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hi dear i m in 3 sem of mba, need advertisment project report about the servicing department of the advertisement agency. plz send me
 
Hi Friends,

I am in 4th Sem, technology management .
Project Topic ' New Trends In Technology Transfer in BPO Industries '
Kindly help me with some input.
 
hello pathakhiman,
I really appreciate your concern of giving help... sorry to say but in reallty we are not getting such help..will it take some time...can you plz send me project on MAX NEW YORK LIFE...I need it urgently.

waiting for your reply...

with regards
shweta
 
Hi Helper,
M vicky doing summer interns from staplesfuture in mumbai no 2 E-retailer.
I need to study their sales and distribution process. Please help me with some gud sales and distribution projects.
Thanking You in advance
 
hi friend i'm in t.y bms i wanted ur help if u can give me a project on stress management in current scenerio please a humble request to give it as early as possible
 
CREDIT RATING AGENCY
A credit rating agency (CRA) is a company that assigns credit ratings for issuers of certain types of debt obligations as well as the debt instruments themselves. In some cases, the servicers of the underlying debt are also given ratings. In most cases, the issuers of securities are companies, special purpose entities, state and local governments, non-profit organizations, or national governments issuing debt-like securities (i.e., bonds) that can be traded on a secondary market. A credit rating for an issuer takes into consideration the issuer's credit worthiness (i.e., its ability to pay back a loan), and affects the interest rate applied to the particular security being issued. (In contrast to CRAs, a company that issues credit scores for individual credit-worthiness is generally called a credit bureau or consumer credit reporting agency.


CREDIT RATING AGENCIES IN INDIA
The rating coverage in India is not too old, beginning 1987 when the first rating agency, CRISIL was established. At present there are three main rating agencies –CRISIL(Credit Rating and Information Services of India Ltd.),ICRA Ltd. (Investment Information and Credit Rating Agency of India Limited) and CARE(Credit Analysis and Research). The fourth rating agency is a JV between Duff & Phelps, US and Alliance Capital Limited , Calcutta.
CRISIL:
It was promoted by ICICI, nationalized and foreign banks and insurance companies in 1987. it went public in 1992 and is the only listed credit rating agency in India. In 1996 it entered into a strategic alliance with Standard & Poor’s to extend its credit rating services to borrowers from the overseas market. The services offered are broadly classified as Rating, Information services , Infrastructure services and consulting.
Rating services cover rating of Debt instruments-long, medium and short term, securitised assets and builders. Information services offer corporate research reports and the CRISIL 500 index. The Infrastructure and consultancy division provide assistance on specific sectors such as power, telecom and infrastructure financing.
ICRA:
It was promoted by IFCI and 21 other shareholders comprising nationalized and foreign banks and insurance companies. Established in 1991 , it is the second rating agency in India. The services offered can be broadly classified as Rating services , Advisory services and Investment Information services. The rating services comprise rating of debt instruments and credit assessment. The Advisory services include strategic counseling, general assessment such as restructuring exercise and sector specific services such as for power, telecom, ports, municipal ratings , etc. The information or the research desk provides research reports on specific industries, sectors and corporates. The Information services also include equity related services, viz, Equity Grading and Equity Assessment. In 1996, ICRA entered into a strategic alliance with Financial Proforma Inc. , a Moody’s subsidiary to offer services on Risk
Management Training and software: Moody’s and ICRA has entered into a memorandum, of understanding to support these efforts.
CARE:
It was set up in 1992, promoted by IDBI jointly with other financial institutions, nationalized and private sector finance companies. The services offered cover rating of Debt instruments and sector specific industry reports from the research desk and equity research.
Market share


ICRA - A Detailed Study
Ministry of Finance, Department of Economic Affairs , vide its letter No. 1(120) SE/89, dated the 19th Sept. 1990 accorded approval for the establishment of a second Credit Rating and Information Agency in the country to meet the requirements of companies based in North.
The approval was granted subject to the following conditions viz .
(1) The Agency shall be self-supporting after a maximum period of 2 years and accordingly shall not require any subvention thereafter from IFCI;
(2) The agency should be managerially independent.
The major shareholders are:- Moody’s Investment Company India private Ltd., IFCI Ltd., SBI, LIC, UTI, PNB, GIC, Central Bank of India, Union Bank of India, Allahabad Bank, United Bank of India, Indian Bank, Canara Bank, Andhra Bank , Export-Import Bank of India, UCO Bank HDFC Ltd., Infrastructure Leasing and Financial Services Ltd., Vysya Bank.
The main objective of ICRA like any other Credit Rating Agency is to assess the credit instrument and award it a grade consonant to the risk associated with such instrument. ICRA’s main objectives include providing guidance to the investors/creditors in determining the credit risk associated with a particular debt instrument or credit obligation and reflecting independent, professional and impartial assessment of such instruments/obligations. The ratings done by ICRA are not recommendations to buy or sell securities but culminate symbolic indicator of the current opinion of the relative capability of timely servicing of the debts and obligations.


