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Directors Report of Credit Analysis & Research Ltd.

Mar 31, 2014

Dear Members,

The Directors have pleasure in presentng the Twenty First Annual Report of your company along with the audited accounts for the year ended March 31, 2014.

Economic Backdrop

The Indian economy went through challenging tmes since FY12 with a cyclical downturn in growth, pressure on fiscal balances, elevated current account defcit and prolonged high infaton. The government put in place a series of appropriate measures in order to address these challenges. However, the recovery in growth contnued to remain weak at sub 5% level. In FY14, GDP growth as per the provisional estmates showed a growth of 4.7%, marginally higher than the 4.5% of FY13.

The agricultural sector performed well during FY14 on the back of good monsoons, recording growth of 4.7% in FY14 against 1.4% in FY13. However, industrial growth weakened further in FY14 contractng by -0.08% as against growth of 1.1% in FY13 and 2.9% in FY12. The contnued weak industrial performance has been the outcome of the slowdown in investments and slump in overall consumer demand. This has, in turn, had an impact on demand for credit and long term funds. With elevated infatonary pressures fuelled by food infaton, RBI hiked its key interest rates thrice during the year maintaining an ant-infatonary policy stance. With the RBI pursuing a tght interest rate regime since FY12 and with domestc economic conditons coming under pressure coupled with a less favorable investment environment, entrepreneurs were seen to keep capital projects on hold. Consequently, the gross fixed capital formaton rate declined from 30.4% of GDP in FY13 to 28.3% in FY14.

Global economic actvity remained in low gear in the frst half of 2013. It then picked up in the second half of the year. As per the IMF estmates, World GDP in 2013 grew at 3.0%, 0.2% lower than that in 2012. Although, growth has been subdued in 2013, the dynamics of the global economy changed and the advanced economies accounted for much of the pickup, whereas growth in emerging markets increased only modestly. Growth in U.S was recorded at 1.9%, against 2.8% in 2012. The Euro area economic growth stll contnued to be weak at -0.5% in 2013. Among the emerging economies, growth in China remained stable at 7.7% while it slipped in Russia to 1.3% from 3.4% earlier. In terms of monetary policy across various countries such as Brazil, India, and Indonesia which were afected by high infatonary pressures and currency depreciaton, interest rates were raised in the past year.

With prevailing tghter monetary conditons in the Indian economy, growth in deposits stood at 14.6% which was marginally higher than 14.2% growth recorded in FY13. Growth in deposits was largely supported by inflows of over $30 bn through the FCNR deposit scheme where a foreign currency swap facility was ofered by RBI to banks. Likewise, bank credit growth also increased marginally to 14.3% compared with 14.1% in FY13 and was concentrated relatvely more in the retail loan space. Investments witnessed a downward trend and grew at a slower pace of 10.7% when compared with the 15.4% growth in FY13.

Also, the yields in the secondary markets witnessed signifcant fuctuaton during the year. The 10-Year GSec yields fell marginally in the frst three months of the financial year from 7.82% in April''13 to 7.47% in Jun''13. However, since July''13 the yields gradually picked up from 7.99% to touch 8.96% in November''13. These fuctuatons in the yields have been witnessed on account of various RBI initatves taken on the policy front. The yields did remain range bound between 8.8-9% for the remainder of the year.

During the year monetary policy stance was mainly infuenced by the rising concern over the depreciatng rupee and elevated food infaton which constrained the RBI from cutng down its key interest rates. Repo rate was hiked three tmes in the second half of FY14 in tranches of 25bps each from 7.25% in May''13 to 8% in Jan''14. The RBI has also indicated that it would be targetng the CPI infaton rate and monetary policy would be tuned to the same. It has targeted CPI infaton of 8% by January 2015.

The corporate debt market was also subdued during the year. Total debt raised through public issues and private placements was lower at Rs 318,437 crore in FY14 as against Rs 381,444 cr in FY13. Lower growth and investment in the economy – especially in the infrastructure space was responsible for this slowdown in demand for long term funds.

Corporate performance remained subdued during FY14. A study on the performance of 880 companies showed that net sales increased by 12% in FY14 as against 15.3% in the previous year, while net profit increased by 8.2% in FY14 compared with growth of 13.1% in FY13. Accordingly, the net profit margin moderated from 9.8% to 9.5% during the fiscal. The deterioraton in the overall performance has been the outcome of muted investment and lower market demand. Growth has been lower this year due to low demand conditons as well as higher raw material costs which have put pressure on profits. Also high interest rates have impacted cost of operatons.

On the fiscal front, the government has managed to achieve its fiscal defcit target by primarily cutng down its capital expenditure signifcantly. In FY14, fiscal defcit has been contained at 4.6%, below the target of 4.8% for the year. On the other hand, taking into account the elevated borrowing costs on the back of high interest rates, government maintained its borrowing programme at Rs.5.63 lakh crore during FY14. The Budget announced by the new government in July 2014 has targeted gross market borrowings of Rs 6 lkh crore for FY15 which is almost the same as was announced in the Interim Budget. For the year FY15, fiscal defcit is budgeted to decline to 4.1%.

