Code Of Conduct For Directors and Senior Management

A credit rating agency is expected to observe highest standards of integrity and fairness in all its dealings. The directors and senior management personnel are expected to articulate the high standards of honesty, integrity, ethical and law abiding behaviour in the organisation. All the Directors and Senior Management personnel of the Company are expected to read and understand the Code of Conduct and follow these standards in performance of their duties and comply with all applicable laws, rules and regulations.

 All the Board members and Senior Management personnel shall affirm compliance with the Code on an annual basis.

For this purpose, “Senior Management” shall mean members of management upto the level of Deputy General Manager.

Honesty and Integrity

The Directors/senior management shall act honestly and with integrity in all of their dealings for the company. They should not make any promise or commitments which the company does not intend to or would be unable to honour. Directors and senior management will not use company information obtained by them for personal gain financial or otherwise or for the benefits for any other person or business.

Confidentiality

Directors and senior management will ensure that confidential information relating to customers, employees and Company’s operations is not given either inadvertently or deliberately to third parties without consent of the Company obtained in writing.

Conflict of interest

Directors and senior management shall fully disclose active private or other business interests promptly and any other matters which may lead to potential or actual conflicts of interests with CARE.

Protection and proper use of assets

The Company expects each Director and Senior Management Personnel to use all reasonable endeavours to protect any Company asset and to ensure its efficient use.

Compliance with laws, regulations, policies and procedures

Each Director and Senior Management Personnel must:

i)comply with applicable laws, rules and regulations;

ii)comply with the policies and procedures of the Company, including its corporate code of conduct and code of conduct for insider trading; and

iii) encourage other officers and employees to do the same.

Reporting of any illegal or unethical behaviour

Directors and senior management shall promptly contact the Chairman of the Board or Managing Director or the Compliance Officer if any director or senior management personnel believe that he or she has observed illegal or unethical behaviour by any employee, officer or director, or by anyone purporting to be acting on Company’s behalf.

Payments, Gifts, Entertainment and Travel

Directors and senior management shall not use their status to seek personal gain from those doing business or seeking to do business with the Company. Directors and senior management shall not accept any gift or other benefits except those extended as a part of social custom.

Waivers and Modifications

Waivers of this code of Conduct will be granted only when determined to be appropriate under the circumstances and in accordance with applicable law, and only upon approval by the Board of Directors or an authorised committee thereof. This Code of Conduct is also subject to modification by the Board of Directors at any time in order to ensure continued compliance with applicable laws, rules and regulations.

ACRAA Best Practices Checklist - CARE's Position

CARE is a founder member of Association of Credit Rating Agencies in Asia (ACRAA). ACRAA was formed on September 14, 2001 by Asian Credit Rating Agencies and it is assisted by Asian Development Bank (ADB). ACRAA was formed to promote::

--     exchange of skills and ideas amongst Asian rating agencies

--  establishment of best practices and norms of conduct among Asian rating agencies

--   development of financial markets in Asia

A significant initiative undertaken by the Best Practices Committee of ACRAA was to create the ACRAA Best Practices Checklist. All Member Agencies are expected to declare their positions on each of the items in the checklist. CARE's position on these items is set out below.

A.      QUALITY AND INTEGRITY OF THE RATINGS PROCESS

1)      Specification and description of Rating Process and Criteria

CARECARE has a clearly specified and publicly disclosed rating processes and criteria for arriving at a rating.

2)      Published and explicit Ratings Review / Appeal Process

CARE has put in place a structured review and appeal process.

3)      Policy on Rating Withdrawals

Ratings are normally withdrawn only when the rated instrument is fully repaid or extinguished. Exceptions are made only in the specific instruments/ratings which tend to be perpetual in nature, these ratings are withdrawn upon specific notice of withdrawal.. In extreme cases of issuer non co-operation, CARE suspends ratings with due notice to the issuer and the reason for suspension is disclosed publicly.

4)      Policy on Disclosure of unaccepted ratings

In terms of the provision of the rating mandate, unaccepted ratings are not published. However, as an exception, they would be revealed only to regulatory authorities, if required and formally requested for by the agencies. Such exceptional revelation is provided for in the rating mandate from issuers.

