with the banks undercutting one another. A lot of foreign banks have already burnt their fingers in the retail game and have now decided to get out of a few retail segments completely.

The nimble footed new generation private sector banks have taken a lead on this front and the public sector banks are trying to play catch up. The PSBs have been losing business to the private sector banks in this segment. PSBs need to figure out the means to generate profitable business from this segment in the days to come.

The urge to merge In the recent past there has been a lot of talk about Indian Banks lacking in scale and size. The State Bank of India is the only bank from India to make it to the list of Top 100 banks, globally. Most of the PSBs are either looking to pick up a smaller bank or waiting to be picked up by a larger bank. The central government also seems to be game about the issue and is seen to be encouraging PSBs to merge or acquire other banks. Global evidence seems to suggest that even though there is great enthusiasm when companies merge or get acquired, majority of the mergers/acquisitions do not really work. So in the zeal to merge with or acquire another bank the PSBs should not let their common sense take a back seat. Before a merger is carried out cultural issues should be looked into. A bank based primarily out of North India might want to acquire a bank based primarily out of South India to increase its geographical presence but their cultures might be very different. So the integration process might become very difficult. Technological compatibility is another issue that needs to be looked into in details before any merger or acquisition is carried out. The banks must not just merge because everybody around them is merging. As Keynes wrote, "Worldly wisdom teaches us that it's better for reputation to fail conventionally than succeed unconventionally". Banks should avoid falling into this trap. Impact of BASEL-II norms

Banking is a commodity business. The margins on the products that banks offer to its customers are extremely thin vis a vis other businesses. As a result, for banks to earn an adequate return of equity and compete for capital along with other industries, they need to be highly leveraged. The primary function of the bank's capital is to absorb any losses a bank suffers (which can be written off against bank's capital). Norms set in the Swiss town of Basel determine the ground rules for the way banks around the world account for loans they give out. These rules were formulated by the Bank for International Settlements in 1988. Essentially, these rules tell the banks how much capital the banks should have to cover up for the risk that their loans might go bad. The rules set in 1988 led the banks to differentiate among the customers it lent out money to. Different weightage was given to various forms of assets, with zero per centage weightings being given to cash, deposits with the central bank/govt etc, and 100 per cent weighting to claims on private sector, fixed assets, real estate etc. The summation of these assets gave us the risk-weighted assets. Against these risk weighted assets the banks had to maintain a (Tier I + Tier II) capital of 9 per cent i.e. every Rs100 of risk assets had to be backed by Rs 9 of Tier I + Tier II capital. To put it simply the banks had to maintain a capital adequacy ratio of 9 per cent. The problem with these rules is that they do not distinguish within a category i.e. all lending to private sector is assigned a 100 per cent risk weighting, be it a company with the best credit rating or company which is in the doldrums and has a very low credit rating. This is not an efficient use of capital. The company with the best credit rating is more likely to repay the loan vis a vis the company with a low credit rating. So the bank should be setting aside a far lesser amount of capital against the risk of a company with the best credit rating defaulting vis a vis the company with a low credit rating. With the BASEL-II

norms the bank can decide on the amount of capital to set aside depending on the credit rating of the company. Credit risk is not the only type of risk that banks face. These days the operational risks that banks face are huge. The various risks that come under operational risk are competition risk, technology risk, casualty risk, crime risk etc. The original BASEL rules did not take into account the operational risks. As per the BASEL-II norms, banks will have to set aside 15 per cent of net income to protect themselves against operational risks. So to be ready for the new BASEL rules the banks will have to set aside more capital because the new rules could lead to capital adequacy ratios of the banks falling. How the banks plan to go about meeting these requirements is something that remains to be seen. A few banks are planning initial public offerings to have enough capital on their books to meet these new norms. In closing Over the last few years, the falling interest rates, gave banks very little incentive to lend to projects, as the return did not compensate them for the risk involved. This led to the banks getting into the retail segment big time. It also led to a lot of banks playing it safe and putting in most of the deposits they collected into government bonds. Now with the bond party over and the bond yields starting to go up, the banks will have to concentrate on their core function of lending. The banking sector in India needs to tackle these challenges successfully to keep growing and strengthen the Indian financial system. Furthermore, the interference of the central government with the functioning of PSBs should stop. A fresh autonomy package for public sector banks is in offing. The package seeks to provide a high degree of freedom to PSBs on operational matters. This seems to be the right way to go for PSBs.

The growth of the banking sector will be one of the most important inputs that shall go into making sure that India progresses and becomes a global economic super power

Topic 9: About CRISIL


CRISIL An Overview

CRISIL is India's leading Ratings, Financial News, Risk and Policy Advisory company. At the core of CRISIL are its unimpeachable credibility and unmatched analytical rigour. Leveraging these core strengths, CRISIL delivers opinions and solutions that Help clients mitigate and manage their business & financial risks Make markets function better Shape public policy CRISIL supports these through its unique width of offerings: Ratings & Risk Assessment, Gas & infrastructure Advisory, Financial News Services, Economic Advisory Integrated

research on the Economy, Industries & Companies, Global equity research, Fund Services and Risk Management. CRISILs majority shareholder is Standard & Poors, the world's foremost provider of independent credit ratings, indices, risk evaluation, investment research, data and valuations.

CRISIL Values
Today, CRISIL inspires trust and confidence across industry for upholding values that serve as tenets across the Group Companies. Epitomising the collective character of our people, these core values have been instrumental in delivering us success. Our commitment, analytical rigour and passion for innovation are exemplified by the thought leadership provided by our Centres of Excellence. Dedicated teams for innovative products and methodologies across businesses repeatedly and regularly create new industry standards. At the core of our credibility, assiduously built over the years, are our unimpeachable integrity and independence of individual thinking. Objectivity, neutrality of views and opinions backed by rigour of analysis are encouraged and rewarded internally, and appreciated by clients. Analytical Rigour Our service offerings are underlined by analytical rigour. We blend in-depth conceptual understanding the science of building analytical frameworks with the art of evaluation. CRISIL combines an extensive knowledge base, understanding of the dynamics of business and the market place, expertise, judgment and experience to offer world-class solutions to clients.

Our Policy level assignments in the area of Infrastructure Advisory are but one example of this. Independence

We pride on being non-partisan and unbiased.

Our

culture

fosters

objectivity

and

neutrality

of

views

and

opinions.

Independence and objectivity are ingrained in our processes and call for a participatory approach, individual thinking and transparency for arriving at logical conclusions . Integrity Our credibility in the market place is the result of unimpeachable integrity, honesty and transparency in our work and dealings.

Our people are characterised by a strong sense of fairness and ethics. CRISIL seeks to become the benchmark on integrity by adopting the best professional practices regarding client confidentiality, integrity of analysis and lack of bias Innovation Our dedicated Centres of Excellence provide thought leadership. The core teams lead the way by developing and sharing insights from the extensive corpus available, building innovative analytical frameworks and developing new methodologies and products in line with requirements of the market place. Commitment We are committed to Setting standards for integrity, analytical rigour and best practices in the marketplace Consistently providing value to constituents through analytically relevant and reliable opinions and solutions Upholding independent evaluation processes and a non-partisan, unbiased and fearless approach to functioning

History of CRISIL We share with you key milestones from our journey. Year 1987 1987-88 1988-89 1989-90 Milestone Year of Incorporation Commences the rating of Companies Publishes CRISIL-IDBI Bond Yield Tables Offers CRISIL Credit Assessment Service for Banks Launches CRISIL Rating Scan to announce new and current ratings and disseminate the CRISIL ratings rationale 1990-91 1991-92 Establishes the Information Services Group and offers the CRISIL CARD Service Provides technical assistance and training to Rating Agency Malaysia Berhard and MAALOT, the Israeli Securities Rating Company Ltd. Develops a methodology and framework for ratings Structure Obligations and Asset Securitisation Programmes. 1992-93 Evolves a methodology and framework of bank ratings Introduces CRISIL RatingSet-Debentures and CRISIL RatingSetFixed Deposits Publishes CRISIL RatingDigest 1993-94 Makes public offering of 20,00,000 equity shares of Rs. 10 each at a premium of Rs. 40 per share. The offer is oversubscribed by 2.47 times Crosses the 1,000 mark for debt instruments rated Launches CRISIL BanCard Service Sets up the Advisory Services Group 1994-95 Introduces ratings on real estate developers projects, credit quality assessment of State Electricity Boards and State Governments, CRISIL EcoScan and CRISILVIEW Sets up a Securitisation department 1995-96 Forges a strategic alliance with Standard & Poor's Ratings Group, New York. Ties up with International Information Vendors for dissemination of

CRISIL Ratings Introduces ratings for municipal bonds, Liquefied Petroleum Gas (LPG) and Superior Kerosene Oil (SKO) Launches CRISIL 500 Equity Index Publishes CRISIL SECTORVIEW reports for industry research 1996-97 1997-98 Introduces ratings on mutual funds, bank loan ratings, public finance ratings. Standard & Poors' acquires 9.68% shareholding in the Company Develops and launches Municipal Bond ratings Launches financial strength rating for Insurance companies Introduces CRISERVICE, a retainership service for research. Launches CRISIL MNC Index and CRISIL Indian Business Groups

Index Sets up IISL, a Joint Venture between CRISIL and National Stock Exchange for undertaking index business and related activities. The new Company enters into a Consultancy and Licence Agreement with Standard & Poors', New York 1998-99 Develops a framework for rating debt obligations supported by credit enhancements based on overseas guarantees called Foreign Structured Obligations Launches the Risk Assessment Model (RAM), a user-friendly software package Develops a web presence, launches the official website Introduces information products viz., CRISILCard500, CRISIL DebtBase, CRISIL BondValuer, Crisil DebtView, CRISIL EcoView and CRISIL GOI benchmarks Ties up with S&P MMS and S&P Platts to market products in India 1999-2000 Develops new product for rating of real estate developers in association with National Real Estate Development Council (NAREDCO) Introduces new products viz., CRISIL Gilt-X (GOI Index), CRISIL AAA Corporate Bond Index (India's first corporate bond index), CRISIL Gilt Base, a database on GoI securities and two business

publications, CRISIL Insight and CRISIL Alert Launches CRISIL Millennium Offer, a web-based subscription service Acquires the business of Information Products and Research Services (India) Pvt. Ltd. alongwith its brand INFAC Secures the Certificate of Registration under SEBI (Credit Rating Agencies) Regulations, 1999 Enters into a strategic alliance with National Economic Research Associates (NERA), a unit of Mercer Consulting Group and a subsidiary of Marsh and Mclennan Companies Inc., USA for global expertise in regulations and regulatory reforms 2000-2001 Launches CRISIL FundScan, a comprehensive web-based, mutual fund tracking and query product Introduces a mutual fund ranking service for the domestic mutual fund market Sets up a subsidiary for conducting online business named Crisil.Com Ltd., now renamed CRIS-Risk & Information Solutions Co. Ltd. (CRIS-RISC), for capital markets research, information and news Launches the CRISIL-NAREDCO ratings initiative for the real estate sector Rates the first ever Mortgage backed Securities (MBS) issue by HDFC and LIC Housing Finance Limited Rates an innovative structure of the Single Risk Collateralised Bond Obligations (CBO) transaction, backed by rated bonds Sets up Global Data Services of India Limited, a subsidiary for collecting data of companies, trade and the industry 2001-2002 Introduces grading of healthcare institutions First to rate debt transaction for an acquisition First to rate take-out cum guarantee facility by an infrastructure development financial institution Introduces new rating and grading services for stock brokers, construction industry entities, SMEs and B2B exchanges Revamps website Launches CRISIL MarketWire, a real-time financial news service

Launches Mutual Fund Composite Performance Rankings


(CRISIL CPRs), Fund Risk Analytics Model and CRISIL Mutual Funds Portfolio Tracker

2002-2003

Introduces CRISIL Governance and Value Creation (GVC) ratings Offers evaluation services for film and TV software producers Rates the first sales tax receivables securitisation transaction and the first personal loan securitisation transaction Sets up Investment and Risk Management Services, an independent division

2003-2004

Approves change of name of the company from "The Credit Rating Information Services of India Limited" to "CRISIL Limited" Rates the first successful Collateralised Debt Obligation (CDO)transaction in India Rates the first CDO transaction of working capital facilities in the Asia Pacific Makes an equity investment in the Caribbean Information & Credit Rating Services Limited (CariCRIS), the first regional rating agency in the world, covering 10 countries. Acquires EconoMatters Limited, a London-based company engaged in gas consulting, information and training/conferences. Takes up a 12.1% stake in the National Commodity & Derivatives Exchange Limited (NCDEX) Institutes the "CRISIL Awards for Excellence in Municipal Initiatives", aimed at recognising initiatives in the urban sector AMFI mandates CRISIL to provide daily fund indices as benchmarking standards for the mutual fund industry

2004-2005

Open Offer by Standard & Poor's to the shareholders of the Company to acquire up to 3,534,488 fully paid up equity shares of CRISIL representing 55.57% of the Company's voting equity capital as on December 31, 2004, subject to a minimum acceptance level of 2,643,983 shares (41.57% of the Company's paid up equity capital). CRISIL Board okays proposal to acquire Irevna group of companies

Innovative Rating Products launches : the first rating assigned to a company under a CDR (Corporate Debt Restructuring) package, the first trade receivable securitization, the first-ever used car loan securitization CariCRIS receives first rating mandate CRISIL Infrastructure Advisory partners with Nordpool Consultants for a mandate from National Thermal Power Corporation Limited (NTPC) to set up the first power trading exchange in India CRISIL Infrastructure Advisory formulates Blueprint for Infrastructure in Gujarat (BIG) 2020 CRISIL Infrastructure Advisory's international forays : Mandate from African Development Bank and demand-supply scenario for natural gas in Bangladesh New Launches by EconoMatters : European Gas Markets Review (EGM), The Shipper's Toolkit (STK), LNG Focus, Gas Matters TodayAsia Global Data Services of India Ltd. Launches a new publication "Accounting & Analysis - The Indian Experience" IISL launches an Exchage Traded Fund (ETF) on the CNX Bank Index, a first in India. CRISIL awarded the Association of Business Communicators of India (ABCI) award for the CRISIL 2004 table calendar in its category, and the 2nd runner-up for the Best of CRISIL 2003 in the prestige publication category. CRISIL's corporate website and the online ratings information website CRISILRATINGS.com completely re-vamped, re-designed and restructured to reflect CRISIL's unique width of offerings and services.