The performance of your company may be evaluated against this background.

Financial Performance

The financial results for the year ended March 31, 2014 are presented below: (Rs. Lakh)

For the year ended For the year ended Particulars March 31, 2014 March 31, 2013

Income from Operatons 229,46 198,77

Other Income 35,66 28,63

Total Income 265,12 227,39

Total Expenditure 85,72# 67,51

Profit Before Tax (PBT) 179,40 159,88

Provision for Tax 50,73 46,55

Profit Afer Tax (PAT) 128,67 113,33

Appropriatons

Interim Dividend 51,94 34,26

Tax on Interim Dividend 8,83 5,56

Final Dividend 29,00 22,84

Tax on fnal dividend 4,93 3,88

Transferred to General Reserve 15,00 15,00

Balance carried forward 18,97 31,79

#includes Rs. 143 lakh towards Amortzaton of Deferred Employees Compensaton for Optons granted under the Employee Stock Opton Scheme of your company on January 1, 2014.

Total income increased by 16.6% with income from operatons increasing by 15.4%. This may be atributed to an increase in both ratng assignments from new companies as well as from existng clients. Total expenditure increased by 26.9%, with an increase in wage bill largely on account of an increase in staf count from 565 on March 31, 2013 to 594 on March 31, 2014. profit before tax increased by 12.2% in FY14, and with provision for tax rising by 8.9%, profit afer tax increased by 13.5%.

Dividend

During the year ended March 31, 2014, your company has distributed an amount of Rs. 18 per share as interim dividend. The Board of Directors has recommended a fnal dividend of Rs. 10 per share. If approved, the total dividend for the year would be Rs. 28 per share and the payout rato would be 74%.

Increase in issued, subscribed and paid-up Equity Share Capital

During the year your company, alloted 446,310 equity shares of Rs. 10 each to Ascent India Fund III, at a price of Rs. 560.15 per share (including Rs. 550.15 towards share premium) aggregatng to an issue price of Rs. 250,000,547 to comply with the minimum capitalizaton norms applicable to non-fund based non-banking finance companies in connecton with the IPO of the Company undertaken in December 2012. Consequently the issued, subscribed and paid-up capital of the Company increased from 28,552,812 equity shares of Rs. 10 each to 28,999,120 equity shares of Rs. 10 each.

Business Operatons

While overall economic conditons have been and contnue to be challenging, your company was successful in both the widening of customer base and deepening of relatonship with existng clients. Your company has now completed over 30,000 ratng assignments since incepton to reach 31,381 as of March 2014. The cumulatve amount of debt rated has increased to Rs.56.99 lakh crore as of March 2014 from Rs. 48.51 lakh crore as of March 2013. As of March 2014, your company had business relatonships with 7,754 clients (5,263 in March 2013). The relentless thrust on expanding the client base will set the foundaton for further leveraging in future.

Instruments Number of assignments completed Volume of debt rated (Rs crore)

FY14 FY13 FY14 FY13

Short term 44 61 30,713 32,906

Medium & Long term 297 298 298,752 264,436

Bank facility rating 6,117 6,074 556,609 481,798

Others 1,407 1,006 - -

Total 7,865 7,439 886,074 779,140

As per the statstcs given above the total number of ratng assignments completed grew by about 5.7% in FY14 aggregatng to 7,865 from 7,439 in FY13. Also, the total volume of debt rated has witnessed an increase on account of bank facility ratngs segment by 15.5% while that of long term debt increased by 13.7%. Volume of short-term debt was lower by 6.8%.

In terms of ratng assignments completed, there was a decline in the number of short term ratngs and long term ratngs while bank facility ratngs increased by 0.7%. The miscellaneous category (including grading) witnessed robust increase of more than 39.8%, which was mainly due to higher NSIC-MSME ratngs.

Business during the year

The credit ratngs business is volumes driven; and comes from expanding the client base and deepening the value of the relatonship. The business team has focused on both these aspects and focused Specifically on widening our coverage of clients given that both the debt and credit markets were stagnant. Your company has made signifcant strides in terms of enhancing the client base despite a challenging year. CARE has the highest coverage in the Economic Times (ET) Top 500 companies with a share of 53% within a sub-sample of 438 rated companies as per the published accepted ratngs on the web sites of ratng agencies. Your company also accounts for the highest coverage in Business Standard (BS) Top 1000 companies with a share of 43% as percent of the universe of 846 rated companies (as per published accepted ratngs of various ratng agencies).

Your company has also widened its reach by having its business development team in 53 locatons. For furthering business with area- wise focus, your company has opened an ofce in Chandigarh. The company is also in the process of setng up an ofce in Coimbatore.

Products

Your company rated India''s First Securitzaton Transacton backed by Mortgage Guarantee. This transacton is a landmark development that will enhance the growth prospects for the securitzaton market for housing loan receivables in India by helping to efectvely manage credit risk associated with housing loans. During the course of the year, your company launched the ratngs of infrastructure debt funds.