5)      Policy on surveillance

CARE’s credit ratings are normally kept under surveillance during the life of the instrument with a detailed annual review involving interaction and discussion with the management of the rated entity. Rating review can also be triggered by any major development in the company or in the industry, which may have a significant bearing on the creditworthiness of the issuer. Private ratings which are carried out on a one time basis may not be placed on surveillance.

6)      Policy on code of ethics of ratings agency and its staff

All our staff members are governed by staff rules which also includes ethical conduct. Staff members, directors and rating committee members required to comply with an elaborate code of conduct . As per company’s policy, compliance of the code of conduct has to be certified annually by all staff members, directors and rating committee members.

7)      Validity of ratings

Once accepted, CARE's credit ratings are valid for the life of instrument, till withdrawn or suspended. Also, a rating may be revised based on a periodic review by CARE during the life of the instrument

8)      Publication on the Limitations of

i)        Rating Rigour

ii)      Information adequacy

iii)    Currency

Limitations of rating are disclosed in our brochure and website www.careratings.com. 

9)      Assurance or guarantee of ratings

CARE does not, either implicitly or explicitly, give any assurance or guarantee of a particular rating prior to a rating assessment. This policy, however, does not preclude us from developing prospecting assessments used in structured finance and similar transactions. 

10)  Policy on Compliance Officer

We have policies and procedures that specify the role of a compliance officer. Policies have also been instituted that encourage employees to report activities illegal, unethical, or in any way contrary to the CRA’s code of conduct to the Compliance Officer.

11)   11)Separation of analyst compensation and revenue from issuer

The compensation of individual analysts is not based on the amount of revenue that the CRA derives from the issuers that the analysts rate or with whom the analysts regularly interacts.

B.   CRA INDEPENDENCE AND AVOIDANCE OF CONFLICT OF INTEREST

12)   Published Policy on dependence on third parties:

i)        Auditors

i)        Trustees

i)        Consultants

i)        Experts

CARE generally relies on authenticated information furnished to it while undertaking the rating exercise. Nevertheless, reasonable due diligence is carried out to cross check and verify the reliability of information. CARE also makes suitable adjustments to the financial statements, where required to ensure that a meaningful rating exercise is done.

13)   Disclosure of Interests

In case CARE's rating committee/board and the board of the rated entity have any common member, such members do not participate in the rating process of the concerned entity. This is also disclosed publicly wherever applicable.

14)   Separation of businesses

Our credit rating business and rating analysts are operationally separated from any other business that may have a potential for conflict of interest.

15)  Disclosure of general nature of fee arrangements with rated entities

We disclose the general nature of fee arrangements with rated entities on our website.

16)  Disclosure of non-rating revenues from rated entities

CARE’s Rating and Non-rating businesses (advisory business) were separate and operated independently . Since February 2008, CARE has decided to phase-out its advisory business.

17)  Trading Policy for CRA employees

CARE’s code of conduct for its employees includes trading policy, which, amongst other things, prohibits employees from transacting in securities when they possess confidential information concerning the issuer.

18)  Policy on employees directly involved in the rating process initiating, or participating in, discussions regarding fees or payments with the rated entity.

It is our policy to exclude rating analysts from business development activities. The business development team and senior management are involved in Business development.

C.  CRA RESPONSIBILITIES TO THE INVESTING PUBLIC, ISSUERS, AND REGULATORS 

19)  The Ownership of the agency 

The ownership profile of CARE is disclosed on our website.

20)  The agency’s Management and Board Structure

Composition of board members is disclosed on our website and in corporate brochures. Analyst contact is also available on the web site.

21)  Constitution of the Rating Committee

  Composition of rating committee is disclosed on our website and in corporate brochure.

22)  Disclosure of what Ratings issued by the agency mean

CARE ratings for debt instruments indicate the probability of default of the rated instruments. CARE also carries out performance evaluation for various entities, some of which include construction entities, parallel marketers of LPG/Kerosene. These are not credit ratings and carry specific definitions. In addition, CARE carries out claims paying ability ratings of insurance companies and corporate governance ratings which have separate, specific definitions. These definitions are available on our website and in corporate brochure and other publications.