RANGE OF SERVICES
The services offered by Credit Rating Agencies are as follows:-
1. Rating service—rating of bonds, debentures, Commercial Paper(CP), certificates of deposit(CD), claim paying ability of insurance companies, corporate governance, structured obligations.
2. Information service—provides sector/industry specific studies/publications, corporate reports and mandate based studies customized research.
3. Grading services—includes grading of Construction Entities, Real Estate Developers & Projects and Mutual Fund schemes.
4. Advisory services—it offers wide ranging management advisory services covering the areas of Strategy practice, Risk Management practice, Regulatory practice and Transaction practice.

RATING SERVICE
Credit Rating
The ICRA rating is a symbolic indicator of the current and prospective opinion on the relative capability of the corporate entity concerned to timely service debts and obligations with reference to the instrument rated. The rating is based on an analysis of the information and clarifications obtained from the entity , as also other sources considered reliable by ICRA. The independence and professional approach of ICRA ensure reliable, consistent and unbiased ratings. Ratings facilitate investors to factor credit risk in their investment decisions. ICRA rates long-term, medium-term and short-term debt instruments. ICRA offers its rating services to a wide range of issuers including:
 Manufacturing companies
 Banks and financial institutions
 Power companies
 Service companies
 Municipal and other local bodies
 Non-banking financial service companies.

Structured Finance Rating
Structured finance ratings (SFRs) are based on the estimation of the expected loss to the investor on the rated instrument, under various possible scenarios. The expected loss is defined as the product of probability of default and severity of loss, once the default has occurred. An SFR symbol indicates the relative level of expected loss for that instrument, with the risk of loss being similar as in the case of a corporate credit rating of the same level. However, an SFR may be different from the credit rating of the issuer as in many cases the transaction is structured as an off-balance sheet item. ICRA’s four major SFR products are listed below. ICRA employs a specific methodology for each of its SFR products. The methodology is based on ICRA’s understanding of that particular asset class and the structured and legal issues associated with the transaction involved.
 Asset Backed Securitization(ABS) - ABS refers to the securitisation of a diversified pool of assets, which may include financial assets like automobile loans, commercial vehicle loans, consumer durable loans or any other non-financial class of assets that are identifiable and separable from the operations of the issuer and whose risk of loss is measurable.
 Mortgage Backed Securitisation (MBS) An MBS has diversified housing loans as the underlying asset for the transaction.
 Collateralised Debt Obligation (CDO) A CDO transaction has a pool of corporate loans, bonds or any other debt security, including structured debt, as the underlying asset.
 Future Flow Transaction (FFT) FFTs involve devising a structure where specified sources of future cash flows are identified are earmarked for servicing investors. Some examples of such sources are property tax revenues of municipal corporations, power receivables of bulk consumers and property lease rentals. FFTs are not completed de-linked from the credit risk of the issuer, but the structure, through preferential tapping of cash flows of the issuer can achieve a rating that is higher than the issuer’s credit rating.
The Benefits
An issuer can derive multiple advantages from structured finance products like lowering the cost of funds, accessing new markets and investors on the strength of a higher rating vis-à-vis a stand-alone corporate credit rating, improving capital adequacy, reducing asset-liability mismatches and increasing specialization.
Claims Paying Ability Rating (for Insurance companies)
ICRA’s claims paying ability ratings (CPRs) for insurance companies are an opinion on the ability of the insurers concerned to honour policy-holder claims and obligations on time. In other words a CPR is ICRA’s opinion on the financial strength of the insurer, from a policy-holder’s perspective. Following deregulation, a paradigm shift is expected in the domestic insurance sector as newer players and products enter the market. Given this scenario, ICRA expects its CPRs to be an important input influencing the customer’s choice of insurance companies and products. ICRA’s rating process involves analysis of an insurer’s business fundamentals and its competitive position and focuses primarily on the insurer’s franchise value, its management, organizational structure/ownership and underwriting and investment strategies. Besides, the analysis includes an assessment of an insurance company’s profitability, liquidity, operational and financial leverage, capital adequacy and asset / liability management method.