CARE also assigned a ratng to India''s frst Alternate Investment Fund (AIF). AIFs have the potental to show the way for the MFIs and other enttes which are looking out for funding alternatves.

SMEs

Your company does realize that SME business is a very critcal part of the overall business strategy. The company has worked on various fronters to make the SME business model more robust. To begin with the SME division launched the CARE Due Diligence Services (CDDS) for the existng / prospectve clientele of banks. Your company also took some defnite steps through MOUs signed with some leading banks and more such te-ups are in the ofng. Contnuous productvity improvement measures were put in place for the operatons in this segment. This will be crucial as these services are scaled up.

A consortum led by CARE bagged the prestgious assignment for development of a Green Ratng Model for MSMEs. The project is a part of the initatve from Global Environment Facility (GEF) through SIDBI.

Towards providing a tool for value assessment of ratng informaton by users, CARE has published Default Study and Customer Satsfacton Survey for MSEs. Also, CARE has come out with publicatons on the SME sector to provide regular updates in the sector. To keep our clients informed about developments taking place in the SME sector, your company publishes a daily SME newsleter which is widely disseminated. It covers the day''s major developments in the SME segment in India as well as globally. This report is sent to more than 15,000 users across India. The SME division also came out with special studies such as Study of SME policies of Major Asian Economies, Malaysian SME Master Plan and learning for India etc.

Your company hosted a workshop for risk assessment of SMEs on behalf of ACRAA at Alibaug, Maharashtra in November, 2013. The workshop was atended by partcipants from credit ratng agencies across Asia.

Views of sector specialists

An initatve taken in the area of sectoral research and analysis was the publicaton of views from the designated sector specialists within the ratngs team. These reports have also been circulated widely to the clients and media with some being printed and circulated.

CARE Industry Risk Metrics

CARE Ratngs ofers a product for quantfying industry risk known as CARE Industry Risk Metrics. Your company covers 150 industries under this product which is used by various banks as an input in their credit risk assessment process. Your company has also begun its Valuaton Services and ofers valuaton of equity, debt instruments and market linked debentures (also with embedded complex optons).

Economics

Economics Division provides near real tme global and domestc economic updates through reports that are released almost immediately afer economic announcements are made. The coverage of economic reports encompasses regular updates on global and domestc indicators and/or events, topical notes on new interestng economic developments, debt market related updates monthly (Debt Market Review) as well as on daily basis (DDMU- Daily Debt Market Update), studies on macro – phenomena and surveys on contemporary trends. These reports are circulated widely to clients, banks, mutual funds, government ofcials and the media. The purpose is to showcase the brand CARE Ratngs as well as disseminate your company''s viewpoint on issues relatng to both the global and domestc economy.

As a part of building our visibility, the company contnues to print and circulate major reports to several opinion makers which have been appreciated. This is over and above a wide circulaton through e-mails to clients, banks, mutual funds investors, media, government ofcials, etc. These reports are also uploaded on company''s website. CARE Ratngs economic division is now included in the polls on economic variables carried out by RBI, Reuters, Bloomberg, Dow Jones and Ticker News.

Brand CARE Ratngs and Media Coverage

A ''brand'' is a percepton of your business. Hence, CARE has been contnuously focusing on strengthening its brand through its presence in media as well as organizing various events.

Your company conducted a series of 20 years celebratons events across the country in FY14 with top dignitaries being our chief guests who spoke on various subjects and interacted with our guests – Mr. Pradip Shah (Chairman, Ind Asia Fund Advisors in Mumbai), Mr. R.K Dubey (CMD, Canara Bank in Bangalore), Mr. M. Narendra (CMD, Indian Overseas Bank in Chennai), Mr. Bhagvantha Rao (MD, State Bank Of Hyderabad in Hyderabad), Ms. S.A Panse (CMD, Allahabad Bank in Kolkata), Mr. Sunil Jain (Managing Editor, Financial Express in Delhi) and Mr. Anil Padmanabhan (Deputy Managing Editor, Mint in Delhi).

Your company has also been associated with various prestgious awards ceremonies and our MD & CEO, Mr. D. R. Dogra presented the awards for ''CV dealer of the year'' & ''Most aspiring CV dealer of the year at The Automotve Dealership Excellence Awards (ADEA) as well as at the MSME Banking Excellence Awards- 2013''.

Your company has been knowledge partner for several seminars and conferences. The company has prepared the Knowledge paper for FICCI''s conference, ''Progressive Maharashtra'' on ''Rethinking, Reshaping: Agenda for good growth and governance in Maharashtra''. CARE Ratngs also published a background report ttled ''Financial Markets – Reviving India Story'' for the ASSOCHAM Summit on Financial Markets.