23)  Policy on time to communicate ratings

New ratings are normally made public on acceptance by the issuer with a few exceptions where regulations require all ratings to be made public or the rating exercise is carried out for private use. With regard to surveillance of outstanding ratings, it is CARE's policy to disseminate rating decisions immediately after advising the issuer. Reasonable time is provided to issuers to appeal for a review.

24)  Guidelines on Rating Rationale: timeliness

CARE's rating rationale is published simultaneously with the announcement of rating.

25)  Guidelines on Rating Rationale: content

Our rating rationales include factors taken into account in arriving at the rating, financial and operating information, management details, market position of the issuer, outlook and key rating sensitivities.

26)  Publication of Default and Transition statistics

Rating transition and Default statistics are regularly compiled and disseminated to public.

27)  Existence and publication of a Policy on Unsolicited Ratings: whether they will be undertaken, if so based on what information.

CARE does not undertake unsolicited ratings.

28)  Policy on preserving confidentiality of privileged information (and exceptions for regulatory queries)

CARE does not reveal confidential information obtained during the rating exercise to anyone under any circumstances, except when required by law to specified authorities.

D.  DISCLOSURE OF THE CODE OF CONDUCT AND COMMUNICATION WITH MARKET PARTICIPANTS

29)  Publication of the CRA code of conduct

CARE has an elaborate code of conduct for its staff members, directors and rating committee members. The code of conduct for Board/Senior Management of CARE is disclosed on our web site.

30)  Existence of a dedicated function/group within the organization charged with informing market participants and public regarding any questions, concerns, or complaints that the CRA may receive.

Senior Management and Sector Heads interact/respond to market participants and public regarding any questions, concerns or complaints that CARE may receive.

CODE OF CONDUCT for CARE

Based on recommendations of INTERNATIONAL ORGANIZATION OF SECURITIES COMMISSIONS (IOSCO)

INTRODUCTION

A credit rating agency is expected to observe highest standards of integrity and fairness in all its dealings. CARE is committed to continuously reviewing and monitoring its policies and procedures in light of the contemporary developments. CARE is already required to comply with the Securities and Exchange Board of India (Credit Rating Agencies) Regulations 1999 and the code of conduct stipulated in regulation 13 of these regulations.

 CARE is a member of Association of Credit Rating Agencies in Asia (ACRAA) and has made public disclosures on its status regarding the Best Practices Checklist stipulated by ACRAA.

In addition, in order to also align its code of conduct with ‘Code of Conduct Fundamentals for credit rating agencies’ (the ‘IOSCO Code’) published in December 2004 by the International Organization of Securities Commissions (IOSCO), CARE has come out with this code.

This code is available to public on CARE’s website at www.careratings.com. However, by making this code available to the public CARE does not assume any responsibility or liability to any third party arising out of or relating to this code. This code shall not form a part of any contract with any third party and no third party shall have any right (contractual or otherwise) to enforce any of this code’s provisions, either directly or indirectly. CARE in its sole discretion may revise this code to reflect changes in market, legal and regulatory circumstances and changes to CARE’s control, policies and procedures.

 CARE expects all employees to comply with this code and the related policies and procedures. Any exceptions to this code or the related policies and procedures should be approved in writing by the Compliance Officer of CARE who shall be responsible for interpretation of this code and the related policies and procedures. Failure to comply with this code and the related policies and procedures could be sufficient reason for disciplinary action.

This code would be in addition to the internal Code of Conduct for securities trading and Code of Conduct for Directors and Senior Management Personnel of the Company.

1.QUALITY AND INTEGRITY OF THE RATING PROCESS

A.Quality of the Rating Process

1.2 CARE shall use rating methodologies/criteria that are rigorous, systematic, and, where possible, result in ratings that can be subjected to some form of objective validation based on historical experience.

1.3 In assessing an issuer’s creditworthiness, analysts involved in the preparation or review of any rating action shall use methodologies/criteria established by CARE. Analysts shall apply methodology/criteria existing at the time of rating/review in a consistent manner, as determined by CARE.

1.4 Credit ratings shall be assigned by the Rating Committee comprising competent and experienced professionals and not by any individual analyst employed by CARE. Ratings shall reflect all information known, and believed to be relevant by the Rating Committee, consistent with CARE’s published methodology/criteria and CARE shall use people who, individually or collectively have appropriate knowledge and experience in developing a rating opinion for the type of credit being applied.