Corporate Governance Rating
ICRA’s Corporate Governance Rating(CGR) provides a current opinion on the level to which an organization accepts and agrees to codes and guidelines of corporate governance practices that serve the interests of stakeholders such as shareholders, customers, creditors, bankers, employees, government and society at large. The aspects examined during a CGR exercise include: ownership structure; financial stakeholder relation; financial transparency & information disclosure; and Board structure & process. A CGR , carrying the ICRA stamp, helps the corporate entity concerned in raising funds; listing on stock exchanges; dealings with third parties like creditors; providing comfort to regulators; improving image/credibility; improving its valuation; and bettering its corporate governance practices through benchmarking.
GRADING SERVICES
The grading services of ICRA include
---Grading of Construction Entities
---Grading of Mutual Fund Schemes
Grading of Construction Entities
The unique grading methodology developed by ICRA, along with the Construction Development Industry Council(CIDC) encompasses all the entities in a construction project, the contractor, the consultant, the project owner and the project itself. The service of grading, by providing an independent opinion on the quality of the entity graded , is designed to enhance the lender’s confidence in financing construction sector participants.
Grading of Mutual Fund Schemes
ICRA’s grading of Mutual Funds seeks to address the perceived need among investors and intermediaries for an informed, reliable and independent opinion on the performance and risks associated with investing in individual Mutual Fund Schemes. Specifically the gradings are opinions on the relative past-performance of Mutual-Fund schemes and the various factors that can influence their future performance.
ICRA Mutual Fund Grading services include:
 Performance Grading
 Credit Risk Grading
 Market Risk Grading

ADVISORY SERVICES
RISK MANAGEMENT PRACTICE
The Risk Management Practice advises clients on efficient management of credit risks, market risks, and operational risks. ICRA’s clients include commercial banks, financial institutions, multi-lateral agencies, non-banking finance companies, project financiers, equity investors, venture capital firms, insurance firms and manufacturing firms. For manufacturing and service companies, ICRA Advisory offers consultancy in risk management, planning and control.
Counterparty risk assessment: ICRA Advisory has developed “Counterparty Risk Assessment”(CPRA) to assess risks that counterparties are exposed to in the course of buying and selling of goods and services in all kinds of marketplaces. CPRA is a relative measure of counterparty’s ability to honour the terms of trade. ICRA Advisory offers CPRA as an on-line plug and play model for e-marketplaces/Virtual Private networks, and as an off-line facility for organizations desiring to assess counter party risks of buyers/dealers and suppliers.
Credit Risk
 Regulatory compliance
 Processes/systems for credit risk management
 Internal risk rating systems
 Credit monitoring systems(including MIS)
 Moody’s software for credit risk management
 Organization design for risk management
 Portfolio management
 Industry and corporate reports
 Credit risk culture assessment
Market risk
 Regulatory compliance
 Asset-liability management
 Interest rate/liquidity/currency risks
 Hedging strategies
 Transfer pricing
 Software for ALM
 Integrating ALM with overall planning

Training for Risk management
 Analyzing financial statements-basic/advanced
 Credit risk management-middle/senior executives
 Understanding ALM
 Customized training for bankers
Operating Risk
 Diagnostic analysis of risk for a company
 Systems for risk measurement
 Risk mitigation strategies
 Internal control and corporate governance
REGULATORY PRACTICE
ICRA advisory Services focuses on issues concerned with economic aspects of regulation. Instances of the regulatory practice would be assisting in policy formulation with regard to pricing of public goods, competition, efficient market making mechanisms, consumer protection and fair trade practices , subsidies and public-private partnership structures. Clients of regulatory practice are Governments, regulatory authorities and municipalities who formulate economic and financial policies. ICRA also work with corporate entities in formulating their strategies in dealing with regulatory issues.
ICRA advisory Services has worked on several consulting projects concerning regulatory issues in the areas of power, water, public sector, banking and urban infrastructure.
Functional Areas
 Tariff setting for public goods and services
 Economic development
 Development of regulations
 Fiscal management policies
 Privatization policies
 Institutional strengthening
 Determining of subsidies
 Evaluation of contracts & agreements



