Company’s Overview

CARE Ratings commenced operations in April 1993 and over nearly two decades, it has established itself as the second-largest credit rating agency in India.

With the rating volume of debt of around Rs.41,822 bn (as on June 30, 2012) , CARE Ratings is proud of its rightful place in the Indian capital market built around investor confidence.

CARE Ratings has also emerged as the leading agency for covering many rating segments like that for banks, sub-sovereigns and IPO gradings.

CARE Ratings provides the entire spectrum of credit rating that helps the corporates to raise capital for their various requirements and assists the investors to form an informed investment decision based on the credit risk and their own risk-return expectations.

CARE rating and grading service offerings leverage company’s domain and analytical expertise backed by the methodologies congruent with the international best practices.

With majority shareholding by leading domestic banks and financial institutions in India, CARE’s intrinsic strengths have also attracted many other investors.

CARE’s registered office and head office, is located at 4th floor, Godrej Coliseum, Somaiya Hospital Road, Sion (East), Mumbai 400 022. In addition, CARE has regional offices at Ahmedabad, Bangalore, Chennai, Hyderabad, Jaipur, Kolkata, New Delhi, Pune and international operation in Male in the Republic of Maldives.

With independent and unbiased credit rating opinions forming the core of its business model, CARE Ratings has the unique advantage in the form an External Rating Committee to decide on the ratings. Eminent and experienced professionals constitute CARE’s Rating Committee.

VISION:

To be a respected company that provides best - in its field - quality and value services.

MISSION: To offer a range of high-quality services to all the stakeholders in the capital

market.

To build a pre-eminent position in India in securities analysis, research and information services and to be an international credit rating agency.

To earn customer satisfaction and investor confidence through fairness and professional excellence.

To remain deeply committed to internal and external stakeholders.

To apply the best possible tools & techniques for securities analysis aimed to ensure efficiency and top quality.

To ensure globally comparable quality standards in our rating, research and information services.

VALUES

Integrity and Transparency: Commitment to be ethical, sincere and open in dealings.

Pursuit of Excellence: Committed to strive relentlessly to constantly improve.

Fairness: Treat clients, employees and other stakeholders fairly.

Independence: Unbiased and fearless in expressing opinion.

Thoroughness: Rigorous analysis and research on every assignment that taken by CARE.

Shareholders

CARE was promoted in April 1993 by major Banks/FIs (financial institutions) in India. The three largest shareholders of CARE are IDBI Bank Ltd., Canara Bank and State Bank of India. The other share holders include Federal Bank Ltd., IL&FS Ltd., ING Vysya Bank Ltd. etc.

CARE's role in Indian Capital Market

CARE is committed to play a key role by providing professional, insightful and independent informed opinion through various grading and rating services, which can serve as a valuable input to build investor confidence.

CARE’s credit rating for debt instruments (viz debentures, bonds, asset-backed securities etc) is a highly-valued credit risk opinion, which helps the investors to effectively monitor and manage investments based on their respective risk-return policies.

On the other hand, it imparts the issuers with financial flexibility for wider access to funds at a market-determined cost related to their credit risk. It can also provide a helping hand for establishing business relationships (including collaborations) and awarding contracts to the counter parties.

CARE’s grading products viz IPO Grading and Equi-Grade have proved to be valuable means for primary and secondary market development respectively. IPO Grading, through its opinion on fundamentals, works as one of the important inputs to form long-term equity investment decision for public offerings.

For the regulators, CARE’s rating services facilitate in determining the eligibility criteria and entry barriers for different types of securities, to monitor financial soundness of borrowers and to promote overall efficiency in the debt market.

Equi-Grade product can also be useful to the stock exchanges for investor education and improve liquidity in the secondary market. Thus, services of CARE increase the transparency, leading to a healthy development of the capital market.

CORPORATE RATINGS

1) Corporate Debt Ratings

CARE's Credit Rating is an opinion on the relative ability and willingness of an issuer to make timely payments on specific debt or related obligations over the life of the instrument.

CARE Ratings undertakes credit rating of all types of debt and related obligations. These include all types of medium and long-term debt securities such as debentures, bonds, fixed deposits and convertible bonds and all types of short-term debt and deposit obligations such as commercial paper, inter-corporate deposits and certificates of deposit. CARE Ratings also provides issuer-specific ratings.