Topic 10: What businesses does CRISIL do?

From a pioneering step taken in 1987, to playing an integral role in India's development milestones, CRISIL has emerged as India's leading Ratings, Financial News, Risk and Policy Advisory company. CRISILs association with Standard & Poors, a division of The McGraw-Hill Companies, dates back to 1996 when both companies started working together on rating methodologies and joint projects. S&P is the world's foremost provider of independent credit ratings, indices, risk evaluation, investment research, data and valuations.Since then, we have significantly broadened this relationship, working together on critical, cutting-edge assignments for global clients. This partnership has now culminated in Standard & Poors acquiring a majority shareholding in CRISIL. CRISIL has also spearheaded the formation of the CariCRIS, the world's first regional credit rating agency . We are poised for leadership in gas and global LNG through our London-based subsidiary EconoMatters, and more recently are gearing towards leadership in global equity research with the acquisition of IREVNA. The different companies under CRISIL are: CRISIL Ratings EconoMatters Group CRISIL Centre for Economic Research Global DataServices of India Ltd. CRISIL MarketWire Ltd. Iverna CRISIL Infrastructure Advisory Investment & Risk Management Services India Index Services & Products Ltd. (IISL) CRISIL FundServices

Ratings and Risk Assessment

CRISIL Ratings CRISIL Ratings is the only ratings agency in India to operate on the basis of sectoral specialisation. It reflects our sharpness of analysis, the responsiveness of the process and the large-scale dissemination of opinion. CRISIL Ratings plays a leading role in the development of the debt markets in India. The Rating Criteria & Product Development Centre, responsible for policy research, new product development and ratings' quality assurance, has developed new ratings methodologies for debt instruments and innovative structures across sectors. CRISIL Ratings provides technical know-how to clients worldwide. We have helped set up ratings agencies in Malaysia (RAM), Israel (MAALOT) and in the Caribbean. Our strategic alliance with Standard & Poor's, the world's leading ratings agency, enables us to anticipate new market challenges and introduce value-added ratings methodologies. We partner with Standard & Poor's on several projects in the US and East Asia and jointly promote business and services in India.

Policy, Regulatory and Transaction Advisory CRISIL Infrastructure Advisory Our Infrastructure Advisory enhances CRISIL's franchise in the areas of policy-making and economic development. Our spectrum of activities includes catalysing economic development through creation of appropriate policy frameworks, sector reforms, regulatory support, project structuring and global competitive bid process management for large and complex projects.

CRISIL Infrastructure Advisory blends the best global practices with analytical excellence and a deep understanding of the local environment to provide policy, regulatory and transaction level advice to governments and leading organisations across sectors. We work closely with our clients to facilitate an environment for public-private partnerships and ensure the success of projects undertaken. EconoMatters Group of Gas Information & Solutions CRISIL has acquired UKs leading gas advisory and information company, EconoMatters Ltd. and its subsidiary companies. CRISIL now has a significant presence in the international gas and LNG markets. CRISIL is uniquely positioned to share its expertise, insights and perspectives with global majors in the energy and gas industry.

Investment and Risk Advisory


Investment and Risk Management Services The Risk Advisory business provides integrated risk management solutions and advice to Banks and Corporates by leveraging the experience and skills of CRISIL in the areas of credit and market risk. Taking cognisance of the market needs for integrated solutions that quantify and manage complex risks, the Risk Advisory Group uses cutting-edge research and methodologies. Also, the Group brings together the experience of all business teams to offer modular or integrated solutions and advisory services that are customised to meet client needs.

CRISIL FundServices CRISIL FundServices is India's leading provider of fund evaluation services and risk solutions to the mutual fund industry. Through innovative analytics, benchmarks and analytical tools, CRISIL FundServices plays a significant role in shaping investor confidence and facilitating the introduction of best practices in the mutual fund industry. Widely reputed as the industry standard, CRISIL Fund Services is the official provider of valuation tools and market benchmarks.

Integrated Research business CRISIL has built India's largest independent, integrated research business. CRISIL's research model is based on its unique analytical understanding of macro-micro linkages, Its well-researched, insightful solutions help clients take informed investment and resource allocation decisions. The Centre for Economic Research The Centre for Economic Research is uniquely positioned to provide benchmarks and analyses for India's policy and business decision makers. The Centre for Economic Research is uniquely positioned to provide benchmarks and analyses for India's policy and business decision makers. Manned by a team of senior economists, the Centre applies economic principles to live business applications, creating conceptual and contextual linkages that are unique to CRISIL.

The Centre also works with other CRISIL businesses, contributing to both the range and depth of products, services and consulting assignments that CRISIL offers.

CRIS INFAC CRIS INFAC is Indias largest independent, integrated research business. The research model is based on our unique analytical understanding of macro-micro linkages. Our wellresearched, insightful solutions enable clients to take informed investment and resource allocation decisions. CRIS INFAC provides business research and opinion on issues impacting the competitiveness of Indian industries and companies. CRIS INFAC helps over 500 clients make better credit and investment decisions, thereby enabling them to mitigate and manage their risks. Manned by a team of sector specialists who offer analytical insights to clients, CRIS INFAC has an extensive research base on over 80 industries, 300 commodities and 3,000 companies, and a network of over 1,200 primary sources. Global Data Services of India Limited Global Data Services of India Limited, the financial data analysis business of CRISIL, offers consistent, high quality financial data analysis to users within and outside the CRISIL group, enhancing the efficacy of the conventional financial analysis frameworks adopted in the marketplace. India Index Services & Products Limited (IISL) India Index Services & Products Limited (IISL) is a 50:50 joint venture with the National Stock Exchange of India, India's leading stock exchange.

IISL is the only entity in India dedicated to providing indices, index products and services to investors in Indian equities. Its main indices, the S&P CNX Nifty and S&P CNX 500 are licensed with Standard & Poor's, the world's leading index provider. Global Equity Research Irevna CRISIL has recently added equity research to its wide canvas of work, by acquiring Irevna, a leading global equity research and analytics company. Irevna provides high-end customised equity research and analytics, and knowledge process outsourcing, to the worlds leading financial institutions, investment banks, private equity firms and consulting companies, helping them achieve sustainable competitive advantage.

Financial News CRISIL MarketWire Ltd. CRISIL MarketWire is CRISIL's cutting-edge financial market newswire. A "Wire" agency with a strong India understanding and an unparalleled combination of news, views, analytics and tools, CRISIL MarketWire enables clients to take pricing and investment decisions to stay ahead of the curve. It is widely acknowledged to provide unmatched expert coverage on India's money and fixed income markets. Backed by the experienced team of the erstwhile Bridge News, CRISIL Market Wire spearheads CRISIL's offerings in the market place with real-time news on multi-delivery platforms.

Topic 11: How does CRISIL do its business??


CRISIL is a professionally managed company. It has adopted the best global practices for corporate governance, under the active guidance of a visionary Board of Directors comprising distinguished, independent professionals of proven competence and integrity. Focus on Human Capital Our people are our key assets. CRISIL has an unrivalled skill base spanning its business areas. Functional skills include financial modeling, risk modeling, credit and equity research, sector-specific research, policy and transaction advisory, real time news coverage and reporting, and database management, among others. A strong contextual understanding of business and markets underpins the application of these skills. Delivery of CRISILs offerings is enabled by strong information technology, and publication capabilities. CRISIL encourages a value-driven and performance-based culture, which attracts the best talent from the marketplace.

CRISILs group wide talent pool comprises over 750 professionals from premier
management and engineering institutions, and leading organisations, working across its offices in India and overseas. These include 30 professionals and 40 associates in CRISILs London office, who are global experts in gas consulting, advisers to Fortune 500 clients, and possess individual experience of 25-30 years.

CRISIL is IT- savvy and technologically oriented, with a view to Propel CRISIL to Leadership Position with the help of Information Technology Mesh business areas and applications using IT capabilities to create a seamless enduser experience Empower Business to function anytime, anywhere Provide Business Process Efficiency to Clients of CRISIL Our Technology Experience is diverse Infrastructure Management Management of heterogeneous infrastructure Microsoft, Sun, Digital Management of Wide Area Network Voice & Data Providing 24x365 access of Business Applications through Citrix

Software Solutions Varied experience in application development ranging from Work process automation to product development Possess internal resources in varied technologies like VB, VC, ASP, Java, Oracle, SQL Server, XML Development and Management of diverse applications ranging from real-time news to electronic desktop products

Topic 12: Board of Directors


CRISIL is managed by a team of visionaries and thought leaders.

Mr. B.V. Bhargava, Chairman Mr. M.G. Bhide, Director Ms. Rama Bijapurkar, Director Deven Sharma, Executive Vice President Global Strategy, The McGraw-Hill Companies. Vickie Tillman, Executive Vice President, Credit Market Services, Standard & Poors. Mr. Edward Z. Emmer, Director Tom Schiller, Executive Managing Director, Standard & Poor's Asia-Pacific. Ms. Roopa Kudva, Alternate Director to Tom Schiller, Executive Director & Chief Rating Officer Mr. R. Ravimohan, Managing Director and Chief Executive Officer

Topic 13: Thought Leadership


Basel II : A challenge for banks
The Challenge Banks and bank supervisors worldwide are implementing Basel II guidelines, the new capital adequacy framework, in a phased timeframe. The framework seeks to enhance banks financial stability. It stresses the importance of internal capital assessment processes and aims at aligning the capital measurement framework with sound practices in banking, including risk management. This new challenge is also driving consolidation in the banking sector. Banks therefore need to evaluate the risks that they face, and realign their capital with the underlying risks. The CRISIL solution Credit risk is central to integrated risk management in banks. CRISIL is helping banks globally to develop customised credit rating models to mitigate the risk of lending, as well as put in place a structured risk management framework in line with best practices in risk management.

CRISILs basket of Basel II services to the Banking sector is unique as it embeds CRISILs unmatched rating experience and its strong understanding of clients business processes, enabling banks to carry out an integrated risk assessment on financial, business and industry parameters, across myriad borrower segments. CRISILs proprietary Risk Assessment Model (RAM) helps banks evaluate credit risk, and develop customized internal rating models. CRISILs proprietary portfolio credit risk management tool, Credit Capital, enables a portfolio approach to understanding and managing credit risk. CRISILs comprehensive solution, the Capital Assessment Model, addresses banks need to calculate capital requirements as required by the Basel II guidelines. Banks can use this highly parameterised model for computing their capital requirements in relation to their risk profile, using the Standardised approach as well as the Foundation and Advanced Internal Rating-based approaches. Drawing on its 18 years of unparalleled ratings history in India and a diverse database spanning manufacturing, finance and infrastructure sectors, CRISIL has published Indias first study of defaults at a time when the implementation of Basel II framework is under way, and banks are in the process of compiling data related to internal ratings and defaults. CRISILs default rates are the most reliable estimate of default probability in the Indian market as they are based on a large and diverse data set, a rigorous default definition, and have stood the test of various measures of validation.