RATING PROCESS
Rating is an interactive process with a prospective approach. It involves series of steps. The main points are described below:
(a) Rating request: Ratings in India are initiated by a formal request (or mandate) from the prospective issuer. This mandate spells out the terms of the rating assignment. Important issues that are covered include: binding the credit rating agency to maintain confidentiality, the right to the issuer to accept or not to accept the rating and binds the issuer to provide information required by the credit rating agency for rating and subsequent surveillance.
(b) Rating team: The team usually comprises two members. The composition of the team is based on the expertise and skills required for evaluating the business of the issuer.
(c )Information requirements: Issuers are provided a list of information requirements and the broad framework for discussions. The requirements are derived from the experience of the issuers business and broadly conform to all the aspects which have a bearing on the rating.
(d)Secondary information: The credit rating agency also draws on the secondary sources of information including its own research division.
The credit rating agency also has a panel of industry experts who provide guidance on specific issues to the rating team. The secondary sources generally provide data and trends including policies about the industry.
(e)Management meetings and plant visits: Rating involves assessment of number of qualitative factors with a view to estimate the future earnings of the issuer. This requires intensive interactions with issuers’ management specifically relating to plans, future outlook, competitive position and funding policies.
Plant visits facilitate understanding of the production process, assess the state of equipment and main facilitates, evaluate the quality of technical personnel and form and opinion on the key variables that influence level, quality and cost of production. These visits also help in assessing the progress of projects under implementations.
(f)Preview meeting: After completing the analysis, the findings are discussed at length in the internal committee, comprising senior analysts of the credit rating agency. All the issues having a bearing on the rating are identified. At this stage, an opinion on the rating is also formed.
(g)Rating committee meeting: This is the final authority for assigning ratings. A brief presentation about the issuers business and the management is made by the rating team. All the issues identified during discussions in the internal committee are discussed. The rating committee also considers the recommendations of the internal committee for the rating. Finally a rating is assigned and all the issues, which influence the rating, are clearly spelt out.
(h)Rating communication: The assigned rating along with the key issues is communicated to the issuer’s top management for acceptance.
The ratings which are not accepted are either rejected or reviewed. The rejected ratings are not disclosed and complete confidentiality is maintained.
(i)Rating reviews: If the rating is not accepted to the issuer , he has a right to appeal for a review of the rating. These reviews are usually taken up only if the issuer provides fresh inputs on the issues that were considered for assigning the rating. Issuers response is presented to the Rating Committee. If the inputs are convincing, the Committee can revise the initial rating decision.
(j)Surveillance: It is obligatory on the part of the credit rating agency to monitor the accepted ratings over the tenure of the rated instrument. As has been mentioned earlier, the issuer is bound by the mandate letter to provide information to the credit rating agency. The ratings are generally reviewed every year, unless the circumstances of the case warrant an early review. In a surveillance review the initial rating could be retained or revised(upgrade or downgrade) . The various factors that are evaluated in assigning the ratings have been explained under rating framework.

ICRA’s Rating Process

An Overview



Initial Stage







Fact findings and
analysis






Rating Finalisation




















RATING FRAMEWORK
The basic objective of rating is to provide an opinion on the relative credit risk (or default risk) associated with the instrument being rated. This in a nutshell includes, estimating the cash generation capacity of the issuer through operations (primary cash flows) vis-à-vis its requirements for servicing obligations over the tenure of the instrument. Additionally , an assessment is also made of the available marketable securities(secondary cash flows) which can be liquidated if require d, to supplement the primary cash flow may be noted that secondary cash flows have a greater bearing in the short term ratings , while the long term ratings are generally entirely based on the adequacy of primary cash flows.
All the factors whish have a bearing on future cash generation and claims that require servicing are considered to assign ratings. These factors can be conceptually classified into business risk and financial risk drivers.
Business risk drivers
• Industry characteristic
• Market position
• Operational efficiency
• New projects
• Management quality