Top Management representaton

The top management has represented CARE at various events at the natonal and internatonal level during the year. Some of the signifcant events where they partcipated are:- Mr. D. R. Dogra, Managing Director & CEO, was awarded the prestgious IPE (Insttute of Public Enterprises, Hyderabad) Corporate Excellence Award for his contributon to this feld. He also represented CARE at various events- ARC Ratngs S.A meet in Portugal, Investors'' meet in Boston and BANCON 2013 in Mumbai. He was also jury member on Constructon Global Awards 2013. He has been a panelist at various forums such as the interactve Session on ''Emerging Capital markets Scenario: Investors'' Confdence'' by Calcuta Chamber of Commerce, ''Global Economic Outlook & India''s Positon'' At Business Standard – Smart event, etc.

Mr. Rajesh Mokashi, Deputy Managing Director, made presentatons at training programmes organized by Indian Insttute of Capital Markets/ Natonal Insttute of Securites Markets for the Central Economic Intelligence Bureau, Department of Revenue, Ministry of Finance, Indian Economic Service, SEBI etc. on credit ratng. He has spoken in various seminars such as The Annual Lenders Meet 2013 organized by India Infoline Finance Ltd, ''Progressive Maharashtra 2014'' etc.

Knowledge Sharing Forums

CARE employees have actvely partcipated in Knowledge sharing forums where our senior staf provided views on the economy and various sectors to ofcials in banks, corporates, etc. During the year CARE presented its views in over 15 Knowledge sharing forums.

IT initatves

Your company has revamped its corporate and research websites. The website contains a rich user interface (UI), beter navigaton, more dynamic content, beter visualizaton and importance for new products, news highlights and banners. Your company also launched CARE Ratngs iOS and Android App which has the capability to retrieve and display the public domain informaton available on www.careratngs.com such as rated company brief ratonale, search by industry/ company, and outstanding ratngs.

Another initatve taken was Ci3 - DMS (Document Management System) integraton. This is an integrated document management workfow with core ratng applicaton which is aimed for secure, faster and reliable document retrieval. During the year your company also upgraded the technology for its ci3 applicaton. It has migrated to the latest Microsof DotNet technology framework (4.5). The Ci3 Applicaton can now support both 32 bit and 64 bit operatng system. Ci3 applicaton has gone through several enhancement cycles to incorporate business needs like existng client mapping with account manager, sales business segregaton (new/existng), SME/LME segregaton, integraton of securitzaton, invoice booking to Oracle, ratng and CKC database separaton.

Your company also implemented an open source applicaton for IT infrastructure monitoring, which generates auto alerts for critcal paths like network interrupton, server status etc. as well as an open source applicaton for IT Asset management.

ISO Certfcaton

Your company has received ISO 9001:2008 quality management certfcatons for our head ofce in Mumbai and six branch ofces (Ahmedabad, Kolkata, Delhi, Hyderabad, Bangalore and Chennai) for the credit ratng of debt instruments and facilites, for research services at our head ofce in Mumbai and for data processing at the CARE Knowledge Centre in Ahmedabad.

Internal Control Systems and their Adequacy

Your Company has established and maintained strong internal controls for financial reportng and has evaluated the efectveness of the internal control systems of the Company pertaining to financial reportng. The roles and responsibilites have been clearly Defined for people at various levels. Adherence to these processes is ensured by the internal auditors and periodically reported to the Audit Commitee.

CARE Kalypto Risk Technologies and Advisory Services Pvt Limited

Your company exercised the call opton, and has acquired 1,992,960 equity shares representng 24.87% of the paid up equity share capital of its subsidiary CARE Kalypto Risk Technologies and Advisory Services Private Limited, thus making it a wholly owned subsidiary.

Risk Solutons

During FY14, CARE Kalypto received a mandate to implement its Funds Transfer Pricing and Customer profitability Soluton at a reputed private bank in India. The Company also upgraded its Ratng Engine at a leading bank in Sri Lanka. With the closure of many of its projects, the Company is now a major player in Sri Lanka with the largest number of live risk management soluton implementatons. The Company also successfully completed rolling-out its credit risk soluton at a large bank in Vietnam, which was a frst-of-its-kind, thereby enabling the bank to become a pioneer in the credit risk automaton space in Vietnam. The Company also successfully completed rolling-out the 1st Phase of its Kalypto/IFRS soluton at a bank in Sri Lanka. The Company further expanded its geographic reach with the sign-on of a bank in the Philippines for its market risk soluton.

CARE Advisory

During FY14 CARE Kalypto started it advisory practce. The Advisory services SBU has organized its business under two practces: Corporate & Infra and Risk Advisory. The focus areas of Corporate & Infra practce are credit assessment studies, business and financial restructuring studies, TEV studies, investment banking, enterprise valuaton etc. Services ofered by Risk Advisory include designing of risk assessment models and related actvites. Given the nature of the business and the competton around, the progress would depend largely on the state of the economy as well as our own ability to make inroads into this compettve space.