SMEs : Growth engine for India


The Challenge Small and medium enterprises (SMEs) have historically been a key engine of growth for every country; in most developing countries, they represent over 80 per cent of industrial enterprises. In India, about 3.2 million units in the SME sector generate over 40 per cent of Indias gross industrial production and 35 per cent of its exports. The central government

has recognised the potential of this sector to drive Indias growth, and is therefore focusing on developing its competitiveness. The CRISIL solution CRISIL believes that adequate credit flow is critical for developing Indias SME sector. In partnership with the National Small Industries Corporation Ltd. (NSIC - an organisation that facilitates the growth of small scale industries in the country), CRISIL has launched the NSIC-CRISIL Performance and Credit Ratings for Small Scale Industries (SSIs). This initiative is expected to accelerate the flow of credit from the banking sector to SSIs and facilitate SSIs business development efforts with various external agencies and counterparties. CRISILs dedicated rating models for the SME sector, its unmatched ratings and research experience base, its in-depth understanding of the linkages between the economy, sectors and companies, supported by NSICs long engagement with and intricate understanding of Indias SSI sector, have led to the development of a unique, specially tailored rating methodology. As this methodology evaluates not only the financial strength but also the performance capability of an SSI, and its business linkages, it provides lenders with the most reliable and comprehensive opinion on the SSI risk.

Structured Finance : Innovation in Indias markets


The Challenge The increasing maturity of Indias financial markets has engendered new types of funding instruments to suit investors varied risk-return requirements and provide efficient financing mechanisms to issuers. Among these is securitisation, which is the process of converting illiquid loans into tradable securities. India is the third largest securitisation market in Asia and growing at an exponential rate. CRISIL estimates that over 330 transactions involving a cumulative volume of Rs 530 billion have been placed in the market till date; since 2000, the asset-backed securities market has grown at a CAGR of 51 per cent and mortgage-backed securities market at 65 per cent. The demand for

innovatively structured financial instruments will only grow exponentially, supported by regulatory clarity and a boom in retail financing. Currently, securitisation constitutes only 20 per cent of the incremental growth of consumer finance in India. In the next few years, this figure is expected to rise to 35 per cent. The CRISIL solution CRISIL has always been at the forefront, breaking new ground in innovative financing structures for Indias markets. It has facilitated Indias first auto loan securitisation, the first mortgage-backed securities securitisation, the first offshore transaction backed by aircraft purchase receivables, and more recently Indias first successful multi-asset collateralised debt obligation. Having demonstrated its ability to anticipate market requirements, structure creative instruments and successfully bring them to the market, CRISIL has built institutional expertise in this area. Its functional expert teams comprise sector, legal, surveillance specialists, providing clients an unmatched bandwidth of dedicated resources and transparency of process.

Recognising the immense potential of securitisation, CRISIL has taken on the responsibility of educating the market to build market confidence and lead market development. CRISILs quarterly report on Pool Performance, the first of its kind in India, provides a transparent assessment of the behaviour of securitised pools of assets over time periods, enhancing the understanding of market players and facilitating their decisions.

Strategic Initiatives
CRISIL's recent investments in and partnerships with local, regional and global domain leaders help us to offer a world-class portfolio of Ratings, Financial News, Risk and Policy Advisory services.

Standard & Poors~CRISIL :: Poised for global leadership The Standard & Poors~CRISIL combine is set to create a new global leadership in the worlds financial markets. CRISILs association with Standard & Poors, a division of The McGraw-Hill Companies, dates back to 1996 when both companies started working together on rating methodologies and joint projects. Since then, the two organisations have significantly broadened this relationship, working together on critical, cutting-edge assignments for global clients. This partnership has now culminated in Standard & Poors acquiring a majority shareholding in CRISIL. The McGraw-Hill Companies has, for over a century, built strong global businesses and leading positions in financial services, education and business information. The Corporations market-leading brands include, among others, Standard & Poors, BusinessWeek, Platts and J.D. Power. Standard & Poors, the financial services business of The McGraw-Hill Companies, is the worlds foremost provider of independent credit ratings, indices, risk evaluation, investment research, data and valuations. With 6,000 employees located in 21 countries, Standard & Poors is an essential part of the worlds financial infrastructure and has played a leading role for more than 140 years in providing investors with the independent benchmarks they need to feel more confident about their investment and financial decisions. The coming together of Standard & Poors and CRISIL, two credible leaders, will significantly strengthen the service offering to clients in India and around the world, and considerably sharpen CRISILs understanding of different markets.

CRISIL~Irevna :: Geared to be the leader in global equity research

Recent regulatory actions in the U.S., requiring investment banks to de-link their research from their commercial arms, has created a large opportunity for objective, high-quality research at economical prices, and a movement of global equity research work towards remote locations like India.

Together with other high-end knowledge processing work, this is expected to generate revenues in excess of US$ 10 billion for India by 2010, requiring over 200,000 professionals. CRISIL has strategically positioned itself to become a significant player in this area. It has recently added equity research to its wide canvas of work, by acquiring Irevna, a leading global equity research and analytics company. Irevna provides high-end customised equity research and analytics, and knowledge process outsourcing, to the worlds leading financial institutions, investment banks, private equity firms and consulting companies, helping
them achieve sustainable competitive advantage.

Irevna is the first port of call for global firms looking to augment their analytical resources. Rigorous analytical processes, innovative modelling capabilities and a diligent client-facing delivery platform have made Irevna the leading player in India in the space of analytical outsourcing. CRISIL is Indias largest, independent research house. Its integrated approach to analysing the economy, industries, companies and markets, and its expert team that is supported by a database on 3,000 companies, 80 industries, 300 commodities and a network of 1,200 primary sources, enable it to provide expert insights to over 500 clients, helping them mitigate their business and financial risks, and facilitating their lending and investment decisions. Together, CRISIL and Irevna aim to pursue an aggressive growth strategy to become the leader in global equity research.
CRISIL~CariCRIS :: Created a global benchmark Opened up new geographies

In 2004, CRISIL created yet another benchmark in the world of credit rating. CRISIL spearheaded the formation of the worlds first-ever regional credit rating agency the Caribbean Information and Credit Rating Services Limited (CariCRIS) spanning 19 countries. CariCRIS has a diversified shareholding comprising some of the central banks in the region, US and European commercial banks, development banks and financial institutions.

CariCRIS has become a model for many countries. Impressed by CRISILs pioneering experience and success in setting up world class rating agencies in emerging markets India, Israel, Malaysia, and the Caribbean many countries in Europe, the Mediterranean and Middle East regions have evinced keen interest in setting up rating agencies and have approached CRISIL for technical assistance.
CRISIL~EconoMatters :: Positioned for leadership in gas and global LNG

The goal of the global energy economy is to ensure uninterrupted access to energy, the worlds most important resource. In a world that increasingly demands more energy, crude oil, beset by finite supplies and volatile prices, cannot meet the worlds energy requirements. Alternative energy sources are, hence gaining importance, both for their economic advantages and environmental benefits. The next decade will be one of tradable natural gas and greater integration of the global LNG industry. CRISILs London-based subsidiary, the EconoMatters Group of Gas Information & Solutions (EconoMatters), is a leading provider of global gas advisory, training and information. CRISIL, with EconoMatters, has positioned itself to tap the emerging opportunities in the global gas and LNG sector. EconoMatters global gas consulting business, Gas Strategies, has built a worldwide reputation for providing expert insights, advice and perspectives on a range of commercial, strategic and financial issues. Leveraging the depth of knowledge, expert research skills and industry perspective provided by a team of consultants and associates with individual market experience of 25-30 years, Gas Strategies diverse customer base includes many Fortune 500 companies, investment banks, regulatory authorities and international agencies. Gas Strategies has done path breaking work in gas and global LNG. In 2004, Gas Strategies assisted the lenders to the landmark Tangguh LNG project, North Americas first-ever supply of gas from Asia Pacific. The emergence of a North American west coast market, triggered by Tangguh LNG, will change the whole dynamic of Pacific LNG trade. In India, Gas Strategies has worked closely with a leading private sector energy

player to develop its strategy that has a potential to alter the landscape of Indias gas sector forever. Gas Strategies consultants and CRISIL consultants have collaborated on a number of consulting engagements. Together, they have successfully evolved a unique, integrated resource model to lead international assignments in the gas and LNG areas. To help global players keep abreast of the pertinent issues breaking in Asia and around the world, EconoMatters produces publications and provides training, through Gas Matters and Alphatania, respectively. In India, CRISIL is credited with having managed, just a few years ago, a pioneering bid process for an LNG-based power project, a first in the world. Since then, CRISIL has been at the forefront of Indias LNG initiatives, and is acknowledged as having unmatched advisory experience in this sector. In 2004, it successfully managed a global bidding process for sourcing LNG/gas for the west coast-based power plants of NTPC, a leading power utility. This process created the most competitive price benchmark for commercially priced gas in India. Gas Strategies consultants and CRISIL consultants have collaborated on a number of consulting engagements. Together, they have successfully evolved a unique, integrated resource model to lead international assignments in the gas and LNG areas.

CORPORATE GOVERNANCE
Since inception, CRISIL has protected the interests of stakeholders by upholding the principles of transparency, fairness, disclosure and accountability. We continue to adopt the best global practices for corporate governance, disclosure standards and enhancing shareholder value. In 1993, CRISIL went public and dispersed shareholding to ensure fairness in the ratings process. The Directors on the Board are seasoned professionals of proven competence and integrity. The Board has constituted Committees of executive and non-executive Directors to focus on critical functions of the Company.

Topic 14: CRISIL RATINGS

CRISIL RATINGS
AN OVERVIEW CRISIL is India's leading rating agency, and is the fourth largest in the world. With over a 60% share of the Indian Ratings market, CRISIL Ratings is the agency of choice for issuers and investors. CRISIL Ratings is a full service rating agency that offers a comprehensive range of rating services. CRISIL Ratings provides the most reliable opinions on risk by combining its understanding of risk and the science of building risk frameworks, with a contextual understanding of business.

CRISIL is the only rating agency to operate on the basis of a sectoral specialisation, which underpins the sharpness of analysis, responsiveness of the process and large-scale dissemination of opinion pieces. In addition, CRISIL also offers services to the mutual fund industry through CRISIL FundServices, a leading provider of fund evaluation services and risk solutions in India. With over Rs. 5.09 trillion of debt, 4600 issues and 2200 issuers rated to date, CRISIL continues to play a key role in the development of India's debt markets. CRISILs association with Standard & Poors, a division of The McGraw-Hill Companies, dates back to 1996. This has now culminated in Standard & Poors acquiring a majority shareholding in CRISIL. The partnership helps CRISIL to anticipate new market challenges and introduce value-added rating methodologies. CRISIL Ratings and Standard & Poor's collaborate on several projects in the U.S. and in East Asia, and jointly promote business and services in India. CRISIL Ratings also offers technical know-how overseas. For instance, it has provided assistance and training for setting up ratings agencies in Malaysia (RAM) and Israel and in the Caribbean . In March 2004, CRISIL took up an equity stake of about 9% in the share capital of the Caribbean Information & Credit Rating Services Limited (CariCRIS), with an investment of US $ 300,000. The Caribbean rating agency is a unique initiative -- it is the world's first regional credit rating agency. It will offer rating and other services in 19 countries. CRISIL will also provide technical assistance to the agency to establish and stabilise its operations.

FULL SERVICE RATINGS AGENCY

CRISIL Ratings' comprehensive offerings include credit ratings for short, medium and long term debt instruments issued by manufacturing companies, non-banking financial companies, municipal bodies, financial institutions, state governments, asset-backed securities and structured obligations and, performance grading of real estate developers, LPG parallel marketers, and healthcare institutions. CRISIL FundServices (CFS) is the official provider of valuation tools, certified by the Association of Mutual Funds in India (AMFI). CFS has set industry benchmarks in performance evaluation for the mutual fund industry. Through innovative analytics,

exemplified in its rating and ranking products, benchmarks and analytical tools, CFS has played a significant role in shaping investor confidence and facilitating introduction of best practices in the mutual fund industry. Dedicated to policy research, new product development and quality assurance, the Rating Criteria & Product Development Centre has created new rating methodologies for debt instruments and innovative structures across sectors. RANGE OF SERVICES Through the years, CRISIL has continued to innovate and play the role of a pioneer in the development of the Indian debt market. CRISIL rates all rupee denominated debt obligations. These include long term instruments such as debentures/bonds, preference shares, structured obligations (including asset backed securities), fixed deposits and short term instruments such as commercial paper programmes and short term deposits. CRISIL has also undertaken credit assessments of various state governments including Maharashtra, Gujarat, Karnataka and Andhra Pradesh. The first rating agency to be set up in India, CRISIL has several firsts to its credit. For instance, CRISIL was the first rating agency in the world to rate instruments carrying partial guarantees, and to integrate value creation into the corporate governance framework. CRISIL was the first rating agency in India to rate banks, governments and urban local bodies, and securitisation transactions. CRISIL has also pioneered the rating of subsidiaries and joint ventures of multinationals in India and has rated several multinational entities. Over the years, CRISIL has also developed several structured ratings for multinational entities based on Guarantees and Letters of Comfort from parents, as well as Standby Letter of Credit arrangements from bankers. CRISIL has also developed methodologies for credit enhancement of corporate borrowing programmes through the use of partial guarantees. All this gives CRISIL a unique place in terms of experience in understanding the extent of credit enhancement arising from such structures.