1.5 CARE shall maintain internal records to support its credit opinions for a reasonable period of time or in accordance with applicable law.

1.6 CARE and its analysts shall take steps to avoid issuing any credit analyses or reports that contain misrepresentations or are otherwise misleading as to the general creditworthiness of an issuer or obligation.

1.7 CARE shall ensure that it has and devotes sufficient resources to carry out high-quality credit assessments of all obligations and issuers it rates. When deciding whether to rate or continue rating an obligation or issuer, it shall assess whether it is able to devote sufficient personnel with requisite skill sets to make a proper rating assessment, and whether its personnel likely will have access to sufficient information needed in order to make such an assessment.

1.8 CARE shall structure its rating teams to promote continuity and avoid bias in the rating process.

B.Monitoring and Updating

1.9 In accordance with CARE’s established rating policies and procedures, once a rating is accepted, CARE shall monitor it on an ongoing basis (except for ratings that are carried out as one time exercise), and update the rating by:

   a.regularly reviewing the issuer’s creditworthiness;

   b.initiating a review of the status of the rating upon becoming aware of any information that might reasonably be    expected to result in a rating action (including withdrawal of a rating),consistent with the applicable rating    methodology/criteria; and,

   c.updating on a timely basis the rating, as appropriate, based on the results of such review.

1.10 With a few exceptions, CARE typically withdraws rating only when the rated instrument is fully redeemed or if there is no instrument outstanding. Where CARE makes its ratings available to the public, it shall publicly announce if it withdraws rating of an issuer or obligation. Where CARE’s ratings are provided only to its subscribers, CARE shall announce to its subscribers if it withdraws rating of an issuer or obligation. In both cases, publications by CARE of the withdrawn rating shall indicate that the rating was withdrawn.

C.Integrity of the Rating Process

1.11 CARE and its employees shall comply with all applicable laws and regulations governing its activities in each jurisdiction in which it operates.

1.12 CARE and its employees shall deal fairly and honestly with issuers, investors, other market participants, and the public.

1.13 CARE’s analysts shall be held to high standards of integrity, and CARE shall not employ individuals with demonstrably compromised integrity.

1.14 CARE and its employees shall not, either implicitly or explicitly, give any assurance or guarantee of a particular rating prior to a rating assessment. This does not preclude CARE from developing prospective assessments used in structured finance and similar transactions.

1.15 The Company Secretary of CARE would be responsible for CARE and CARE’s employees’ compliance with the provisions of its code of conduct and with applicable laws and regulations.

1.16 Upon becoming aware that another employee of CARE is or has engaged in conduct that is illegal, unethical or contrary to CARE’s code of conduct, an employee of CARE shall report such information immediately to the individual in charge of compliance or an officer of CARE, as appropriate, so proper action may be taken. CARE’s employees are not necessarily expected to be experts in the law. Nonetheless, its employees are expected to report the activities that a reasonable person would question. Any CARE officer who receives such a report from a CARE employee is obligated to take appropriate action, as determined by the laws and regulations of the jurisdiction and the rules and guidelines set forth by CARE. CARE’s management prohibits retaliation by other CARE staff or by CARE itself against any employee who, in good faith, make such reports. In case any staff is found guilty on this count, CARE shall take disciplinary action upto and including termination of employment.

2.INDEPENDENCE AND AVOIDANCE OF CONFLICTS OF INTEREST

A.General

2.1 CARE shall not forbear or refrain from taking a rating action, if appropriate, based on the potential effect (economic, political, or otherwise) of the rating action on CARE, an issuer, an investor, or other market participant.

2.2 CARE and its analysts shall use care and professional judgment to maintain both the substance and appearance of independence and objectivity.

2.3 The determination of a credit rating shall be influenced only by factors known to the Rating Committee that are believed by it to be relevant for credit assessment.

2.4 The credit rating CARE assigns to an issuer or issue shall not be affected by the existence of or potential for a business relationship between CARE(or its affiliates) and the issuer (or its affiliates) or any other party, or the non-existence of such a relationship.

2.5 CARE’s rating and advisory business were operating as separate and independent divisions on an arms length basis to minimize any likelihood for conflict of Interest. However, from February 2008 CARE has since decided to phase-out its advisory services business.