Global Forays

Your company is one of the five partners in a new global credit ratng agency, ARC Ratngs. The other shareholders are domestc credit ratng agencies in Brazil, Malaysia, Portugal and South Africa. ARC Ratngs was launched in London on 16th January 2014. This diversifcaton in the global space will help build alternatve business streams over the next few years and complement our domestc business besides helping to de-risk our income flows.

CARE is planning to set up a subsidiary company in Mauritus in the current year subject to regulatory approvals. The subsidiary shall ofer the entre gamut of ratng and informaton services in Mauritus. Some leading players in the financial sector in Mauritus are likely to join the venture as equity partner(s).

Human Resources

Human resource, a broad combinaton of educaton, knowledge, experience and skill is the most valuable asset for a company. Especially for a ratng business, human capital is the backbone of the organizaton''s business. Hence, your company aims to obtain the best from the talent pool of diverse professionals.

As of March 31, 2014, your company had 594 Employees spread across the country which marks an increase over the 565 staf strength as on March 31, 2013. Over 90% of the staf was professionally qualified in the areas of management, CAs, CS, legal, economics, engineering etc.

The company has in place a rigorous inducton programme for all new joiners on a regular basis. All the new recruits have been through such inducton programmes where senior and experienced colleagues give an overview of various aspects of the functoning of the processes in the organizaton.

Besides, employees have been nominated to atend various training programmes and seminars. We have sent our staf members for several seminars/conferences/training programmes during the year. In order to incentvize employees to enhance their knowledge and hone their skill sets, your company has also a policy in place to reimburse the fees for relevant professional courses such as CFA and FRM programmes undertaken and completed by the employees.

Ratng Commitee

Your company is commited to maintaining high standards of professional quality and integrity. In line with this, your company has an internal ratng commitee comprising senior executves of our company and an external ratng commitee, comprising a majority of independent members. The ratng report is considered by our internal ratng commitee or our external ratng commitee, if not both. Ratngs decided by our internal ratng commitee are reported to the external ratng commitee. Our ratng commitees are assisted in the evaluaton by a team of professional analysts with relevant industry knowledge. Mr. Y. H. Malegam (Chairman), Mr. P. P. Patanayak, Mr. V. Leeladhar, and Mr. V. K. Chopra are independent members on the Commitee while Mr. D. R. Dogra is the only employee of CARE on the external ratng commitee.

Confict of interest

There is a clear policy to segregate staf on the basis of business and ratngs to ensure that there is no confict of interest. Besides, there is a strict code of conduct rules for staf which, clearly ensures that the ratng analyst does not have any interest in terms of equity or otherwise in the company being rated by him/her. This we believe is necessary for providing unbiased ratngs which in turn enhances the credibility of the organizaton.

Board of Directors

The Board of Directors comprise Mr. A.K. Bansal, Ms. Bhart Prasad, Mr. S. Venkatraman, Mr. D.R. Dogra and Mr. Rajesh Mokashi.

The company is sorry to announce the demise of our Director, Dr. N.K. Sengupta who was associated with your company as an Independent Director since May 1993. During the year, Mr. O.V. Bundellu, Chairman and Independent Director of the company had resigned due to personal reasons.

Your company wishes to thank Dr. N. K. Sengupta and Mr. O. V. Bundellu for their contributon to the company and the contnuous encouragement and support provided to the management. Your company also welcomes Mr A.K. Bansal, former Executve Director, Indian Overseas Bank, as our new Chairman and Independent Director and Dr. Ashima Goyal as a Non-Executve Independent Director on the Board.

Management Discussion and Analysis

The management discussion and analysis for FY14 is annexed to the Directors'' report as Annexure – A.

Corporate Governance

The report of the Board of Directors of your Company on Corporate Governance for FY14 which forms part of the annual report is annexed to the Directors'' report as Annexure – B.

The following are the Standing Commitees of the Board (See Annexure – B ttled Corporate Governance Report)

Audit Commitee

The Commitee met 4 tmes in FY14. The Commitee comprises Mr. S. Venkatraman, Mr. A. K. Bansal, Ms. Bhart Prasad and Mr. Rajesh Mokashi. Dr. N.K. Sengupta who was one of the member of the Audit Commitee expired on November 03, 2013.

The Board of Directors at its meetng held on July 31, 2014 inducted Mr. A. K. Bansal, Non-Executve Independent Director as a member in the Commitee.

Investment Commitee

The Investment Commitee comprises the following Directors, namely: - Mr. S. Venkatraman, Mr. D.R. Dogra and Mr. Rajesh Mokashi. Mr. O.V. Bundellu, who was one of the member of the Investment Commitee, resigned on December 03, 2013.

The Commitee met 2 tmes during the year 2013-2014 and decided on various investment optons for the company''s funds to derive the maximum return while optmizing risk levels.

Stakeholders Relatonship Commitee (Shareholders / Investor grievance commitee)

The Shareholders/Investor Grievance Commitee comprise the following Directors, namely:- Mr. S. Venkatraman, Ms. Bhart Prasad and Mr. D.R. Dogra.