2) Bank Loan Ratings:

• BLRs are used by banks to determine risk weights for their loan exposures, in keeping with the Reserve Bank of India's (RBI's) April 2007 Guidelines for Implementation of the New Capital Adequacy Framework under Basel II framework.

• CARE’s Bank loan rating is an opinion on the relative ability and willingness of a borrower to fulfill obligations on specific fund-based or non-fund based facilities in a timely manner.

• CARE assigns BLRs on the same long-term and short-term rating scales.

• CARE's criteria for assigning BLRs are more or less similar to the criteria applied for rating bonds and debentures with minor differences.

• CARE rates all type of fund-based and non-fund based facilities sanctioned by Banks. This would include cash credit, working capital demand loans, Letter of Credit, Bank guarantees, Bill discounting, Project loans, Loans for general corporate purposes etc.

Rating Methodology

• CARE undertakes rating exercise based on information provided by the company, in-house database and data from other sources that CARE considers reliable. The primary focus of the rating exercise is to assess future cash generation capability and their adequacy to meet debt obligations in adverse conditions. The analysis therefore attempts to determine the long-term fundamentals of the business & industry and the probabilities of change in these fundamentals, which could affect the creditworthiness of the borrower.

• The analytical framework of CARE's rating methodology is divided into two interdependent segments. The first deals with the operational characteristics and the second with the financial characteristics. Besides quantitative factors, qualitative aspects like assessment of management capabilities play a very important role in arriving at the rating of an instrument. The relative importance of qualitative and quantitative components of the analysis varies with the type of issuer. Rating determination is a matter of experienced and holistic judgment, based on the relevant quantitative and qualitative factors affecting the credit quality of the issuer.

3) Corporate Governance Rating

• CARE’s Corporate Governance Rating (CGR) is an opinion on the relative standing of an entity with regard to adoption of corporate governance practices. It provides information to stakeholders as to the level of corporate governance practices of the entity. CARE, under the CGR exercise, assesses seven key parameters identified as under:

• Board Composition and Functioning; • Ownership Structure; • Organization Structure and Management Information System; • Shareholder Relationship; • Disclosure and Transparency; • Financial Prudence; and • Statutory and Regulatory Compliance.

4) Issuer Rating

• CARE’s Issuer Rating (CIR) is an issuer-specific assessment of the credit risk.

• CIR is similar to long-term instrument ratings except for the fact that they are specific to an issuer and not specific to any of the issuer’s instruments.

• Issuer Rating factors in the expected performance of the entity over an intermediate time horizon of around three years and reflects the capability of the entity as regards to servicing of its financial obligations.

• CIR would help lenders/investors to evaluate credit quality of the issuer and would facilitate an informed lending/investment decision.

Financial Sector Ratings

1) Banks:

CARE has developed a comprehensive methodology for credit rating of debt instrument issued by banks.

Quantitative factors include

• Capital Adequacy, • Asset Quality, • Cost of Funds, • Asset Growth, • Liquidity and • Earning Quality.

Qualitative factors include

• ownership,• management quality, • risk management, • compliance with statutory requirements, • accounting quality,• size and market presence.

2) Non-Banking Financial Company (NBFC)

• Evaluation of quantitative factors is done, not only of the absolute numbers and ratios, but their volatility and trend as well. The attempt is to determine core, recurring measures of performance.

• Quantitative and Qualitative factors of ratings are same as banks.

3) Housing Finance Company (HFC)

• CARE also compares the entity’s performance on each of the above-discussed parameters with its peers. Detailed inter-firm analysis is done to determine the relative strength and weaknesses of the entity in its present operating environment and any impact on it in future.

• Quantitative and Qualitative factors of ratings are same as banks.

4) Insurance Rating • Insurance in India used to be tightly regulated and monopolized by state-

run insurers.

CARE’s rating process involves analysis of qualitative factors like • an insurer’s business fundamentals, • its competitive position, • its management,• ownership structure,• insurance regulations,• underwriting and investment strategies.

Quantitative factors involve

• analysis of company’s risks underwritten,• asset quality,• profitability, • liquidity, • solvency and• asset-liability management method.