CRISIL has developed performance methodologies for the credit rating of real estate developers and projects , in association with the National Real Estate Development Council, and for the credit rating of parallel marketers of liquefied petroleum gas. CRISIL FundServices provides a range of rating, ranking, risk analytics and valuation tools to the mutual fund industry. The CRISIL Gilt Valuer and CRISIL Bond Valuer, which are the industry standards in terms of valuation tools used by mutual funds, have been mandated for use by the Association of Mutual Funds in India (AMFI). CRISIL FundServices also provides products like Credit Quality Rating, Volatility Rating, Fund Management Practices Rating and Composite Performance Rankings which offer a scientific platform for industry wide performance evaluation on a scheme wise as well as fund house wise basis.

TRACK RECORD & EXPERIENCE


Over the past fourteen years, CRISIL has successfully established the concept of credit rating among major market participants. It has innovated and institutionalised a viable and market driven system of credit rating in India, facilitating greater investments in debt instruments. With over Rs. 5.09 trillion of debt, over 4600 issues and over 2200 issuers rated to date, CRISIL continues to play a key role in the development of the debt markets in India. Its client list includes manufacturingand finance companies, financial institutions, banks, state governments, municipal bodies, and utility companies and holding companies, in the public and private sectors. CRISIL Ratings currently employs over 100 professional analysts and has an extensive database spread over various industries and companies. To give sharper qualitative focus to existing as well as proposed rating methodologies and upgrade understanding of industry prospects, CRISIL Ratings has dedicated a Rating Criteria & Product Development team in place.

The affiliation with Standard and Poor's has resulted in a marked enhancement in CRISIL's skillsets and CRISIL's employees have benefited greatly from international exposure through secondments, training and international assignments. The international content in the Ratings Division work has increased significantly since the establishment of the alliance with S&P.

AFFILIATION WITH STANDARD & POORS


CRISILs association with Standard & Poors, a division of The McGraw-Hill Companies, dates back to 1996 when both companies started working together on rating methodologies and joint projects. Since then, the two organisations have significantly broadened this relationship, working together on critical, cutting-edge assignments for global clients. This partnership has now culminated in Standard & Poors acquiring a majority shareholding in CRISIL. The McGraw-Hill Companies has, for over a century, built strong global businesses and leading positions in financial services, education and business information. The Corporations market-leading brands include, among others, Standard & Poors, BusinessWeek, Platts and J.D. Power. Standard & Poor's, the financial services business of The McGraw-Hill Companies, is the world's foremost provider of independent credit ratings, indices, risk evaluation, investment research, data and valuations. With 6,000 employees located in 21 countries, Standard & Poor's is an essential part of the world's financial infrastructure and has played a leading role for more than 140 years in providing investors with the independent benchmarks they need to feel more confident about their investment and financial decisions. CRISIL's Ratings division collaborates with S&P on several projects in the East Asian region and the U.S. These projects are progressing well and discussions are on for new projects of similar nature.

As part of CRISIL's association with S&P, a number of CRISIL analysts have been deputed on secondments to S&P, or have been trained at S&P. CRISIL has also benefited greatly from exposure to international rating markets, and from access to rating processes and methodologies established over long years at S&P. CRISIL has provided assistance to S&P in the past for setting up and maintaining equity indices, and has ongoing collaborations on several S&P projects.

Topic 15: RATING PROCESS

CRISIL's rating process and rating committee are designed to ensure that all assigned ratings are based on the highest standards of independence and analytical rigor. The rating committee comprises members who have the professional competence to meaningfully assess the credit analysis that underlies the rating, and have no interest in the entity being rated. A team of analysts carries out the credit analysis . Each team has at least two members. CRISIL's analysis is based on issuer meetings and an understanding of the business environment. The analysis is carried out within the framework of clearly spelt-out rating criteria. Specific process safeguards that ensure independence from individual or organisational bias include: 1. Multi-member rating teams 2. Multi-tier rating process 3. Rating committee comprising experienced, competent and reputed professionals to assign all ratings 4. Organisation-wide internal transparency. Each stage of the rating process for all ratings, including the final rating committee discussions, is open to all analytical staff in CRISIL's rating division 5. Rating methodologies and criteria are clearly spelt out, published and consistently applied CRISIL ensures confidentiality of the information obtained for the rating exercise by putting in place appropriate process safeguards. All CRISIL employees are required to sign a confidentiality agreement. CRISIL does not disclose confidential information that it has obtained for the purpose of credit rating to anyone (other than market regulators or law enforcement authorities, if required). The process of Rating starts with the issue of the Rating request by the issuer and signing of the Rating agreement. CRISIL employs a multi-layered decision making process in assigning a rating. It assigns a team of at least two analysts who interact with the company's management.

A detailed flow chart of CRISIL's rating process is as under:

Across the world, Fitch Ratings operates with the philosophy that assigning a "rating" is only one aspect of the rating process. This view provides for a more comprehensive approach to the process of credit rating. At Fitch India, we work with the same philosophy while rating our clients. Our unique rating approach balances strict quantitative analysis with qualitative assessments of strategic issues. Fitch India is integrated with the international operations of Fitch Ratings and our Rating Committee includes participants from Fitch International. The end result is a credit rating that is not only consistent with the philosophy and methodology adopted by Fitch worldwide but which also accurately captures your future outlook and provides a clear picture to your investors. The Rating Committee of Fitch India is geared towards taking effective decisions in a short timeframe. Our quick turnaround time enables clients to move quickly and capitalize on favorable interest rate movements in the debt markets. Further, our Rating Process is extremely confidential and maintains strict control over critical client information. A mandated rating from Fitch Ratings could entail assignment of a full set of ratings - long and short-term national ratings. It includes one full report on the company each year and periodic updates viz. quarterly/half-yearly updates as well as linked to major events such as merger announcements, credit policy, budget, etc. At Fitch Ratings, we make use of both qualitative and quantitative analyses to assess the business and financial risks of fixed-income issuers. Ratings are an assessment of the issuer's ability to service debt in a timely manner and are intended to be comparable across industry groups and countries. Because short and long-term ratings are based on a company's fundamental credit characteristics, a correlation exists between them. Analysis typically involves at least five years of operating history and financial data as well as company and rating agency forecasts of future performance. To achieve a clearer perspective on relative performance, a company's performance is compared with that of others in its peer group. In addition, a sensitivity analysis is performed through several

What-if scenarios to assess a company's capacity to cope with changes in its operating environment. A key rating factor is financial flexibility, which depends, in large part, on the company's ability to generate cash from operations.

Topic 16: METHODOLOGY


CRISIL Ratings currently employs over 100 professional analysts and has an extensive database spread over various industries and companies. To give sharper qualitative focus to existing as well as proposed rating methodologies and upgrade understanding of industry prospects, CRISIL Ratings has dedicated a Rating Criteria & Product Development team in place. Below is a list of sectors tracked by CRISIL Ratings Corporate/Manufacturing Sector Finance Infrastructure Structured Finance Funds Governance & Value Creation Grading of HealthCare Institutions Real Estate Developers/Project Rating Maritime Grading Microfinance Institutions Grading

Topic 17: INVESTORS CHOICE

CRISIL Ratings is the preferred choice of investors because of the quality and consistency of its ratings. CRISIL's default and transition rates meet the key requirements of higher ratings being less likely to default and less likely to change than lower ratings. CRISIL is committed to the quality of its ratings and to providing the highest level of service to investors. Towards this end CRISIL has incorporated several international best practices into its structure, functioning and processes. CRISIL commands the highest credibility among investors due to its continuing commitment to the highest standards of analytical rigour and transparency regarding its analytical approach when it assigns ratings.
Long track record of timely rating actions

At CRISIL, the commitment is to ensure that the ratings it assigns accurately reflect its expectations of the future. This, even as we strive to maintain the stability of ratings at appropriate levels. Thus, CRISIL was the first rating agency in India to effect a downward revision of its ratings in the second half of the 1990s, anticipating the impact of the liberalization of the economy.

Deeper analytical insights due to wider coverage CRISIL is the market leader in the ratings business in India. Hence, CRISIL rates virtually all the large players in almost every industry/sector in India. This, coupled with our sector focused analytical teams, ensures that our ratings reflect the most comprehensive understanding of industry fundamentals as indeed the relative strengths and weaknesses of competing players.

Rating desk to meet investor needs CRISIL has set up a Rating Desk in 1999 to ensure that all queries on our ratings are speedily addressed. The CRISIL Rating Desk has been growing from strength to strength, serving as an effective and convenient way for investors to access clarifications and information on CRISIL Ratings. The rating desk achieved an impressive response time of less than 30 minutes for all investor queries, in 2003. Extensive suite of published criteria for Indian conditions CRISIL has published a comprehensive compendium of rating criteria. This enhances investors' understanding of the rating methodologies that CRISIL uses for all Indian companies. Dedicated investor outreach team A dedicated team, focused on outreach efforts, was set up in 2001. The key objective of this group is to ensure that investors are regularly updated on CRISIL's methodologies and studies of key sectors through regular publications and investor seminars. Investor feedback is sought on our communication of information and actions and incorporated in CRISIL's rating reports. This process helps CRISIL to provide a clearer understanding and present sharper analyses. Sector-focused analytical teams These teams have a deep appreciation of business fundamentals in their respective business sectors. A dedicated in-house criteria team The Rating Criteria & Product Development Centre, responsible for policy research, new product development and ratings' quality assurance, has created new rating methodologies for debt instruments and innovative structures across sectors. This team is instrumental in ensuring a high level of consistency in CRISIL's ratings across sectors.

In-house industry and economic research team CRISIL's rating analyses are continually enriched by inputs from an in-house industry research team and economic research centre. The former is housed in the subsidiary, CRISINFAC Ltd. while the latter is housed in a separate division, the CRISIL Centre for Economic Research. Separation of business development function from rating analysis The existence of a business development team independent of the analysts' team, enhances CRISIL's credibility in the market. This structure eliminates any conflict of interest that may arise if the team that markets a rating service is also involved in assigning the rating. Separate criteria committee A separate criteria committee was constituted in 2002 in response to the growth in the number and complexity of debt instruments. This committee ensures that CRISIL's criteria and methodologies meet the highest standards of analytical rigour.

Topic 18: ISSUERS CHOICE

CRISIL enjoys a high reputation for objectivity, independence and integrity across a wide range of investors. This makes a CRISIL rating the most marketable rating across all investor classes in India. Other than this fundamental benefit, CRISIL's efforts at enhancing the rating experience for issuers include

Responsiveness to issuers timeframes CRISIL's large analytical pool (the largest in India) enables it to conclude even the most complex rating exercises in relatively short timeframes, thus ably supporting the issuer's time-table for accessing the debt market Continuous interaction and feedback CRISIL provides detailed feedback to issuers, going well beyond the rating symbol. This often includes making presentations to issuers which provide perspectives on company specific rating issues, industry and economic outlook and the international scenario.

Sector- focused analytical teams CRISIL's sector-focused approach enables it to staff rating teams with analysts who have a high level of understanding of issuers' industries. The in-depth knowledge and sector expertise of CRISIL analysts add value to their interactions with issuers' management

Significant international perspective CRISIL's association with Standard & Poor's on international assignments arms its analysts with a global perspective that is unique amongst rating agencies in India

CREDIT RATINGS
CRISIL provides rating and risk assessment services to manufacturing companies, banks, non-banking financial companies, financial institutions, housing finance companies, municipal bodies and companies in the infrastructure sector.

CRISIL rates all rupee denominated debt obligations. Its comprehensive offerings include ratings for long term instruments such as debentures/bonds, preference shares, structured obligations (including asset backed securities), fixed deposits and short term instruments such as commercial paper programmes and short term deposits. CRISIL undertakes credit assessments of various entities including state governments. CRISIL also assigns financial strength ratings to insurance companies. CRISIL through the years has continued to innovate and play the role of a pioneer in the development of the Indian debt market. CRISIL has pioneered the rating of subsidiaries and joint ventures of multinationals in India and has rated several multinational entities, both start-up entities as well as players with a well established track record in India. Over the years, CRISIL has also developed several structured ratings for multinational entities based on Guarantees and Letters of Comfort from the parent as well as Standby Letter of Credit arrangements from bankers. The rating agency has also developed a methodology for credit enhancement of corporate borrowing programmes through the use of partial guarantees. In essence, CRISIL is uniquely placed in its experience in understanding the extent of credit enhancement arising out of such structures.