Financial risk drivers
• Funding policies
• Financial flexibility
Industry characteristics: This is the most important factor in credit risk assessment. It is a key determinant of the level and volatility in earnings of any business. Other factors remaining the same , industry risk determines the cap for ratings. Some of the factors that are analyzed include:
Demand factors
• Drivers & potential
• Nature of product
• Nature of demand-seasonal, cyclical
• Bargaining position of customers
State of competition
• Existing & expected capacities
• Intensity of competition
• Entry barriers for new entrants
• Exit barriers
• Threat of substitutes
Environmental factors
• Role of the industry in the economy
• Extent of government regulation
• Government policies-current and future direction
Bargaining position of suppliers
• Availability of raw material
• Dependence on a particular supplier
• Threat of forward integration
• Switching costs
For credit risk evaluation , stable businesses(low industry risk) with lower level of cash generation are viewed more favorably compared to business with higher cash generation potential but relatively higher degree of volatility.
It needs to be mentioned that with the opening up of the Indian economy, it is also critical to establish international competitiveness both at the industry and unit level.
Market position : All the factors influencing the relative competitive position of the issuer are examined in detail. Some of these factors include positioning of the products , perceived quality of products or brand equity, proximity to the markets, distribution network and relationship with the customers. In markets where competiveness is largely determined by costs, the market position is determined by the unit’s operational efficiency. The result of these factors is reflected in the ability of the issuer to maintain/ improve its market share and command differential in pricing. It may be mentioned that the issuers whose market share is declining, generally do not get favourable long term ratings.
Operational efficiency : In a competitive market , it is critical for any business unit to control its costs at all levels. This assumes greater importance in commodity or “ me too” businesses, where low cost producers almost always have an edge. Cost of production to a large extent is influenced by:
• Location of the production units
• Access to raw materials
• Scale of operations
• Quality of technology
• Level of integration
• Experience
• Ability of the unit to efficiently use of its resources

A comparison with the peers is done to determine the relative efficiency of the unit. Some of the indicators for measuring production efficiency are:- resource productivity, material usage and energy consumption. Collection efficiency and inventory levels are important indicators of both the market position and operational efficiency.
New project risks : The scale and nature of new projects can significantly influence the risk profile of any issuer. Unrelated diversifications into new products are invariably assessed in greater detail.
The main risks from new projects are:-Time and cost overruns, even non-completion in an extreme case, during construction phase; financing tie-up; operational risks; and market risk.
Besides clearly establishing the rationale of new projects, the protective factors that are assessed include: track record of the management in project implementation, experience and quality of the project implementation team, experience and track record of technology supplier, implementation schedule, status of the project, project cost comparisons, financing arrangements, tie-up of raw material sources , composition of operations team and market outlook and plans.
Management quality : The importance of this factor can not be overemphasized. When the business conditions are adverse , it is the strength of management that provides resilience. A detailed discussion is held with the management to understand its objectives, plans & strategies, competitive position and views about the past performance and future outlook of the business.
These discussions provide insights into the quality of the management. It also helps in establishing management’s priorities. A review of the organization structure and information system is done to assess whether it aligns with the management’s plans and priorities. The interactions with key operating personnel help in determining the quality of the management. Issues like dependence on a particular individual and succession planning are also addressed.
Funding policies :This determines the level of financial risk. Management’s views on its funding policies are discussed in detail. These discussions are generally focused on the following issues:
• Future funding requirements
• Level of leveraging
• Views on retaining shareholding control
• Target returns for shareholders
• Views on interest rates
• Currency exposures including policies to control the currency risk
• Asset-liability tenure matching
Financial flexibility : While the primary source for servicing obligations is the cash generated from operations, an assessment is also made of the ability of the issuer to draw on other sources, both internal(secondary cash flows) and external, during periods of stress.
These sources include: availability of liquid investments, unutilized lines of credit, financial strength of group companies, market reputation, relationship with financial institutions and banks, investor’s perceptions and experience of tapping funds from different sources.
Past financial performance : The impact of the various drivers is reflected in the actual performance of the issuer. Thus , while the focus of rating exercise is to determine the future cash flow adequacy for servicing debt obligations, a detailed review of the past financial statements is critical for better understanding of the influence of all the business and financial risk factors.
Evaluation of the existing financial position is also important for determining the sources of secondary cash flows and claims that may have to be serviced in future.
Accounting quality : Consistent and fair accounting policies are a pre-requisite for financial evaluation and peer group comparisons. It may be mentioned that accounting quality is also an important indicator of the management quality. Rating analysts review the accounting policies, notes to accounts and auditors comments in detail. Wherever necessary, rating analysts adjust the financial statements to reflect the correct position. Over a period of time the focus of financial analysis at the credit rating agency has shifted towards evaluation of cash flow statements as cash flows to a large extent offset the impact of “financial engineering”.
Indicators of financial performance: Financial indicators over the last few years are analyzed and performance of the issuer is compared with its peers. Comparison with peers is important for better understanding of the industry trends and determining the relative position of the issuer. Some of the important indicators that are analyzed are presented below:
Profitability : A traditional indicator of success or failure of any business endeavor has been its ability to add to its wealth or generate profits. A few important indicators are trends in:
• Return on capital employed
• Return on net worth
• Gross operating margins
Higher profitability implies greater cushion to debt holders. Profitability also determines the market perception which has a bearing on the support of share holders and other lenders. This support can be an important factor during stress.
Gearing or level of leveraging : This is an important determinant of the financial risk. Some important indicators are:
• Total debt as a % of net worth
• Long term debt as a % of net worth
• Total outside liabilities as a% of total assets
It needs to be emphasized that business risk is a prime driver, while gearing has a secondary role in determining the overall rating.
Coverage ratios : Considered to be of primary importance to the debt holders. The important ratios are:
• Interest coverage ratio(OPBIT/Interest)
• Debt service coverage ratio
• Net cash accruals as a % of total debt
The level of these ratios reflects the result of business risk drivers and the funding policies. Generally speaking, higher the level of coverage, higher is the rating. However as mentioned earlier , business with lower level of coverage can get higher ratings if the earnings are steady.
Liquidity position : The indicators of liquidity positions are , the levels of:
• Inventory
• Receivables
• Payables
The state of competition , issuer’s market position & policies , relationship with customers and suppliers arte the important factors that impact the above levels.
Comparison with peers on these indicators helps to determine the relative position of the issuer in the industry. The funding profile with respect to matching of asset –liability tenures also has an important bearing on the liquidity position.
Cash flow analysis : Cash is required to service obligations. Thus, any financial evaluation would be incomplete if cash flow analysis is not carried out.
Cash flows reflect the sources from which cash is generated and it is deployed.
Cash flows offset the impact of diverse accounting policies and hence facilitate peer comparison.
Future cash flow adequacy : The ultimate objective of the rating is to determine the adequacy of cash generation to service obligations. Number of assumptions based on the future outlook of the business is made to draw projections of financial statements. Invariably, the financial projections are carried out for a number of scenarios incorporating a range of possibilities in the set of assumptions for the key cash flow drivers. A few important drivers are expectations of growth , selling prices, input costs, working capital requirements, value of currencies.