CPA (Claims Paying Ability) Rating is beneficial to:

• Buyers of insurance cover, as they are concerned about the insurance company’s ability to meet their claims when they arise.

• Insurance/Reinsurance companies, as it helps them create goodwill for themselves and consequently increase their business opportunities.

• Insurance agents, as it aids in promoting insurance products.

Structured Finance Rating

• Structured Finance Rating In a developing economy like India, new debt structures emerge regularly in capital market. CARE Ratings provide credit rating services for structured debt products based on a comprehensive rating methodology.

• For Structured Obligations, CARE assigns suffix '(SO)' to the rating symbol.

• CARE’s Structured Finance Rating involves extensive analysis of various risk factors viz Credit Risk, Market Risk, Counter-party Risk, Legal Risk and Other Risks associated with structured debt obligation.

Project Finance Rating (PFR)

• While assigning PFR, CARE evaluates the project on many parameters.

• The risk analysis revolves around the financial strength of the sponsor, the size and the number of projects completed by the sponsor in the past, economic viability of the project, project implementation risk as well as post-commissioning risk and cash flow adequacy from the project.

Rating Process

• The rating process takes about two to three weeks, depending on the complexity of the assignment and the flow of information from the client. Ratings are assigned by the Rating Committee.

Rating Symbols & DefinitionsA. Rating Symbols and Definitions for Long /Medium Term Debt Instruments

Symbols Rating Definition

CARE AAA Instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry lowest credit risk.

CARE AA Instruments with this rating are considered to have high degree of safety regarding timely servicing of financial obligations. Such instruments carry very low credit risk.

CARE A Instruments with this rating are considered to have adequate degree of safety regarding timely servicing of financial obligations. Such instruments carry low credit risk.

CARE BBB Instruments with this rating are considered to have moderate degree of safety regarding timely servicing of financial obligations. Such instruments carry moderate credit risk.

CARE BB Instruments with this rating are considered to have moderate risk of default regarding timely servicing of financial obligations.

CARE B Instruments with this rating are considered to have high risk of default regarding timely servicing of financial obligations.

CARE C Instruments with this rating are considered to have very high risk of default regarding timely servicing of financial obligations.

CARE D Instruments with this rating are in default or are expected to be in default soon.

Modifiers {"+" (plus) / "-"(minus)} can be used with the rating symbols for the categories CARE AA to CARE C . The modifiers reflect the comparative standing within the category.

B. Rating Symbols and Definitions for Short Term Debt Instruments

Symbols Rating Definition

CARE A1 Instruments with this rating are considered to have very strong degree of safety regarding timely payment of financial obligations. Such instruments carry lowest credit risk.

CARE A2 Instruments with this rating are considered to have strong degree of safety regarding timely payment of financial obligations. Such instruments carry low credit risk.

CARE A3 Instruments with this rating are considered to have moderate degree of safety regarding timely payment of financial obligations. Such instruments carry higher credit risk as compared to instruments rated in the two higher categories.

CARE A4 Instruments with this rating are considered to have minimal degree of safety regarding timely payment of financial obligations. Such instruments carry very high credit risk and are susceptible to default.

CARE D Instruments with this rating are in default or expected to be in default on maturity.

Modifier {"+" (plus)} can be used with the rating symbols for the categories CARE A1 to CARE A4. The modifier reflects the comparative standing within the category.

Fee Structure

Initial Rating Fees

(a) Fixed Deposits 0.10% of the outstanding amount of Fixed Deposits subject to a minimum of Rs.200,000.

(b) Debentures 0.10% of the issue amount subject to a minimum of Rs.200,000.

(c) Commercial Paper 0.10% of the issue amount subject to a minimum of Rs.200,000.

(d) Issuer Rating 0.05% of all the outstanding debts as on last balance sheet date subject to minimum of Rs.300,000.

Annual Surveillance Fees on FD/Debentures/CP: 0.03% of the amount outstanding under the rated instrument subject to a minimum of Rs.100,000.

Annual Surveillance Fees on Issuer Rating - 0.05% of the amount outstanding under the rated instrument subject to a minimum of Rs.200,000.

Credit Reports: Fees applicable will depend on the scope and coverage of each report and can be obtained on specific request.