Topic 19: Rating models of CRISIL

1st model of rating of crisil RAM is internal rating software designed to assist a Bank or financial institution address issues raised by the Internal Rating based approach of the New Basel Accord (Basel II) and is today the standard feature in most Banks / financial institutions in India such as Allahabad Bank, Canara Bank, Central Bank of India, Corporation Bank, HDFC Bank, ICICI Bank, IDBI Bank, Indian Overseas Bank, IndusInd Bank, SICOM, SIDBI, etc.

RAM is an easy to use Internal Rating software installed in the central server of an institution and accessible throughout the organization. RAM guides a user to assess the credit risk of various categories of borrowers such as Large Corporates, Small and Medium Enterprises, Traders, Banks, Infrastructure Companies, Green-Field Projects, Banks, NonBanking Financial Companies, Capital Market Brokers, etc

CRISIL by virtue of being the fourth largest rating agency in the world has over the years been very successful in rating companies belonging to various categories and has been able to predict with a high degree of probability, the default risk of such companies. It is this rating experience, which is encapsulated in RAM.

RAM is a highly parametric software which can be easily customized to the user environment right from Workflows, user-interfaces as well as various reports for Management Information System.

RAM is also capable of incorporating any number of rating models through a Visual Basic based client interface.

RAM follows a pre-designated (customizable) workflow approach to credit risk assessment and begins with assessment of "Financial Risk", "Industry Risk", "Business Risk" and "Management Risk". It then follows a "Christmas Tree" approach drilling down to assessment of various minute factors. Once the credit risk assessment is done by the first level officer, the assessment can either be approved or modified at various higher levels in the risk hierarchy. Audit trails capture all modifications/changes/comments at each level. The final rating or grading is based on the weighted average score of all assessed factors.

Powerful features like Financial Analysis Tool (FAT), Facility Risk Rating module (FRR) and an intelligent feature called 'Virtual Guide' which guides an analyst or officer to probe deeper into the account being rated. These features and other such, make RAM a complete Credit Risk Management Software which performs much more than just rating the obligor and enables the Risk Manager to analyze the credit risk take a 360 degree view of the account being rated.

RAM is a web-based application, available on a Java 2 Enterprise Edition (J2EE) framework, which is platform independent. The database is ORACLE 9i.

Second model CREDIT CAPITAL A tool for portfolio risk management


We believe that a Credit Portfolio Risk model that builds on a rating based approach is a necessity for arriving at a good measure of Economic Capital.

The portfolio approach to credit risk management integrates the key credit risk components of assets on a portfolio basis, thus facilitating better understanding of the portfolio credit risk. The insight gained from this can be extremely beneficial both for proactive credit portfolio management and credit-related decision making.

CREDITCAPITAL from CRISIL has been developed to address precisely this. Please click on the links below for a better understanding. Important features

CRISILs Portfolio Credit Risk Model adopts a rating (internal rating of banks/ external ratings) based methodology to assess risk.

The RBI has in its Credit Guidance Note (Oct 2002) emphasized the setting up of an internal Credit Rating Framework with rating of all instruments and facilities as the basis for credit risk management. CREDITCAPITAL is primarily based on a credit rating framework and therefore can be implemented with minimal modification to Banks internal systems.

Our approach is suitable for incorporating a whole range of instruments in addition to loans & debentures, to include receivables, CC/OD, LCs, and derivative instruments like swaps and forwards with minimal modifications, for rated obligors.

Being based on a loss distribution (Credit VaR) approach, it easily forms a part of an integrated risk management framework.

Components Facility Risk/ Product Risk (Recovery Rates in case of default) Company specific risk & industry risk (Credit score / rating)
PORTFOLIO CREDIT RISK

Economy Risk (Rating Migration over a defined risk horizon)

Concentration Risk (Correlation among assets/ joint migration of assets)

3rd model CRISIL Corporate Default Predictor (CCOP) uses forward-looking equity prices to calculate the default probabilities. It incorporates the hybrid approach between the single

approach of factor model (financial statements and information) and structural model (market prices) to come up with Combined Default Probability (CDP) for the firms.
4th Model CRISIL Risk Pro - An insight into default and transition rates

RiskPRO from CRISIL is a first-of-its-kind desktop application software and helps a scientific measurement of credit risk embedded in corporate exposures. It generates historical default and transition rates of CRISIL's long-term credit ratings. Credit Ratings are critical inputs for measuring and pricing corporate credit risk exposures. The RiskPRO is based on a database, spanning over 110 defaults (by far likely to be the largest sample for default rate estimations conducted in the Indian context). Risk managers are increasingly seeking to quantify and integrate the overall credit risk assessment with value at risk (VaR) models. The default rates and transition rates, such as those generated by CRISIL RiskPRO, form a key input into these models.
Key outputs of RiskPRO

Users may compute CRISIL's historical default rates and transition rates for the last 12 years using the software. Default rates, indicating the probability of default for a particular rating (say A+ or AA-) over a particular horizon (say 1 year, 3 years, etc.) can be computed, both for specific sectors as well as for the entire CRISIL's portfolio.

For e.g., historical default rate of CRISIL AA- over 3 years can be computed as 3.0%. This default rate, when used for estimating future defaults, indicates that out of 100 investments carrying a AA- rating currently, 3 may go into default (i.e. move to 'D' rating category) over the next 3 years.Similarly, transition rates, indicating the probability of rating

transition from a given rating (say AAA) to a given rating (say AA+) over a given time horizon (say 2 years) can be computed using this software.

For e.g., historical one-year transition rates of CRISIL's entire portfolio is given in the table below. The software also provides the user the choice of computing transition rates category-wise as given below (AAA, AA, A etc.) or sub-category-wise (AAA, AA+, AA, AA-, etc.).

CRISIL RiskPRO allows users to observe

Default and transition rates for CRISIL rated papers on a particular date. For e.g., the user can observe the default and transition rates as of 1st January 2001 or 1st January 2000 and so on.

Default and transition behavior of outstanding ratings as of specific chosen years. For e.g., the default and transition behavior of economic boom years or recession years (in user's opinion) could be observed using this software.

Applications of CRISIL RiskPRO

Inputs into Risk Capital Management models and Portfolio Risk Management models

The estimates of probability of default (PD) and rating transition rates (RTR) of widely accepted credit ratings are basic inputs into Risk Capital Management models and Portfolio Credit Risk Management models, and are used for credit risk capital allocation computations.

As we are the largest rating agency in India, with a market share of nearly 60%, default and transition rates generated on the basis of CRISIL s portfolio of outstanding ratings are arguably the most appropriate statistics in the Indian context for these risk management models These Quantify Identify and profitable and models manage efficient product aid portfolio types and risk business lenders capital lines

Determine the optimal level of exposures in new investment opportunities Identify sub-optimal asset allocations (such as those with high correlation with existing assets, those that require high level of capital, etc. Assess new trading strategies Inputs for capital adequacy computations-both regulatory and economic capital The estimates of PD are key inputs for economic capital adequacy computations. The imminent introduction of risk-based capital allocation for regulatory purposes will also result in these inputs becoming critical for regulatory capital adequacy computations.

Individual transaction credit pricing Probability of Default (PD) estimates are critical to assessing the credit risk premium for individual credit exposures. Pricing this risk is difficult in the Indian debt markets, given the absence of PD, RTR and LGD data.

CRISIL RiskPRO, however, addresses these issues and allows discerning investors

to identify significant investment opportunities in the current context, where the market assumptions are substantially different from the real-life default behavior and thus benefit out of such arbitrage opportunities. Key inputs for structured transactions Investors in structured obligations such as Collateralized Bond obligations can use CRISIL RiskPRO to asses the credit risk embedded in a portfolio of credits to take the investment decision as well as assess the sufficiency of the extent of collateral available in these transactions. 5th model CRISIL offers consulting services in the area of Credit Risk Management. This includes helping banks set up a framework to calculate Probability of Default (PD), EAD and Loss Given Default (LGD). We advise our clients on the framework of process standardization to define the loss given default (LGD) and on when the bank or corporate should recognize a default. Besides, we also offer our services to analyse loss data to predict the LGD. The LGD calculator is a software-based tool that stores historical data on severity of losses in case of default and has the ability to perform various statistical analyses on the data. The statistical analysis includes finding the mean and variance by industry, rating, size,
etc.

The software offers seamless integration with our other software including RAM and Credit Capital to provide the default loss and Ops Risk Capital to give loss given an operational risk event.

6th model

Our Quick Rating Model (QRM) enables a quick, easy and high quality evaluation of an obligor's creditworthiness. The model is based on statistical analysis to identify financial

parameters that are able to predict a rating, and has been constructed using CRISILs entire portfolio of rated corporates taking a statistically significant sample size of over 1000 data points of more than 250 manufacturing companies.

Based on a multi-liner regression model, this quik rating tool has been designed to generate a quantitative estimate of rating, using 30 financial parameters from the latest financial year. It can also be customised to accept quarterly or half yearly results. The model is objective in the sense that it uses benchmarks for several financial ratios and other objective Parameters to provide a fairly accurate rating in a relatively short time. While it can be used as a good supplement for quick and better decision-making, it should not be taken as a substitute to a credit rating or credit assessment process. It merely provides an estimate of a CRISIL rating only for manufacturing and Infrastructure entities, and should not be used for rating any other sector. The table below presents the accuracy of the current version of the quick rating model. Accuracy Levels The accuracy levels of the QRM are comparable to similar off the shelf models offered by international rating agencies. Applications Identification of potential clients which suit the risk appetite of the bank and screen new borrowers A second opinion on the credit decisions taken by the credit department A ready reference model for the top management to cross verify efficiency of the detailed credit appraisal models The model can be used as an inexpensive what-if analyser to analyse the impact of rating on various sensitivities

A quick credit check on unrated treasury investments 7th model of rating system In the area of helping our clients in the banking and financial sector mitigate their credit risk, we offer to validate their internal rating models. This is done by conducting an analysis of their rating models for assessment of their obligors creditworthiness and suggesting ways and means to enhance their efficacy and application .

The approach we adopt is to Analyse

The Behavior of customer accounts from the database provided by the client Parameters used in the current model and their relative importance factoring in the customer behavior analysed above

Evaluate their model for:

The Relevance of Parameters and related weightages used Benchmarks Distribution of ratings across rating categories
::

Run sample cases through CRISILs Risk Assessment Model and undertake a

comparative analysis of Ratings :: Make recommendations based on the above Analysis and Evaluation

Topic 20: Credit rating system for CRISIL

TCS has designed and developed a credit rating system for Credit Rating Information Services of India Limited (CRISIL). The principal objective of CRISIL is to rate the debt obligations of Indian companies. These ratings serve as a guideline to investors about the risk involved in timely payment of the interest and principal amount of the debt instrument. In order to provide credible rating services, CRISIL requires timely information. To achieve this, TCS proposed a computerised, online credit rating system. The system has four modules. The 'company' module provides general information relating to the company. The 'financial analysis' module provides information on the financial status and utilisation of funds by the company. The 'industry profile' module enables the user to evaluate all the players in the industry and measure their comparative

performance. The system was developed using an IBM PC/AT-compatible machine operating under Xenix and using the Oracle RDBMS. It was subsequently ported to a RISC-based Unix machine, DG Avion 4020. TCS used a prototyping approach since CRISIL had just commenced operations and there were no well-established procedures that could be adopted. CRISIL rates all rupee denominated debt obligations. Its comprehensive offerings include ratings for long term instruments such as debentures/bonds, preference shares, structured obligations (including asset backed securities), fixed deposits and short term instruments such as commercial paper programmes and short term deposits. CRISIL undertakes credit assessments of various entities including state governments. CRISIL also assigns financial strength ratings to insurance companies.

CRISIL through the years has continued to innovate and play the role of a pioneer in the development of the Indian debt market. CRISIL has pioneered the rating of subsidiaries and joint ventures of multinationals in India and has rated several multinational entities, both start-up entities as well as players with a well established track record in India. Over the years, CRISIL has also developed several structured ratings for multinational entities based on Guarantees and Letters of Comfort from the parent as well as Standby Letter of Credit arrangements from bankers. The rating agency has also developed a methodology for credit enhancement of corporate borrowing programmes through the use of partial guarantees. In essence, CRISIL is uniquely placed in its experience in understanding the extent of credit enhancement arising out of such structures.

Topic 21: Information required for Credit Rating

When the CRISIL team goes to the company they are supposed to rate they collect vital information required to judge the performance and standing of the company, like the Financial Statements of the company, the Balance Sheet, Ratios etc. They interview the Top Management of the company, try and get their vision and opinions on the Companys performance, they check the performance of the company with respect to its potential & the potential of the Industry, they compare the performance of the Company with that of its competitors, they try and judge the risk in the industry, the market share of the company, the steps it took to improve its share & to improve the market, does it have the resources to be the leader.

The team also looks at the previous management of the company, their competence in handling of finances, the confidence in the work force, the competency of their resource to compete, succession plans of the company, the deviation of the Companys expected results and its actual results.