The Commitee carries out such functons for the redressal of shareholders'' and investors'' complaints, including but not limited to, transfer of equity shares, non-receipt of balance sheet, non-receipt of dividends and any other grievance that a shareholder or investor of the Company may have against the Company.

The Board of Directors at its meetng held on May 20, 2014 designated the Shareholders /Investor Grievance Commitee as "Stakeholders Relatonship Commitee" to comply with the provisions of secton 178 of the Companies Act, 2013 and revised clause 49 of the Listng Agreement. Further, the Commitee was reconsttuted to include the following Directors as its members, namely: Mr. A. K. Bansal, Ms. Bhart Prasad and Mr. D. R. Dogra.

Nominaton and Remuneraton Commitee

a) Remuneraton Commitee

The Remuneraton Commitee comprises the following Directors, namely: - Mr. S. Venkatraman, Ms. Bhart Prasad and Mr. D. R. Dogra. Dr. N.K. Sengupta, who was the chairman of the Commitee, expired on November 03, 2013.

The Commitee met once during the year.

b) Corporate Governance and Nominaton Commitee

Your company has also adopted the Corporate Governance and Nominaton Commitee Charter and consttuted Corporate Governance and Nominaton Commitee. This commitee will be responsible for developing CARE''s approach to Board governance issues and the company''s response to the corporate governance guidelines; reviewing the compositon and contributon of the Board and its members as also the Ratng Commitee and its members and recommending Board/Ratng Commitee nominees and maintaining an efectve working relatonship between the Board/Ratng Commitee members.

Mr. O.V.Bundellu, who was the Chairman of the Commitee, resigned on December 03, 2013, Dr. N.K. Sengupta, who was one of the member of the Commitee, expired on November 03, 2013.

In order to comply with the provisions of Secton 178 of the Companies Act, 2013 and revised clause 49 of the Listng Agreement, the Board of Directors at its meetng held on May 20, 2014, merged the Remuneraton Commitee and Corporate Governance and Nominaton Commitee and named it as "Nominaton and Remuneraton Commitee". The Nominaton and Remuneraton Commitee comprise the following Directors, namely: - Mr. S. Venkatraman, Ms. Bhart Prasad and Mr. A. K. Bansal.

Corporate Social Responsibility Commitee

To comply with the provisions of secton 135 of the Companies Act, 2013, the Corporate Social Responsibility Commitee was consttuted with the following directors as its members, namely Ms. Bhart Prasad, Mr. D. R. Dogra and Mr. Rajesh Mokashi. Further the Board of Directors at its meetng held on May 20, 2014 reconsttuted the commitee to include the following directors as its members, namely Ms. Bhart Prasad, Mr. A. K. Bansal and Mr. Rajesh Mokashi.

ESOP Compensaton Commitee

The ESOP Compensaton Commitee comprises the following Directors as its members, namely Mr. A. K. Bansal, Mr. S. Venkatraman and Mr. D. R. Dogra. The Commitee met twice during the year.

Directors Responsibility Statement

The MCA has vide its General Circular No. 08/2014 dated April 4, 2014, clarifed that the financial statements (and documents required to be atached thereto), auditors report and Board Report in respect of financial years that commenced earlier than April 1, 2014 shall be governed by the relevant provisions/Schedules/Rules of the 1956 Act. In view of this, the following informaton has been provided as per the provisions of the 1956 Act.

Pursuant to the requirement under Secton 217(2AA) of the Companies Act, 1956 with respect to Directors Responsibility statement, it is hereby confirmed.

I. that in the preparaton of the annual accounts for the financial year ended March 31, 2014, the applicable accountng standards have been followed along with proper explanaton relatng to material departures;

II. that the Directors have selected such accountng policies and applied them consistently and made judgments and estmates that are reasonable and prudent so as to give true and fair view of the state of afairs of the Company at the end of the financial year and of the profit and loss of the Company for the year under review;

III. that the Directors have taken proper and sufcient care for the maintenance of adequate accountng records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventng and detectng fraud and other irregularites; and

IV. that the Directors have prepared the accounts for the financial year ended March 31, 2014 on a ''going concern'' basis.

Auditors

As per the provisions of secton 139 (2) of the Companies Act, 2013, no listed company or a company belonging to such class or classes of companies as may be prescribed, shall appoint or re-appoint—

(a) an individual as auditor for more than one term of five consecutve years; and

(b) an audit frm as auditor for more than two terms of five consecutve years.

M/s. Khimji Kunverji & Co., Chartered Accountant, the Statutory Auditors of CARE have already completed their term of 3 years as they were the auditors of CARE since FY 2012. Taking into consideraton the provisions of secton 139 (2) of the Companies Act, 2013, they may now be appointed for a further period of 2 years for FY15 & FY16 to complete their term of 5 years.