1.7 CARE shall ensure that it has and devotes sufficient resources to carry out high-quality credit assessments of all obligations and issuers it rates. When deciding whether to rate or continue rating an obligation or issuer, it shall assess whether it is able to devote sufficient personnel with requisite skill sets to make a proper rating assessment, and whether its personnel likely will have access to sufficient information needed in order to make such an assessment.

B.CARE’s Procedures and Policies

2.6 CARE shall adopt written internal procedures and mechanisms to (1) identify, and (2) eliminate, or manage and disclose, as appropriate, any actual or potential conflicts of interest that may influence the opinions and analyses CARE makes or the judgment and analyses of the analysts. CARE shall disclose such conflict avoidance and management measures.

2.7 CARE’s disclosures of actual and potential conflicts of interest should be complete, timely, clear, concise, specific and prominent.

2.8 CARE shall disclose the general nature of its compensation arrangements with rated entities. Where CARE receives from a rated entity compensation unrelated to its ratings service, such as compensation for consulting services, CARE shall disclose the proportion such non-rating fees constitute against the fees CARE receives from the entity for rating services.

2.9 CARE and its employees shall not engage in any securities or derivatives trading presenting conflicts of interest with CARE’s rating activities.

2.10 In instances where rated entities (e.g., governments) have, or are simultaneously pursuing, oversight functions related to CARE, CARE shall use different employees to conduct its rating actions than those employees involved in its oversight issues.

C.Analyst and Employee Independence

2.11 Reporting lines for Analyst and their compensation arrangements shall be structured to eliminate or effectively manage actual and potential conflicts of interest. An analyst will not be compensated or evaluated on the basis of the amount of revenue that CARE derives from issuers that the analyst rates or with which the analyst regularly interacts.

2.12 CARE analysts shall not be involved in deciding the commercial terms of the rating assignment. This is decided by the business development group /Senior Management.

2.13 No CARE Employee/Rating Committee Member shall participate in or otherwise influence the determination of rating of any particular entity or obligation if the Analyst/Rating Committee Member or member of his family (family includes self, dependent spouse, dependent parents, dependent children, dependent parents in laws):

       a.Owns securities or derivatives of the rated entity, other than holdings in diversified collective investment        schemes;

       b.Owns securities or derivatives of any entity related to a rated entity, the ownership of which may cause or may         be perceived as causing a conflict of interest, other than holdings in diversified collective investment schemes;

       c.Has had been employed or had other significant business relationship with the rated entity in the immediately         preceding one year that may cause or may be perceived as causing a conflict of interest;

       d.Has an immediate relation (i.e., a spouse, partner, parent, child, or sibling) who currently works for the rated         entity; or

       e.Has, or had in the immediately preceding one year, any other relationship with the rated entity or any related        entity thereof that may cause or may be perceived as causing a conflict of interest.

2.14 CARE’s analysts and anyone involved in the rating process (or their dependent spouse, partner or minor children/family member) shall not buy or sell or engage in any transaction in any security or derivative based on a security issued, guaranteed, or otherwise supported by any entity within such analyst’s area of primary analytical responsibility, other than holdings in diversified collective investment schemes except as permitted under CARE’s internal securities trading policy.

2.15 CARE employees are prohibited from soliciting money, gifts or favors from anyone with whom CARE does business and are prohibited from accepting gifts offered in the form of cash or any gifts exceeding a minimal monetary value.

2.16 Any CARE analyst who becomes involved in any personal relationship that creates the potential for any real or apparent conflict of interest (including, for example, any personal relationship with an employee of a rated entity or agent of such entity within his or her area of analytic responsibility), shall be required to disclose such relationship to the appropriate manager or officer of CARE.

D.CARE RESPONSIBILITIES TO THE INVESTING PUBLIC AND ISSUERS

A.Transparency and Timeliness of Ratings Disclosure

3.1 CARE shall distribute in a timely manner its ratings decisions regarding the issuers and securities it rates.

3.2 CARE shall publicly disclose its policies for distributing ratings, reports and updates.

3.3 CARE shall indicate with each of its ratings when the rating was updated.

3.4 Except for “private ratings” provided only to the issuer, CARE shall disclose to the public, on a non-selective basis and free of charge, any rating regarding publicly issued securities, or public issuers themselves, as well as any subsequent decisions to discontinue such a rating. Press releases providing brief rationale of the rating are provided on CARE’s website.