The above information is then assembled in a report to be presented to the Ratings team

All of the above information is required to judge the competency of the company, the rating team then rates the information and gives out its decision with a rationale, if the company wants to oppose it they can lodge their protest and give their clarification, if the team is satisfied then it revises the rating or it is forwarded to the Senior team which studies all the reports and passes its verdict which is binding.

Very rarely does companies withhold any information required or is not comfortable with disclosing their private information, even if they do it is parted in attempt to revise their rating when they protest.

Key parameters considered in the rating exercise for industrial companies include the following :

Economy and Industry Risks

CARE's rating analysis begins by assessing the characteristics of the industry/industries in which the borrower operates. Some important factors are:

Effect of economic cycles on the industry. Business cycles in the industry and their severity.

Tariff structure, threat from imports, price competitiveness of the domestic industry, and pace of technological change. Basis of competition and key success factors. Structure of the industry; entry and exit barriers. Environmental and political factors.

Business Risks Against the backdrop of the issuer's industry, CARE then assesses the issuer's strengths and weaknesses vis-a-vis its competitors. Factors considered include:

Size of the company and market share. Locational advantages and disadvantages. Supply of raw materials and marketing arrangements. Bargaining power of the issuer's suppliers and customers. Diversification of income sources. Technology.

Financial Risk

Financial management philosophy and track record (capital structure, profitability, liquidity position, financial flexibility and cash flow adequacy). Financial projections (with particular emphasis on achieveability of sales targets, the components of cash flow and ability to meet debt obligations as and when they fall due). Free cash flows and their sensitivity to various economic, industrial and business risks over the term of the instrument. Inter-firm comparison of the financial structure and profitability margins. Accounting policies and practices.

Management Assessment

Background and history of the issuer. Corporate strategy and philosophy.

Quality of management and management capabilities under stress. Organisational structure, personnel policies including succession planning .

Instrument Terms Rating may vary according to such factors as:


Maturity of instrument. Nature of security - secured or unsecured, senior or subordinated, covenants and other provisions that may reduce the amount of recovery in case of default. Repayment terms - moratorium period, repayment in instalments or bullet repayment etc. Coupon rates - floating, fixed, zero coupon etc. Options - conversion into equity, put and call options etc. Credit Reinforcements through guarantees or the backing of financial assets.

The criteria discussed above are specific to industrial companies. Credit rating methodology for banks, financial institutions and non-banking finance companies, in addition to some factors discussed above, focuses on the CRAMEL model:

Capital adequacy Resource raising ability Asset quality Management quality Earnings quality Liquidity

WHAT RATINGS DO NOT MEASURE It is important to emphasise the limitations of credit ratings. They are not recommendations to invest. They do not take into account many aspects which influence an investment decision. They do not, for example, evaluate the reasonableness of the issue price, possibilities for capital gains or take into account the liquidity in the secondary market. Ratings also do not take into account the risk of prepayment by issuer. Although these are

often related to the credit risk, the rating essentially is an opinion on the relative quality of the credit risk. Topic 10: Issues/Problems in the Indian Credit Rating System

The business of the Rating Agencies depends on the economy and the finance requirements of it. If the economy is robust and finance dealings are at its peak then the demand for ratings of the instruments of the company, even if the interest rates are low and refinancing is at its peak then the demand for ratings go up again.

But similarly if the economy is not in a good shape the demand for the rating agencies go down, if companies do not expand, do not expand their infrastructure or increasing the potential then they would not require capital so there would not be a need to rate instruments. Refinancing or genuine new borrowings required built up the need for ratings, for e.g. during 1998-2003 there was a lull in the economy wherein there no major infrastructure projects and no growth of industries so CRISIL witnessed a drop in business, even last year there was stable growth but now with the economy full of promise and growth CRISIL is Bullish on expectations of business.

Indian debt market is very young compared to global markets and is immature, there is a clear lack of confidence for the market in the people, they are too affected by ratings, the investment only goes to companies which have AAA+ or F1 rating, any thing below that is considered to be bad or untrustworthy which is not the case3, they dont understand the definitions of each rating, the actual case is that AAA+ is least probable to default on its payment, whereas AA+ also good with a promising future, A+ means the industry holds promise and the company can reap profits, A rating means the company can perform much better if it improves its management and handling of its Finance, the lower ratings mean a more risk, only a rating below B can be considered unsafe but this is not the case with Indian Investors, thet rarely invest in lower rated companies and therefore the companies

with promise are driven out due to lack of capital, globally the scenario is the opposite, investors are willing to take risk and understand the ratings and the limitations of the company. They do a study of the company by themselves also before investing, the are a lot more informed about the market, its growth prospects and are patient for results unlike their Indian counterparts.

Topic22: COMPARISON between CRISIL and other Global Rating agencies


In terms of methodology and quality of people CRISIL can be considered among the best in the world. The rating frame works, quality criteria, depth of study, integrity of the analysis are excellent and one of the best in the world. In fact Standard & Poors after takeover has employed many of CRISILS employees in their parent organization which itself speaks volumes about the professionals working with CRISIL. S&P also gives a lot of work to CRISIL.

But comparison to other global agencies would be wrong and unfair, CRISIL has initiated the Rating industry in India in 1987 and has been ruling it since inception but compared to the global rating agencies it is very young. Agencies like S&P have been in the business for a long time and therefore the experience, plus the maturity of the people & its players has led to a more vibrant & less sensitive debt market. The Investors there are more risk takers and there is a lot of confidence in the market.

In terms of disclosing the data CRISIL is trying to improve on that front, it tries to part with the maximum amount of information, which can prove to be beneficial to the investor to make up his mind to invest. Global rating agencies have vast databases for study and analysis which is the reason for their high disclosure rates.

Quality of ratings cannot be a criteria to judge Rating agencies, the difference in ratings by S&P and CRISIL for say RELIANCE differs, CRISIL rates RELIANCE as AAA+ denoting the fact that it is very unlikely that the company will default on its payments whereas S&P rates RELIANCE as B+. This is due to the fact that India as a sovereign state is rated B++ and therefore no company from India can be rated above the government therefore the rating, while these are two different view points nothing takes away from the fact that RELIANCE is a strong company with a globally competitive business and brilliant management and lower risk of it defaulting on its debt

Topic 23: Excerpts

Excerpts of the 1st interview held with Mr. Prasad Koparkar, Head Rating Criteria and Product Development

Q1. What is a Rating?

Q2. What is the procedure followed by CRISIL for Rating? First we require a letter of confirmation from the company after which a team of analysts goes to visit the company and get all the information required i.e. financial and non-financial information of the company and its subsidiaries. Then they interview the top management and know about their future plans & visions. The teams then make a report and give its recommendations, which are circulated among the rating committee. The committee studies the report and votes for the rating. Then a letter is issued with the rationale of the rating given. The company is then a chance to voice their assent or dissent on the proposed rating. If the company does not agree to the rating and feels that some additional information could enhance the rating it provides for the same. If the committee accepts the view of the company then the rating is enhanced. If the committee does not agree then the case goes to the higher executive committee. Where the case is represented, the decision of this committee is final and binding. Q3. Is the Rating vibrant or not? There is continuous surveillance and every month an internal review is carried out and a complete yearly review is provided to the public till the instrument is redeemed. Q4. Compared to the international scenario where would you place CRISIL? In terms of methodology and quality of people we are comparable to the best in the world. Our rating frameworks and quality criteria are very competent. Only in the case of disclosure CRISIL is improving with respect to global agencies as they have access to vast data so they are able to study and comprehend more data. We have to take into account the fact that the rating industry in India is not even two decades old. We were the 1st to start in 1987 so obviously we will take time to mature compared to the international scenario where rating of instruments started much earlier. We are working for Standard & Poors, which

reflects on the quality of our work because of which they hire our professionals at even higher positions in S&P itself. Q5. Do you mean there is no difference between S&P and CRISIL? Quality of ratings cannot be a criteria because we face many constraints. For example, S&Ps rating for Reliance would be below B++ whereas we would rate them as _____. This is due to Indias rating by S&P is B++ itself and no company can have a better rating than their sovereign state but since we do not use a sovereign rating Reliance would have a better rating compared to the State. Q6. What are the different departments of CRISIL under the Credit Rating section? There are 5 departments under Credit Rating: Corporate Rating Financial Sector Rating Structured Finance Rating Rating Criteria Business Development

Q7. What does the Rating Industry depend on for growth? The Rating Industry depends on the economy. If it is robust then the ranking goes up and so does the demand for ratings. For example the economy between 1998-2003 was sluggish with no new investments, therefore ratings were not required as much. Rating Industry thrives on refinancing/genuine new borrowings.

Excerpts of the 2nd interview held with Mr. Mukesh Agarwal, Director-Business Development.

Q1. What are the functions of the Business Development? Normally people who go to companies to get contracts, used to be in the rating team and there could conflict of interest but CRISIL has maintained two separate departments for both the activities. The BD department takes care of the management part of it. Q2. How does the BD department function? It has 3 sub departments Origination: This consists of Relationship Managers. They get the contracts from different companies Product Management: This team consists of professionals equivalent to product managers. They are involved in conceptualization of products and then decising a launch strategy. They also get the feedback to help the analytical team Investor Relationships and Outrage: The business depends on credibility of the ratings. Investors demand ratings from agencies for investing safely.

Q3. What according to you differentiates CRISIL from other Credit Rating agencies in India? We have a market share of 60-65% and we have maintained it. ICRA has around 10-15% market share and Fitch and Care have around 810% each We clearly lead in all 3 departments of debts 1) Securitisation

2) Finance 3) Manufacturing Sector We are the only credit rating agency who provides ratings in the public domain, we have a large group of analysts & we also do Industry analysis, again we are the only agency to have a rating criteria team. Q4. Do you face any difficulty with company parting with information? No, the companies are very co-operative in this regard. Q5. What impact does the Basel II norms have on the Indian Credit Rating? As of today it does not affect the credit rating but it is predicted to have a positive effect since it would strengthen the banking sector Q6. What are the problems faced by CRISIL? The Indian debt market is very young. Abroad the markets are mature and confident. CRISIL is trying to educate investors through seminars

Q7. What is CRISILs concern towards the debt market? The Credit Rating Industry is not growing because the debt market has not grown. Till last year there was negative or stable growth and this year it has been ok but it is expected to grow since companies are launching new projects.

Topic 24: Our Inferences of The Indian Credit Rating System

Our Inferences of The Indian Credit Rating System This project has been a great learning experience as it has given us the chance to study the Credit Rating Industry more closely than the usual. The insight we received by us with working in CRISIL, the leading company in this industry has been very educating Our interpretation of the knowledge has been given below in brief At the start of the project we had the misconception that rating was a rank assigned to a company based on their performance. But during the course of the project we learned that rating was not assigned to company but to the Debt instruments offered by the company, two different debt instruments of the same company can have different ratings as it is based on the nature of instruments, size of the instrument, repaying procedure, the reason of issuing the instrument and the potential of the project etc.

The above criteria do have a bearing on the ratings as long term and short term risks vary, in the short run it is difficult to change the working or performance of the company whereas there is elasticity in the long run which can change the performance of many a companies. The perceived quality of the Rating agency depends on the accuracy of its predictions and its ability to not only warn but also to inform the investor of the debt market, its potential and its drawbacks. A successful Rating agency is able to achieve the above with honesty & integrity and CRISIL has been able to achieve that with distinction over more than a decade through its operations. CRISIL has 5 sub departments in Ratings and Risk Assessment team .1] Corporate Rating 2] Structured finance 3] Financial Sector Rating- Banks , NBFC 4] Rating Criteria and Product Development 5] Business Development We have done a in-depth study of 2 departments 1] Rating Criteria and Product Development 2] Business Development

1] Rating Criteria and Product Development- This team of three groups A] The team which visits the company and gets information like the financial statements, ratios analysis, capacity of the company, market share, bankers, share holding pattern etc it interviews the top management of the company, gets their vision of the company and market, its future plans, the efficiency of the company and its execution history and prepares a report with recommendations which is submitted to another team

B] This team analyses the report submitted by the team, studies it and then rates the instrument. It is a team of dedicated well-qualified professionals. C] This is the top most team in the department and studies a report when the company disagrees with the rating assigned o its instruments and wants to contest it. The additional information thus submitted is passed on with the report. The decision by this team is fully binding on the company. The team also tries to constantly invent and reinvent rating models so that more robust and up to date ratings can be calculated.. CRISIL leads in all three departments of debt, namely Securitisation, Finance, and Manufacturing Sector. CRISIL is the only rating agency, which provides ratings in public domain. CRISIL is also involved in Industry Analysis, which is done by a team of eminent analysts. CRISIL also publishes its analysis of the Yearly budget. Basel II has had no impact as of now but it is expected to strengthen the capital structure and reduce NPAs. It ensures efficiency and strength in the long run and Banks and other institutions are surely going to benefit from these norms.

