An Insight to a Rating Agency !

ALUMNI ROUND TABLE- Session 8

with

Hetal Dalal

Head, Ratings at CRISIL

In the regular series of the ALUMNI ROUND TABLE SESSIONS, this was the 8th and a transcendental one which gave me a new dimension of viewing business and allowed me to re-frame my journey of MBA. It is beyond doubt that we tend to learn to excel from an ace institution like NMIMS of which I am a part by God's grace but the fact that students themselves also play a pivotal role in bringing out the best in each other can never be overlooked. A living example is this series of which I happen to be regular subscriber. 

Before I start sharing the wonderful experience I had in the discussion with Hetal, I would like to draw your attention on the cardinal fact which is the definition of rating. We must look on this from the viewpoint of an analyst and very well we will see that it is nothing but “an opinion on the ability of an entity to repay its debt”.

Introducing you to CRISIL:

1.       Approximately INR 600 crore company based at Mumbai started in 1987

2.       S&P which is based at NY, USA has 51.6% shareholding

3.       It is a completely fee based company which means the revenue comes from the companies whom CRISIL gives ratings to

The basic BU structure of CRISIL looks somewhat like this:

This is an important point to note here that all the three divisions of CRISIL are firewalled from each other.You might be wondering that why is not sharing across divisions being done in order to save on effort and time? For that I would like to tell you that it is done but through a series of process where the compliance team is the interface which gives us a hint on the credibility stature.

Brief profile of Ms. Hetal Dalal :

1.       NMIMS Alumna of Class of 2000

2.       10 years of rich experience with CRISIL

Scale of Ratings

In the above image you can see the two divisions on the basis of which rating scale have been defined.

It would interest you to know that here the rating ‘D’ is not much different than is followed in our grading system at NMIMS; hence a rating D by CRISIL means the concerned company has defaulted or could not repay its debt. Next step in the case of such a defaulted company is its Recovery Analysis where the consideration and estimation of the value of assets is carried out.

Analysis parameters and functions

In the quest of knowing the details of the credit risk analysis we came across several simple functions series, we were asked to analyse as to what could be the probable drivers of Debt Repayment and after few guess works we were on the right track:

Debt Repayment is a form which is a function of :

1.       Ability to repay and this is driven by the following:

a)      Financial Risk

b)      Business Risk

c)       Management Risk

2.       Willingness to repay and this is driven by the Management Risk

As a matter of fact she underlined that these are “three pillars” of any credit risk analysis.

We were then gradually introduced to each pillar of analysis one by one:

I.                    Business Risk

·         Assessment of business on the basis of future cash flow

·         Cost competitiveness – nature of industry

·         Customers/ suppliers

·         Government policies

·         Industry risk – environment volatility

                    For a detailed analysis the following three are the elements of consideration:

a)      Past performance

                                                      i.            It helps CRISIL to know the extremities of performances of the company and the possible downsides which are much a preferred point of concern

                                                    ii.            Helps in estimating the starting point of lending the money and consider the issues like business growth and CAPEX flow  

b)      Upcoming projects
 

Prior to discussing the next element you all must be able to gauge by now the tremendous amount of ground work required before final submission of report and the rating being given, moreover the work has yet not reached the midway.

c)       Financial flexibility – sources of money that a company has besides and external to operating activities

II.                  Management Risk – these are calculated based on the following qualitative factors:

a)      Competence

b)      Risk Appetite – the ability of the company to foray into unrelated sectors

c)       Integrity of the company

III.                Financial Risk – this is quite evident from the various annual statements of a company which are floated after every financial year end. Besides taking the microscopic view of such documents there is a need of enough ratio analyses.

As if this was not enough she was quite engrossed in letting her knowledge flow like the preaching of a saint to its disciples but there are many restrictions within which we have to function and one such is TIME.

We all are kind of bound in this limit but never mind, as very well said by Paul Klee, “A single day is enough to make us a little larger”, and it actually made a difference to me as this 2 hours of knowledge sharing session with Hetal added invaluable 10 years of her expertise to me.

All credit goes to the Alumni Cell for taking pains to arrange such an enlightening session and especially the Round Table Session Team whose impeccable efforts from starting till the end of the session deserve a round of applause.

Before leaving us completely mesmerised, Hetal gave few points that we all as an MBA student must keep in mind for a successful career in such field:

·         Possession of fundamental knowledge

·         Integrity

·         Commitment towards work

Besides she gave us many words of wisdom and created an opportunity for us to experiment with incredible facts to fathom their limitless avenues, the memoirs of which I have just shared with you!

Thank You.

"Time for Indian Rupee"

It was asked by the government of India 17 months back when I was unaware of the challenge and busily working in my office...it came and went off my eyes and I could not pay heed to it, now I realize what I missed :(    The competition worth $5000 i.e. equivalent to 2.5 lakhs INR.