Employees Salary

As required in terms of secton 217(2A) of the Companies Act,1956, read with the rules framed there under a statement of employees drawing a salary of Rs. Sixty Lakhs if employed throughout the year is to be provided as Annexure to the Annual Report. However, in terms of Secton 219 (1) (b) (iv) of the Companies Act, 1956, the Directors'' Report is being sent to all Shareholders of your Company without this annexure. Any Shareholder interested in obtaining a copy of the said annexure may write to the Company Secretary at the Registered Ofce of your Company.

Subsidiary Companies

During the financial year under review, your Company had one subsidiary, CARE Kalypto Risk Technologies and Advisory Services Private Limited.

Pursuant to the General Circular No. 2/2011 dated February 08, 2011 issued by the Ministry of Corporate Afairs, Government of India, the Board of Directors of your Company have given their consent for not ataching the accounts of subsidiary of your Company along with the Annual report of your Company. In line with the above circular and as per the Accountng Standard 21 (AS 21) issued by the Insttute of Chartered Accountants of India, the Audited Consolidated Financial Statements of your Company along with the Auditors Report have been annexed to this Annual Report.

The annual accounts of subsidiary and the related informaton will be made available to any member of the Company / its subsidiary seeking such informaton and are available for inspecton by any member of the Company / its subsidiary at the registered ofce of the Company. The annual accounts of the said subsidiary will also be available for inspecton, at the head ofce / registered ofce of the subsidiary company.

Disclosures as per secton 217(1)(e) of the Companies Act, 1956

A. Conservaton of Energy & Technology Absorpton

The Company did not carry out any business actvites warrantng conservaton of energy and technology absorpton in accordance with the Companies (Disclosure of Partculars in the Report of Board of Directors) Rules, 1988.

B. Foreign Exchange Earnings and Outgo

During the year under review the Company has received a foreign exchange of Rs. 97,15,117/- and has spent a foreign exchange of Rs. 93,05,215/-.

Fixed Deposits

The Company has not accepted Fixed Deposits within the purview of secton 58A of the Companies Act, 1956 during the year under review.

Employee Stock Opton Scheme

The Company has an employee stock opton scheme. The CARE Employee Stock Opton Scheme - 2013 (ESOS 2013) was approved by the shareholders vide a special resoluton at the Annual General Meetng of the Company held on September 27, 2013.

Summary Informaton on ESOS 2013 of the Company is provided as Annexure-I to this Report. The informaton is being provided in compliance with Clause 12 of the Securites and Exchange Board of India (Employee Stock Opton Scheme and Employee Stock Purchase Scheme) Guidelines, 1999, as amended.

Acknowledgements

The Board places on record its appreciaton of the contributon of its employees to the company''s operatons and the trust reposed in it by market intermediaries, issuers and investors. The Board also appreciates the support provided by the Reserve Bank of India, Securites Exchange Board of India, Comptroller and Auditor General of India and the Company''s Bankers, IDBI Bank, State Bank of India and HDFC Bank.

On behalf of the Board of Directors

A. K. Bansal

Chairman Place : Mumbai Date : July 31, 2014


Mar 31, 2013

The directors have pleasure in presenting the Twentieth Annual Report of your company along with the audited accounts for the year ending March 2013.

Economic Backdrop

Following the financial crisis in FY08, the Indian economy had recovered to grow by 8.4% in FY10 and FY11. However, the conditions turned adverse in FY12 with GDP growth slowing down to 6.2% which further declined to 5.0% in FY13. Production was affected by a slowdown in investment, and the gross fixed capital formation rate declined from 32.5% of GDP in FY11 to 29.6% in FY13. While overall demand remained subdued with the government trying to get its reins on the deficit, persistent inflation has led RBI maintain key interest rate at status quo for most of the year.The RBI has been following an anti - inflationary policy stance since early 2010. However in FY13, RBI reduced key interest rates gradually by 100 bps from 8.5% to 7.5% on growth concerns and a decline in inflation.

Global economic conditions too were challenging with growth slipping to 3.2% in 2012 (4.0%) with USA growing by 2.2% (1.8%) and Euro region growth slipped into negative territory growing by -0.6% (1.4%). Among the emerging markets, China registered growth of 7.8% (9.3%) which is the lowest since 2005. The Euro crisis response has been volatile with Greece, Ireland, Portugal, Spain, Italy and most recently Cyprus raising indebtedness issues. The ECB and IMF have been working hard towards resolving of the default crisis. Alongside, monetary policy has been liberal with the Fed and Bank of England maintaining its rate at 0.25% and 0.50% respectively, while the ECB has lowered rates more recently to 0.50%.

The Indian economy was affected by the global crisis in various ways. Firstly, trade flows were impacted. While growth in both imports and exports has moderated, the fall in exports has been far more pronounced (negative growth) when compared with imports (near-zero growth), resulting in a wider CAD (current account deficit). Secondly, the rupee became vulnerable to the dollar - euro relationship and remains so, also the continued problems in the Euro Zone would continue to make rupee volatile. Thirdly, FII inflows have been volatile, easy monetary policy pursued by advanced countries has impacted capital investment flows (QE in USA and Japan and ECB bond buying programme).