Rating Scale by ICRA
Long-Term –including Debentures
LAAA : Highest safety. Indicates fundamentally strong position. Risk factors are negligible. There may be circumstances adversely affecting the degree of safety but such circumstances, as may be visualized are not likely to affect the timely payment of principal and interest as per terms.
LAA+
LAA
LAA - High safety. Risk factors are modest and may vary slightly. the protective factors are strong and the prospect of timely Payment of principal and interest as per terms under adverse circumstances, as may be visualized, differs from LAAA only marginally.
LA+
LA
LA- Adequate safety. Risk factors are more variable and greater in periods of economic stress. The protective factors are average and any adverse change in circumstances, as may be visualized, may alter the fundamental strength and affect the timely payment of principal and interest as per terms
LBBB+
LBBB
LBBB- : Moderate safety. Considerable variability in risk factors. The protective factors are below average. Adverse changes in business /economic circumstances are likely to affect the timely payment of principal and interest as per terms
LBB+
LBB
LBB- Inadequate safety. The timely payment of interest and principal is more likely to be affected by present or prospective changes in business/economic circumstances. The protective factors fluctuate in case of changes in economy/business conditions.
LB+
LB
LB- : Risk-prone. Risk factors indicate that obligations may not be met when due. The protective Factors are narrow. Adverse changes in business/ economic conditions could result in inability/unwillingness to service debts on time as per terms.
LC+
LC
LC- : Substantial risk. There are inherent elements of risk and timely servicing of debts/obligations could be possible only in case of continued existence of favourable Circumstances.
LD : Default. Extremely speculative. Either already in default in Payment of interest and/or principal as per terms or expected to default. Recovery is likely only on liquidation or re-organisation.


Medium-Term –including Fixed Deposit Programmes

MAAA
: Highest Safety. The prospect of timely servicing of the Interest and principal as per terms is the best.
MAA+
MAA
MAA- : High safety. The prospect of timely servicing of the interest and principal as per terms is high, but not as high as in ‘MAAA’ rating.
MA+
MA
MA- : Adequate safety. The prospect of timely servicing of the interest and principal as per terms is adequate. However, debt servicing may be affected by adverse changes in the business/economic conditions.
MB+
MB
MB- : Inadequate safety. The timely payment of interest and principal is more likely to be affected by future uncertainties.
MC+
MC
MC- : Risk prone. Susceptibility to default is high. Adverse changes in business/economic conditions could result in inability/unwillingness to service debts on time and as per terms.
MD : Default. Either already in default or expected to default.