2] Business Development- This is the team which is in contact with the companies and gets contracts of ratings for CRISIL, one can say that it is the face of CRISIL as it projects the company in all respects. This team consist of 25 people who regularly meet merchant bankers, Investment agencies etc.

Normally people who go to companies to get contracts used to rate them, in this case there could be a conflict of interest. CRISIL is the only company that has maintained separate departments for both the activities. The Business Development has 3 sub departments A] Origination B] Product Management C] Investor Relationship & Outrage A] Origination- This team is equivalent of Relationship Managers. This team gets contracts for ratings and interacts with the companies. B] Product Management- This team is equivalent of Product Manager, this team does the conceptualizing of new products (models), devising a launch strategy, getting feedbacks from companies, ask for suggestions and pass the comments to the Product Development team. The suggestions include how to view different information, understanding the companys point of view. C] Investor Relationship & Outrage- The business depends on the credibility of the Rating Agency, the accuracy of its ratings and analyzing department. Investors demand ratings so that they can invest with maximum safety. Credit Rating Agencies in India are not less qualified than their global counter parts; in fact CRISIL does a lot of work for S&P. The difference however is in the experience; CRISILS 18 year experience is hardly comparable to that of S&P. Also global agencies have vast databases so they study and analyze a lot more information than their India counterparts. Because of limited database CRISIL discloses less to the general public. CRISIL is making strenuous efforts to depart with maximum information, which can be useful to the investor.

Quality of ratings cannot be criteria for judging Agencies. There are different view points and therefore there is bound to be a bit of difference in the ratings assigned by companies but one will never witness drastic changes in ratings of same companies, CRISIL might rate a company B++ whereas S&P might rate the same company B+. The difference lies in the fact that the rating given to India as a state is B++ , since the State is supposed to be more safer to repay its debt obligations the companies in the state cannot get a higher rating, this difference in view points is the difference in the ratings assigned by agencies. Credit Rating Agencies are not the messiah of investors, they are just guides which help the investors make informed decisions and strengthen the debt market by bringing about a certain level of transparency and accountability.

CRISIL has a market share of 65-70% and has maintained its position as the premier rating agency in India with FITCH India and CARE having 10-15% each and ICRA having the remaining market share. The debt industry in India till recently was not growing, in fact growth was negative last year, this year it is more stable but since the opinion on the economy is bullish the market is expected to grow. Companies are now launching projects with enthusiasm and are confident more than ever before The Indian debt market is very young and so there is not a lot of confidence shared by the investors and thats why there is low investment in the debt market so many a promising companies lose out on support due to the over cautious nature of the investor. Here again the investor only invests in companies which have the highest rating, due to certain factors companies are assigned lower rating which does not take away the promise and growth potential of the companies. This problem will continue to persist till the investor has faith in the system, the company. Unless the investor is informed about the potential of the market and its risk he will not be able to make an informed decision. CRISIL on its own tries to educate and inform the customer to raise awareness and strengthen the market.

The demand for Credit Rating depends on the economy, if it is robust and positive and help the companies grow then the demand for genuine new borrowings will go up. Even if refinancing is the option Credit Rating will be in demand. There is every reason to believe that the Credit Rating Industry in India has a tremendous future and will play an important part in the shaping of the economy.

Annexure to the Report

Frequently Asked Questions (FAQ) Launch of Bank Fundamental Strength Ratings (BFSR) July 11, 2005 1. What is a BFSR? A BFSR represents Standard & Poors opinion of a banks fundamental strengthas it stands alone, without considering the possibility of potential capital contribution from its parent group, regulator, or government. 2. How does it differ from a traditional bank rating, or Counterparty Credit Rating (CCR)? BFSRs indicate the likely prospect of a bank requiring external assistance if it faces financial distress, rather than the

overall likelihood of timely payment by the bank. 3. Is the BFSR designed to replace the CCR? Not at allStandard & Poors will provide BFSRs as free, supplemental service alongside our Counterparty Credit Ratings on Asia Pacific banks.* For some time we have been asking participants who are actively engaged with banks in emerging markets whether Standard & Poors should introduce such a scale. We feel weve now reached a point in Asia Pacific where there is sufficient interest to take that action. *There are several categories of banks in Asia-Pacific for which Standard & Poors will not provide BFSRs: Subsidiaries of foreign banks, where the subsidiary: Is a small player in its domestic market. In the event the bank subsidiary represents 5% or less of the domestic banking market as measured by total assets. Standard & Poors does not perceive that there is a sufficient level of meaningful interest from

financial market participants to initiate a BFSR on such subsidiaries. Has a parent bank domiciled outside the Asia-Pacific and on which Standard & Poors has not assigned a BFSR. Because of the high level of interaction between a parent bank and its subsidiary, it would be difficult to form an opinion on the fundamental strength of the subsidiary without a corresponding opinion on its parent bank. Start-up banks. For the purposes of this initiative, start-ups are defined as those banks with five years or less of operations, but does Frequently Asked Questions: Launch of Bank Fundamental Strength Ratings not include banks formed as a result of mergers. Standard & Poors does not perceive that there is a sufficient level of meaningful interest from financial market participants to initiate a BFSR on such banks. 4. Where is the value in a BFSR for these investors? Two examples: There are many government-linked banks in Asia, and governments in Asia often take a proactive role in supporting the solvency and or liquidity of major banks in their countries. As such, the Counterparty Credit Ratings on such banks would incorporate the likely support of the government. However, investors may wish to examine the scenario where the governments involvement or ownership in a bank is wound down. Investors may also prefer to assess the credit quality of banks based solely on their own merits. Thus, a

BFSR helps investors to understand the banks relative credit profile in the absence of government support. There may be instances where sovereign credit risk in Asia constrains the Counterparty Credit Ratings of some banks in that country and, indeed, compresses the ratings of the strongest and weakest banks into a very narrow band. BFSRs would indicate to rating users the relative credit profiles of these banks after discounting sovereign risk. Investors are thus able to better distinguish among different banks, many of which may have the same Counterparty Credit Rating as the rating on the sovereign.

Many people know Standard & Poor's as one of the world's preeminent providers of credit ratings, and for such globally recognized financial-market indices as the S&P 500. But that's only part of the picture. We also provide a wide range of other products and services designed to help individuals and institutions around the world make better-informed financial decisions with greater confidence. It may interest you to know that: We continuously refine our ratings criteria, policies and procedures to ensure that our analysts have the tools and resources to interpret the financial complexities found in todays markets. Thats why Standard & Poors has introduced Bank Fundamental Strength Ratings (BFSRs) on more than 110 Asia Pacific Banks. BFSRs provide an insight into Standard &

Poors opinion of a banks fundamental strength or, more specifically, what has previously been informally called a status quo rating on the bank. BFSRs complement our traditional Counterparty Credit Ratings and are intended to provide additional information regarding Standard & Poors opinion on a bank or financial institution making our ratings even more transparent. Our introduction of BFSRs in the Asia-Pacific region is in response to considerable interest from the investment community for such a rating.

Standard & Poor's Ratings has finalized its criteria on Bank Fundamental Strength Ratings (BFSRs) and released BFSRs on 110 banks in the AsiaPacific region. BFSRs are Standard & Poor's opinion of how a bank would perform without assistance from their owner, regulator or government. This is an important supplementary tool that provides rating users with a more detailed breakdown of a bank's credit profile Criteria: Financial Institutions Bank Fundamental Strength Ratings Publication date: 10-Jul-05, 21:32:09 EST Reprinted from RatingsDirect
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Introducing Standard & Poor's Bank Fundamental Strength Ratings Criteria Bank Fundamental Strength Ratings Definitions

Introducing Standard & Poor's Bank Fundamental Strength Ratings


Standard & Poor's Ratings Services will now indicate its opinion of the fundamental strength on selected rated banks and financial institutions headquartered in Asia-Pacific (including Japan, Australia, and New Zealand) through Bank Fundamental Strength Ratings (BFSRs). BFSRs will run on a nine-point rating scalethat is separate from Standard & Poor's traditional ratings scaleusing the symbols 'A', 'B+', 'B', 'C+', 'C', 'D+', 'D', 'E+', and 'E'. BFSRs will be assigned on all banks in Asia-Pacific for which Standard & Poor's maintains Counterparty Credit Ratings, except for the following.

Subsidiaries of foreign banks.


Where the subsidiary: Is a small player in its domestic market. That is, in the event the bank subsidiary represents 5% or less of the domestic banking market as measured by total assets. Standard & Poor's does not perceive that there is a sufficient level of meaningful interest from financial market participants to initiate a BFSR on such subsidiaries. Has a parent bank domiciled outside AsiaPacific and to which Standard & Poor's has not assigned a BFSR. Because of the high level of interaction between a parent bank and its subsidiary, it would be difficult to form an opinion on the fundamental strength of the subsidiary without a corresponding opinion on its parent bank.

Start-up banks.
For the purposes of this initiative, "start-ups" is defined as those banks with five years or less of operations, but does not include banks formed as a result of mergers. Standard & Poor's does not perceive that there is a sufficient level of meaningful interest from financial market participants to initiate a BFSR on such banks.

Banks with assigned public-information credit ratings.


Public-information credit ratings, designated with a 'pi' subscript, are not included for the purposes of this initiative. BFSRs will be initiated by Standard & Poor's. BFSRs may be based solely on publicly available information and may be determined with or without the participation of the bank or financial institution's management.

Criteria
A BFSR represents Standard & Poor's opinion of a bank's fundamental strength or, more specifically, what has been informally called Standard & Poor's "status quo" rating on the bank. Standard & Poor's may also assign BFSRs on nonbank financial institutions. A BFSR is Standard & Poor's assessment of what a single legal entity within a group would be rated incorporating the benefits or burdens of being part of the group, including such things as access to group distributions, involvement of group

management, access to group resources (excluding capital contributions), and the benefit or detriment of the group's financial flexibility. A BFSR would not include any potential capital contribution from the group, regulator, or government. In determining a BFSR Standard & Poor's assumes no extraordinary assistance from external parties, such as the bank or financial institution's owners or government institutions, and, conversely, no interference from government or regulatory action that may disrupt the ability of the bank or financial institution to service and pay out on its domestic and foreign currency liabilities. Interference from government or regulator includes any action taken by the government or regulator on banks in an emergency, such as a compulsory freeze on deposits and imposition of exchange controls. The exclusion of such external factors implies that BFSRs do not indicate the overall likelihood of timely payment by the bank or financial institution. Rather, BFSRs indicate the likely prospect of a bank requiring external assistance if it faces financial distress. In determining a BFSR, Standard & Poor's considers business and financial risk factors affecting the rated entity from the economy, industry, and regulatory environment in which the entity operates, and the entity's competitive position, business, and geographic diversification and distribution, quality of assets and investments, credit and market risk appetite, funding and liquidity position, capitalization, profitability, and risk-management systems. These risk factors include actions or inaction by the government, conducted in its normal course of activity, that may directly or indirectly affect banks. Examples of direct effects include changes by the government or regulator on the tax regime, lending requirements, or other regulations. Examples of indirect effects are the repercussions caused by financial stress faced by a government such as a decline in the value of government bonds, adverse change in a country's external balance of payments, increasing credit leverage by domestic corporates and households, and increased money-market volatility. A BFSR is a form of long-term issuer credit rating. It is neither a Counterparty Credit Rating nor a substitute for one. A BFSR complements a traditional Counterparty Credit Rating and is intended to provide additional information regarding Standard & Poor's opinion on a bank or financial institution.

Bank Fundamental Strength Ratings Definitions


A

A bank or financial institution, in the absence

of extraordinary assistance or interference from its corporate group, regulator or government, assigned a Bank Fundamental Strength Rating (BFSR) of 'A' has very strong fundamental strength compared with that of its global peers. 'A' is the highest BFSR assigned by Standard & Poor's. A bank or financial institution, in the absence of extraordinary assistance or interference from its corporate group, regulator or government, assigned a BFSR of 'B' has strong fundamental strength. The bank or financial institution is, however, more susceptible to the adverse effects of changes in circumstances and economic conditions than those entities rated 'A'. A bank or financial institution, in the absence of extraordinary assistance or interference from its corporate group, regulator or government, assigned a BFSR of 'C' has adequate fundamental strength. However, the bank or financial institution is more sensitive to uncertainties and adverse circumstances to a greater degree than higher-rated entities. A bank or financial institution, in the absence of extraordinary assistance or interference from its corporate group, regulator or government, assigned a BFSR of 'D' is vulnerable to a greater degree, than financial institutions rated higher, to adverse circumstances in its operating environment. A bank or financial institution, in the absence of extraordinary assistance or interference from its corporate group, regulator or government, assigned a BFSR of 'E' is likely to be facing significant weaknesses in its fundamental credit profile and may be in default on some or all of its obligations. The bank or financial institution's continued operation may be at the forbearance of the industry regulator, and external assistance may be necessary. 'E' is the lowest BFSR assigned by Standard & Poor's. An issuer designated N.R. is not rated.