3.5 CARE shall publish sufficient information about its procedures, methodologies and assumptions (including financial statement adjustments that deviate materially from those contained in the issuer’s published financial statements) so that outside parties can understand how a rating was arrived at by CARE. This information will include (but not be limited to) the meaning of each rating category and the definition of default .

3.6 When issuing or revising a rating, CARE shall explain in its press releases and reports the key elements underlying the rating opinion.

3.7 Where feasible and appropriate, prior to issuing or revising a rating, CARE shall inform the issuer of the critical information and principal considerations upon which a rating will be based and afford the issuer an opportunity to clarify any likely factual misperceptions or other matters that CARE would wish to be made aware of in order to produce an accurate rating. CARE will duly evaluate the response. Where in particular circumstances CARE has not informed the issuer prior to issuing or revising a rating, CARE shall inform the issuer as soon as practical thereafter and, generally, shall explain the reason for the delay.

3.8 CARE would publish periodic default and transition studies on its ratings. These studies will explain the methodologies, assumptions and limitations.

3.9 CARE undertakes only ratings solicited by issuers It would hence not be necessary to separately disclose whether each rating has been initiated at the request of the issuer.

3.10 Because users of credit ratings rely on an existing awareness of CARE methodologies, practices, procedures and processes, CARE shall fully and publicly disclose any material modification to its methodologies and significant practices, procedures, and processes. Where feasible and appropriate, disclosure of such material modifications shall be made prior to their going into effect. CARE shall carefully consider the various uses of credit ratings before modifying its methodologies, practices, procedures and processes.

B.The Treatment of Confidential Information

3.11 CARE shall adopt procedures and mechanisms to protect the confidential nature of information shared with it by issuers under the terms of a confidentiality agreement or otherwise under a mutual understanding that the information is shared confidentially. Unless otherwise permitted by the confidentiality agreement and consistent with applicable laws or regulations, CARE and its employees shall not disclose confidential information in press releases, through research conferences, to future employers, or in conversations with investors, other issuers, other persons, or otherwise.

3.12 CARE shall use confidential information only for purposes related to its rating activities or otherwise in accordance with any confidentiality agreements with the issuer.

3.13 CARE employees shall take all reasonable measures to protect all property and records belonging to or in possession of CARE from fraud, theft or misuse.

3.14 CARE employees shall be prohibited from engaging in transactions in securities when they possess confidential information concerning the issuer of such security.

3.15 In preservation of confidential information, CARE employees shall familiarize themselves with the internal securities trading policies maintained by it, and periodically certify their compliance as required by such policies.

3.16 CARE employees shall not selectively disclose any non-public information about rating opinions or possible future rating actions of CARE, except to the issuer or its designated agents.

3.17 CARE employees shall not share confidential information entrusted to CARE with employees of any affiliated entities. CARE employees shall not share confidential information within CARE except on an “as needed” basis.

3.18 CARE employees shall not use or share confidential information for the purpose of trading securities, or for any other purpose except for the conduct of CARE’s rating’s business.

4 DISCLOSURE OF THE CODE OF CONDUCT AND COMMUNICATION WITH MARKET PARTICIPANTS

A.General

4.1 CARE shall disclose to the public its code of conduct and describe how the provisions of its code of conduct fully implement the provisions of the IOSCO Principles Regarding the Activities of Credit Rating Agencies and the IOSCO Code of Conduct Fundamentals for Credit Rating Agencies. If CARE’s code of conduct deviates from the IOSCO provisions, CARE shall explain where and why these deviations exist, and how any deviations nonetheless achieve the objectives contained in the IOSCO provisions. CARE shall also describe generally how it intends to enforce its code of conduct and shall disclose on a timely basis any changes to its code of conduct or how it is implemented and enforced.

4.2 CARE’s Executive Director(s) shall be responsible for communicating with market participants and the public about any questions, concerns or complaints that CARE may receive. Executive Director(s) will help ensure that CARE’s officers and management are informed of those issues so that it could be taken note of when setting the organization’s policies.