Short-Term –Commercial Paper

A1+
A1 : Highest safety. The prospect of timely payment of debt/ obligation is the best.
A2+
A2 : High safety. The relative safety is marginally lower than in A1 rating.
A3+
A3 : Adequate safety. The prospect of timely payment of interest and installment is adequate, but any adverse change in business/economic conditions may affect the fundamental strength.
A4+
A4 : Risk prone. The degree of safety is low . likely to default in case of adverse changes in business/economic conditions.
A5 : Default. Either already in default or expected to default.


RATING OF STRUCTURED OBLIGATION

Structured Obligation (SO) or Structured Finance is a term that is applied to a wider variety of debt instruments wherein the repayment of principal and interest is backed by:

• Cash flows from sense financial assets and/or
• Credit enhancement from a third party.

The process of converting financial assets (loans, receivables, etc.) into tradable securities is generally referred to as ‘securitization’ and the securities thus created are referred to as ‘asset backed securities’(AIS).
A cash flow structure is the one in which some or all of the cash flows generated by the identified assets are dedicated for the payment of principal and interest. The cash flows to the investors are secured primarily by cash flows from the specific pool of assets.
Credit Enhancement’ is a form of protection against collateral losses. Examples include-letter of credit, guarantee, cash reserve account, over collateralization, etc.
A structured obligation can be considered as variation of conventional secured debt instrument wherein the credit quality of debt obligation is backed by a lien on identified assets or credit support from third party. In conventional debt instruments the income/profits made by the company remain the primary source of debt servicing. However, in the case of structured obligations, a repayment mechanism is devised in such a way that the debt servicing is taken over by a specific pool of assets or by a third party which acts as a credit support provider.
Advantages of securitisation
The main advantages of securitisation for companies holding financial assets are listed below:
(a) Increased Liquidity: relatively illiquid assets are converted into tradable securities.
(b) Risk Diversification: securitisation allows the issuer to manage its credit exposure to a particular borrower/sectors and thus helps in risk diversification of asset portfolios.
(c) Higher Credit Quality: the structure of the instrument can be tailored in such a manner that a desired credit rating, which is higher than the rating of company holding the assets is achieved.
(d) Asset Liability Management: securitisation offers an efficient way of tenure matching of assets and liabilities.
(e) Funding Sources: securitisation allows the issuer to find alternate sources of funding and also raise funds at low costs with improved credit rating.

CASH FLOW STRUCTURE




loan
repayments Transfer of Payment for
assets assets

loan
repayments



Principal &
Issues Interest Payment
Securities payments for
Securities







The Steps in Securitisation Transaction
Step1: Origination-Lender (Banks, NBFCs, etc.) makes a loan to a borrower for purchase of an asset(car, property, etc.)
Step2: Pooling-Large number of homogenous loans are aggregated or packaged into a pool. The maturities and interest rates of pooled loans are generally the same.
Step3: Sales/Transfer –Sale (or transfer ) of assets from originator to an entity that is generically referred to as a ‘Special Purpose Vehicle” or SPV. An SPV may be a trust, a special purpose bankruptcy remote company or a public sector entity.
Step4: Credit Enhancement-Protection against the failure of borrower to make interest and principal payments on the loans. Examples include letter of credit, financial guarantee from a third party, cash collateral or over-collateralisation.
Step5: Issue of ABS –SPV issues securities to investors and the proceeds from the issuance are used to pay the originator for the pool of loans.
Some Conditions for Securitisation
A structured obligation is highly beneficial for issuers who are in a position to ’structure’ appropriate levels of credit protection so that they achieve the desired credit rating. The conditions under which a securitisation transaction is highly suited for issuers are:
• the availability of clearly identifiable and homogenous pool of assets;
• relatively predictable stream of cash flows from the identified assets;
• a positive interest rate spread which is defined as the difference between interest earned on the assets and the interest plus servicing costs of security;
• the presence of full credit support in the structure.