N.

R. Plus (+): The ratings from 'B' to 'E' may be modified by the addition of a plus sign to show the higher relative standing within the rating categories.

CRISIL "P2+" for SHEELA FOAM PRIVATE LIMITED CP Programme Rs. 100 Million Commercial Paper Programme P2+ (Assigned) The rating assigned to Sheela Foam Private Limited (Sheela Foam) reflects the company's long standing and leading presence in the polyurethane foam (PU foam) market. The company's Sleepwell and Feather Foam brands enjoy acceptance in the industrial and household user segments respectively. The company's diversified manufacturing facilities lead to significant operational efficiencies in servicing key markets enabling the company to optimise on freight costs. The rating also derives comfort from the company's moderate gearing and debt coverage indicators; and improving net cash accruals over the last four years. The rating is however, tempered by the company's limited financial flexibility which reflects its fully utilized bank limits. This however is partially offset by funding support extended by group and associate companies. The company also faces pricing pressures due

to competition from local PU foam manufactures and coir foam manufactures. Excise duty exemptions extended to coir foam manufactures enable them to price their products competitively vis-a-vis PU foam products. Also, the company's operating margins are vulnerable to key raw material price fluctuations.

About the company: Sheela Foam Pvt Ltd (Sheela Foam) was incorporated in 1971 by Mrs. Sheela Gautam. The company started commercial production of Polyurethane foam (PU foam) from its Sahibabad factory in 1972 and gradually expanded its manufacturing facilities in Greater Noida, Silvassa, Hyderabad, Pondicherry and Sikkim. Sheela Foam sells foam and coir mattresses under the Sleepwell brand which contributes around 35-40 per cent of its overall sales in 2003-04. The balance sales comprise of the industrial segment, which is sold under the Feather Foam brand. Northern region comprise approx. 55% of the total sales of the company. For the financial year ended March 31, 2004 the company had recorded a net profit of Rs. 67.6 million on an operating income of Rs.1814 million.

Disclaimer: A CRISIL Rating reflects CRISIL's current opinion of the financial ability of the Issuer to meet, in a timely manner, its payment obligations on the rated instrument and does not constitute an audit of the Issuer by CRISIL. CRISIL ratings are based on the current information provided to CRISIL by the Issuer or obtained by CRISIL from sources it considers reliable. CRISIL does not guarantee the completeness or accuracy of the information on which the rating is based. A CRISIL rating is not a recommendation to buy / sell or hold the rated instrument. CRISIL may revise, suspend or withdraw a rating as a result of new information or changes in circumstances or unavailability of

information. CRISIL is not responsible for any errors in transmission and especially states that it has no financial liability whatsoever to the subscribers / users / transmitters / distributors of this product

CRISIL reaffirms rating of BAJAJ AUTO LIMITED


Fixed Deposit Programme FAAA/Stable (Reaffirmed)

The rating continues to reflect Bajaj Auto Limited's (Bajaj Auto) extremely strong financial risk profile, which has enabled it to meet the competitive challenges in the domestic twowheeler market by leveraging its pricing flexibility and investing in new products. The company has a largely debt-free balance sheet (debt mainly comprise interest free sales tax deferment loans) and enjoys strong cash accruals of Rs. 6.66 billion in 2004-05. Its financial flexibility is enhanced by its large investment portfolio (comprising liquid investments mainly), which is worth over Rs. 47 billion as at June 30, 2005. Bajaj Auto's operating margins suffered to an extent in 2004-05 due to rising input costs and declining volumes of its high margin three wheelers and premium segment motorcycles. However, its relatively favourable product mix and continuous cost reduction efforts have enabled it to maintain the highest operating margins among peers. The rating also reflects Bajaj Auto's continued success in the domestic motorcycle segment on the back of its strong brand equity, diversified product portfolio and presence across various price points. Riding on its new model launches, Bajaj Auto's motorcycle volumes increased at a strong 28.3 per cent compound annual growth rate (CAGR) between 2000-01 and 2004-05. Besides, it is a market leader in the three-wheeler segment. However, Bajaj Auto suffered a dip in sales of its three-wheeler segment by 7.5 per cent in 2004-05 over 2003-04 primarily due to the restrictions imposed by many states on issuance of permits to passenger carriers. This led to a decline in market share of Bajaj Auto in three wheelers from 65 per cent in 2003-04 to 59 per cent in 2004-05. The rating strengths are partly offset by the intensifying competition in the two-wheeler industry, especially from Honda Motorcycles and Scooters India Limited (HMSI) in the scooters and premium end of the motorcycles segment. The rating is also constrained by the continuing decline in the company's geared scooters and scooterette sales. CRISIL, however, believes that if Bajaj Auto can launch a product with correct features and pricing, it would be able to show growth in the scooters segment as well.

Outlook: BAL is expected to maintain its strong business and financial profile in the medium term, notwithstanding the pressures on its margins in the intensely competitive motorcycles market.

About the company: Two- and three-wheeler manufacturer Bajaj Auto's plants are located at Akurdi and Chakan near Pune and at Waluj near Aurangabad in Maharashtra. It has a combined manufacturing capacity of 2.70 million vehicles per annum.

The company also has two insurance joint ventures, Bajaj Allianz General Insurance Company Limited and Bajaj Allianz Life Insurance Company Limited. For the year ended March 31, 2005, Bajaj Auto reported a net profit of Rs 7.65 billion (Rs 7.38 billion in 2003-04) on net sales of Rs. 57.23 billion (Rs. 47.38 billion). For Q1 FY 2005-06, Bajaj Auto reported a net profit of Rs 2.09 billion (Rs. 1.65 billion in Q1 FY 2004-05) on net sales of Rs. 16.34 billion (Rs. 12.26 billion).
Disclaimer: A CRISIL Rating reflects CRISIL's current opinion of the financial ability of the Issuer to meet, in a timely manner, its payment obligations on the rated instrument and does not constitute an audit of the Issuer by CRISIL. CRISIL ratings are based on the current information provided to CRISIL by the Issuer or obtained by CRISIL from sources it considers reliable. CRISIL does not guarantee the completeness or accuracy of the information on which the rating is based. A CRISIL rating is not a recommendation to buy / sell or hold the rated instrument. CRISIL may revise, suspend or withdraw a rating as a result of new information or changes in circumstances or unavailability of information. CRISIL is not responsible for any errors in transmission and especially states that it has no financial liability whatsoever to the subscribers / users / transmitters / distributors of this product

A Scales Company Name 21st Century Management Services Limited Aarti Industries Limited Industry Non Banking Finance Company Chemicals Speciality Instrument Fixed Deposit Rating # Legends Outlook

Non Convertible A+ Debenture Short Term Debt P1+ AAA P1+

Stable

ABN-Amro Bank N.V. ABN Amro Securities (India) Private Ltd. Add Pens (India) Limited Addison & Company Limited Ador Finance Limited Aegis Logistics Limited

Banks Primary Dealers

Subordinated Debt Bond Short Term Debt Commercial Paper Commercial Paper Fixed Deposit Fixed Deposit Commercial Paper Commercial Paper Fixed Deposit

Stable

Miscellaneous Machine Tools

P2+ P1+ FAA- ^ # P1+ P1+ FAA Stable Stable Stable Stable

Non Banking Finance Company Miscellaneous

Ahmedabad Power Electricity Co. Ltd., The

Non Convertible AADebenture Ahmedabad Municipal Corporation AIA Engineering Pvt. Ltd. Akruti Nirman Pvt. Ltd. Public Finance - Financial Institutions / Municipal / State Governments Engineering Real Estate Developers Project Bond AA(so)

Commercial Paper Real Estate Developers Project Fixed Deposit

P1 DA2

Alagendran Finance Non Banking Finance & Leasing Limited Company

Alembic Limited

Pharmaceuticals

Commercial Paper Fixed Deposit Commercial Paper Certificate of Deposit

P1+ # P1+ P1+ AAAf P1+ #

Alfa Laval Financial Non Banking Finance Services Limited Company Alfa Laval India Limited Allahabad Bank Alliance Cash Manager Engineering Bank

Bond Fund - Credit Quality Credit Quality Rating Ratings Commercial Paper Fixed Deposit

Allied Domecq Miscellaneous (India) Pvt. Limited Alpic Finance Ltd. Non Banking Finance Company Non Banking Finance Company Banks Power

Non Convertible # Debenture Fixed Deposit Pass Through Certificate Commercial Paper Bond # AAA(so) P1+

Amrutanjan Finance Limited Andhra Bank Andhra Pradesh Gas Power Corporation Ltd. Andhra Pradesh Power Finance Corporation Ltd. Andhra Pradesh Power Generation Corporation Ltd. Apollo Hospital, Chennai

Public Finance - Financial Institutions / Municipal / State Governments Power

A(so)

Bond

A(so)

Hospitals

Multi-specialty Tertiary Care

Grade A Multispeciality Tertiary Care FAA+ Stable Stable

Apollo Hospitals Enterprise Limited Apollo Tyres Limited

Miscellaneous

Fixed Deposit

Non Convertible AADebenture Tyres Commercial Paper P1+

Non Convertible AADebenture Aravali Securities & Finance Ltd. Arihant Credit Capital Ltd. Arvind Mills Limited, The Non Banking Finance Company Non Banking Finance Company Textile Cotton Fixed Deposit Fixed Deposit Commercial Paper Commercial Paper # # P1+ a P1+

Stable

Asea Brown Boveri Power Ltd.

Ashok Leyland Finance Ltd.

Non Banking Finance Company

Pass Through Certificate Pass Through Certificate

AAA(so) P1+(so) P1+ Stable

Ashok Leyland Ltd. Automobiles 4 wheelers

Commercial Paper

Non Convertible AA Debenture Asia Pacific Investment Trust Limited Non Banking Finance Company Fixed Deposit #

Asian Paints (India) Paints Limited

Non Convertible AAA Debenture Short Term Debt P1+ P1+

Stable

Asian PPG Industries Limited ASIL Industries Limited

Paints Steel & Steel Products

Commercial Paper

Non Convertible @ Debenture Commercial Paper Fixed Deposit Commercial Paper P1+ # P1+

Atlas Copco (India) Compressors & Pumps Limited Autopal Industries Ltd. Avaya Global Connect Ltd. (Erstwhile Tata Telecom Ltd.) Auto Ancillaries Telecommunication Services - Equipments / Cable

R Scales Company Name Industry Instrument Maritime Grade Rating CRISIL Grade 2 R.L. Institute of Natural Maritime Grading Sciences Raashi Fertilisers Ltd. Fertilisers Legends Outlook

Non Convertible @ Debenture Non Convertible AAA Debenture Short Term Debt P1+ Non Convertible AA Debenture Debenture Commercial Paper @ P1+ Stable

Rabo India Finance Pvt. Non Banking Finance Ltd. Company Radha Madhav Investments Limited Rajasthan Petro Synthetics Ltd. Ralson (India) Limited Investment / Holding Companies Textile - Synthetic Miscellaneous

Stable

Ranbaxy Laboratories Ltd. Raunaq Finance Ltd. Raymond Ltd. Recron Synthetics Limited (formerly Raymond Synthetics Limited) Redington (India) Ltd. Reinz-Talbros Limited

Pharmaceuticals

Commercial Paper Fixed Deposit Fixed Deposit

P1+ FAAA # Stable Stable

Non Banking Finance Company Diversified Textile - Synthetic

Non Convertible AA+ Debenture Non Convertible @ Debenture

Trading Auto Ancillaries

Short Term Debt P1+ Partly Convertible Debenture Bond Credit Quality Ratings @

Reliance Energy Limited Power (formerly BSES Ltd) Reliance Income Fund Bond Fund - Credit Quality Rating

AAA AAAf

Stable

Short Term Debt P1+

Reliance Industries Ltd. Petrochemicals (merged RIL-RPL entity) Reliance Telecom Ltd Telecommunication Services Equipments/Cable Engineering Real Estate Developers Project Power

Non Convertible AAA Debenture Short Term Debt P1+ Non Convertible AAA(so) Debenture Short Term Debt P1+ Real Estate Developers Project Fixed Deposit DA2+

Stable

Revathi Equipment Limited Rohan Builders and Developers Pvt. Ltd. RPG Transmission Limited Rubamin Limited Rural Electrification Corporation Limited

FD

Non Convertible D Debenture Chemicals - Inorganic Financial Institutions Short Term Debt P1 Pass Through Certificate Bond AAA(so) AAA Stable Stable

Non Convertible AAA Debenture Short Term Debt P1+ Tax Free Bond Taxable Bond AAA AAA

Stable Stable