It might appear very simple and easy but it took Dharmalingam Udaya Kumar more than just an enormous research, the attitude of which he has received over time at IIT Mumbai.
The first look of the design for the Indian rupee as an international symbol gives us the experience of Indian Devnagri script and has proved again to us that cultural values can take anyone to great heights of success. The earlier milestone of success with such similarity was the "Jai Ho" song sequence that made A R Rahman the first Indian Academy award winner- Best Original song!
Further looking into the details of his efforts I found out that there is a difference between solitude and loneliness. The latter is obvious to any common man however, the former is a situation where one is blessed with good time to test, experiment and equip oneself with all the possible exquisite knowledge. Therefore all may agree to this thought that "Solitude provides a man enough opportunity to become the beholder of the Power of Knowledge". This may be supported by the fact that in order to know the world better, it is not necessary to take a voyage of earth, instead one may know much more, comparatively in much less time and at phenomenally lesser cost by engaging oneself in voracious reading.
Coming back to Udaya, we can all analyse that his efforts and India as an emerging economic superpower, both have received an international recognition and acclaim from all parts of the world...
May India prosper with the team of such efficient and vital change elements.
Amen !

NMIMS ALUMNI CELL - ROUND TABLE SESSION 6

Key feature: Open House
Guest of the day : Mr. Sanjiv Roy, Vice President- Bancassurance and Alliances, ICICI Prudential
Chairperson : Hufrish Homavazir

I know my reasons better now....the reason of getting associated with Alumni Cell....!
Where else could have I enjoyed such a wonderful interaction with a person, who till date never misses a chance to give due regard to the temple of knowledge(NMIMS) that made him reach where he is today.

The intensity of generosity of such an Alumnus can be known merely by calculating the valuable time, the potential energy and needless to mention the experiential knowledge he shared with us. He generally uses these assets for driving his business day. But all thanks to the indispensable efforts of our Alumni Team without which this day could have never commenced.

After a round of introduction with all the attendees, and to my surprise he was so very much enthralled with a good mix of students and the key point he noted that we had come from diverse work experience backgrounds. He was likely to be moved seeing this and he instantly speculated something which comes as a good news for all of us..."the placement for 2011 would be better than 2010; the placement for 2012 would be better than 2011"...rosy pink cheeks :) well we must always be optimistic guys after all we all know the obvious reason of the cautious market scenarios after the disastrous episodes of AIG & Lehman Brothers. Moreover, we all must give a reason to be the change elements and make ourselves robust enough in our strategies that our ideas and skills work foolproof and that we reach places !

Further we were startled by the facts he shared with us which follows as :
1. Until 1999 only Life Insurance Company was the only Insurance company in India, but after IRDA Act of 1999:
a) Domestic companies were allowed to business
b) Foreign companies were allowed to have business in tandem with a shareholding upper limit of 26 %**
{** Sri Harsha and I had a discussion on this and found the latest development}
Hence, after the latest amendment the upper limit for Foreign Direct Investment has been moved to 49 %

2. India's standing in the world (in terms of premium volume):

Year	India's Standing
2000	20
2003	19
2010	10
2015	7

South Korea is still ahead of us and I don't know, I felt a bit uneasy, I do not like South Korea but as soon as I read his next slide for future projection I was so very much happy to see that we will move on 7th and that we will leave South Korea behind...I eventually started laughing but low enough not to distract the audience ;)

3. Today we have 32 life insurance companies in India and the No.1 in private is ICICI Prudential
{Here I would like to take a chance and thank our seniors whose Assignment1 came as a blessing in disguise for me & it was that moment when I actually realized that Knowledge gained in whatever way never goes waste}

4. It was here that he recalled his student days and shared with us the developments and reforms that he has seen in the Indian economy which was immediately followed by the Indian Insurance penetration(TIP, premium as a percentage of GDP) fact:

Year	TIP
1990s	1.50%
2003	2.26%
2010	4.10%

It must also be noted that the total premium in life insurance has increased significantly from Rs 156,076 crore in 2006-07 to Rs 201,351 crore in 2007-08 i.e. 29% increase. It increased further by 10.8 per cent to Rs 223,053 crore in 2008-09.

5. Only 10% of Indian population depicts the presence of Indian insurance sector. Out of this, the majority is the urban population and hardly rural. Now the automatic question comes to mind as to why not big players like ICICI Prudential tapping this potential rural population?

Well this was how his beautiful way of presenting the real and hard facts comes into account and believe me guys after knowing the reason{which due to obvious reasons cannot be disclosed here} no one of us could move and instantly my brain cells commanded me "BREATH" :)

6. He introduced us with some basic definitions like brokers and tied agents, bancassurance etc.

By this time a good number of questions were satisfactorily answered by Sanjiv and the quest for knowing more and more grew with every passing minute,.....it was only when a signal came from outside for the closure of the room that we realized it is more than 2 hours we have spent assimilating rich and unapproachable information..

Hence, the session needed to be concluded which was followed by Hufrish presenting him memento as a token of thanks and ended it with a vote of thanks !

The story does not end here, I wanted to share this with all of you and make you realize the importance of place you are in and how significantly each moment spent @ NMIMS may change our lives manifolds... :)

Sri Harsha : Special thanks to you for helping me recollect the minutes of the session !

Indranil & Chirag : thanks for poking me and playing music in between so that I could wake up and complete this.

With Best Wishes to future bankers !

Regards

Shaleen Porwal