Rating Methodology
Credit ratings plays a very important role in the issuance of structured debt instruments. The structure of the instruments is generally quite complex which makes the task of assigning the credit risk extremely difficult for lay investors.
Credit ratings provide a simple and objective assessment of default risk in the form of a symbolic indicator which is easy to comprehend. The framework used for assessing the risk of default involves assessment of three types of risk-credit risk, structured risk and legal risk.
a) Credit Risk: It is the risk of default by the borrower. It refers to the uncertainty regarding the extent to which the borrowers of underlying assets backing the security will pay as per terms of contract. The factors considered in assessment of credit risk are:
• credit risk characteristics of the underlying pool of assets;
• key factors that influence the incentive and ability of borrowing to pay off their loans;
• pool selection process;
• future performance of the selected pool;
b) Structured Risk: It refers to the manner in which the transaction is structured to direct the payment stream from the collateral or support provides to the investors. Assessment of structural risk includes the following factors:
• analysis of credit support provider;
• evaluation of the size of enhancement and the change in size over time, trigger events;
• analysis of liquidity facilitates in structures wherein cash inflows do not match the payments to the investors;
• third party risk which is the risk of non-performance of the various parties such as receiving and paying agent, trustees, etc who are involved in the transaction;
c) Legal Risk: It refers to the risk of potential insolvency of the issuer or other parties involved in securitisation transaction. Assessment of legal risk includes:
• Evaluation of the manner in which the rights of the assets are transferred to investors.
• Legal enforceability of cash flows structure under various Scenarios
• Compliance with various laws and regulations
Thus credit rating of a structured obligation is a forward-looking measure of relative safety level of the structural transaction against credit loss that may occur over the life of the instrument.

RATING INADEQUACIES
Rating agencies by making information widely available at a low cost have increased market efficiency radically over the last few decades. However, in the credit rating business, unlike any other business, the issuers of information do not pay for it. It is so because though investors, financial intermediaries and other end –users use the results of the rating agencies, they actually do not pay for it. The issuer of the financial instruments whose information is disclosed by the rating agency actually pays it . this is the basic source of revenue of the rating agencies. This aspect makes the rating business a different animal. The potential for conflict of interest facing rating agencies is thus inherent.
Diversification:
Traditionally, the agencies used to gather and analyse all sorts of pertinent financial and non-financial information. Then they used to utilize it to provide a rating of the intrinsic value or quality of a security. This was considered as a convenient way for investors to judge quality and make investment decisions. However, they were not the only source of information. Market based ratings provided by market analysts outside the purview of the rating agencies, also performed about as well as the agency ratings. This eventually posed challenges to the rating agencies and emerged as a potential threat.
Rating agencies sell information and survive, based on their ability to accumulate and retain reputation capital. However , once regulation is passed that makes it mandatory for a company to incorporate ratings, rating agencies begin to sell not only information but also valuable property rights associated with compliance of regulation. This again accentuates the possibility of the rating agencies to exploit the regulation. Though the rating agencies will never force any company to buy their information, the companies will always try to oblige the rating agencies by buying them. As the sale of these products generates revenues the rating agencies will not be willing to lose them. There lies the potential conflict of interest. If the companies buy the services of the rating agencies , irrespective of the quality aspect, then the reward they expect is definitely a better rating.
Both CRISIL, ICRA have diversified into the consultancy business, after perceiving the potential threat and partly foreseeing the saturation of the market for new rating business. Presently both the rating giants provide a well – diversified portfolio of risk-consultancy services. Over the past two decades. The risk –consultancy services of Moody’s has become a leading provider to investors, financial analysts and other end-users in managing the risk in portfolios of credit exposures to both private and public companies. It allows credit risk professionals to employ Moody’s ratings and credit history experience to better measure and manage credit risk, to price credit risk, to identify industry and geographic concentrations , and to measure the impact of the prospective purchases or sale of debt within a portfolio context. The international practice is being replicated in India on an increasing basis by ICRA and CRISIL given the fact that Moody’s and S&P hold stakes in each of them respectively.
In the aftermath of the Enron debacle , allegations have been raised against the rating agencies for not being prompt in identifying the Enron debacle. It has been opined by various people that had the rating agencies been quick in envisaging the company’s bankruptcy, many investors would have saved themselves from burning their hands.
Holier than thou approach
The rating agencies defending themselves, say that their job is to portray the true picture of the riskiness associated with a bond and its likelihood of default in the long run. The possibility of the rating agencies being jittery of revealing shoddy financial statements hiding actual transaction cannot be ruled out. With Enron , it is possible that they thought it better to think twice before having the courage to say that the emperor is not wearing any clothes. And that took time to downgrade the company.
 
Need a project

hi.
i need a project for my assignment and it is very urgent.

what are the processes involved in a industrial project form start till end
the sponsor, the project manager , different types of departments involved
and what are there responsibility, communication, human resources, relations ship between managers and subordinates and how each department gets involved,the work brake down structure of the project ,quality control required
and every thing needed has to be done.

it is very urgent please help me.ASAP

thanks & regards
 
 
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