Corporate Performance has also been subdued. A study of 1,297 non - financial companies showed that net sales increased by 12.6% in FYI3 as against 21.1% in FYI2 while net profit increased by 11.7% in FYI3 compared with a negative growth of 5.7% in FYI2. Growth has hence been held up this year on both the supply and demand fronts which has impeded any pick-up in activity. It may be recollected that we started the year with an assumption of upwards of 7.5% GDP growth for the year and the path followed has been quite different from what was expected.

The government''s budget was affected by lower than expected growth in GDP which impacted the revenue collections; however the government managed to control the expenditure resulting in the fiscal deficit of 5.2% in FYI3 (RE) (revised subsequently to 4.9%). For FYI4, it has been budgeted at 4.8%. Performance on the disinvestment front stands nearer to budgeted estimate amount of Rs.30,000 crore in FYI3, where the government is expected to mobilize Rs.24,000 crore of funds.

Low economic growth and high inflation contradicted monetary activity during FYI3. Bank deposits grew by I4.3% in FYI3 as against I3.5% in FYI2. Elevated borrowing costs against the backdrop of high interest rates coupled with low demand conditions pressurized growth in credit offtake in FYI3 to 14.1% (17%). The shortage in liquidity was evident with the monthly average repo borrowing in FY13 from the RBI amounted to Rs 17,19,329 crore. At the same time, government maintained its borrowing programme at Rs 5.57 lakh crore as budgeted at the start of the year.

The performance of your company in FY13 should be viewed against this background.

Financial Performance

The financial results for the year ended March 31, 2013 are presented below:

(Rs. lakh)

Particulars For the year ended For the year ended March 31,2013 March 31,2012

Income from Operations 198,77 178,08

Other Income 28,63 28,21

Total Income 227,39 206,29

Total expenditure 67,51 56,78

Profit Before tax (PBT) 159,88 149,51

Provision for Tax 46,55 41,97

Profit After Tax (PAT) 113,33 107,54

Appropriations

Interim Dividend 34,26 28,55

Tax on Interim Dividend 5,56 4,63

Final Dividend 22,84 -

Tax on final dividend 3,88 -

Transferred to General Reserve 15,00 12,00

Balance carried forward 31,78 62,36

Total income increased by 10.23% with income from operations increasing by 11.62%. This may be attributed to an increase in both rating assignments from new companies as well as from existing clients. Total expenditure increased by 18.90%, with an increase in wage bill as also on account of an increase in staff count from 500 on March 31, 2012 to 565 on March 31, 2013. Profit before tax increased by 6.94% in FY13, and with provision for tax rising by 10.92%, profit after tax increased by 5.38%.

Dividend

An interim dividend @Rs.12 per share was declared and paid in March 2013. Special dividend for celebrating 20 years @ Rs. 8 per share is recommended for FY13.

Business Operations

While overall economic conditions have been and continue to be challenging, your company was successful in both the widening of customer base and deepening of relationship with existing clients.Your company has now completed over 23,000 rating assignments since inception to reach 23,516 as of March 2013. The cumulative amount of debt rated has increased to Rs 48.51 lakh crore as of March 2013 from Rs 40.46 lakh crore as of March 2012. As of March 2013, we had business relationships with 5,263 clients (3,900 in March 2012). The relentless thrust on expanding the client base will set the foundations for further leveraging in future.

Instruments Number of assignments Volume of debt rated completed (Rs crore)

FYI3 FYI2 FYI3 FYI2

Shortterm 61 109 32,906 52,522

Medium term - - 2,002 -

Longterm 298 307 262,434 195,518

Bank facility rating 6,074 4,883 481,798 678,820

Others (Gradings etc.) 1,006 681 - -

Total 7,439 5,980 779,140 926,860

Two facts stand out in the above table. The first is that the total number of rating assignments completed grew by about 24% in FY13 aggregating 7,439. However, the volume of debt rated has witnessed a decline on account of low ticket size of issues as we focused on the SME segment where the average size of debt/loan rated is significantly lower than for a LME case. This is particularly observed in the bank facility ratings segment where the volume of debt rated declined by about 29% in FY13.

In terms of rating assignments completed, there was a decline in the number of long term ratings by around 3% while bank facility ratings increased by nearly 24%. However, there was a decline in short-term rating assignments by 44%. The miscellaneous category (including gradings) witnessed robust increase of more than 48%, which was mainly due to an increase in NSIC-MSME ratings.

Total volume of debt rated increased for long term debt by nearly 34%, but declined for bank facilities (by 29%) and short term ratings (by 37%).The low growth conditions as well as slowdown in growth in bank credit did impact the growth in debt rated under bank loan facilities.

CARE''s business during the year

Your company continued to focus on extending the client base across both the large and SME segments to provide services for borrowers pan-India. Further, the existing relations with clients have been strengthened with our business teams working on cross selling products. Our grading products, Equi-grade and Real-estate Star grading have received notable response. 23 companies are now covered under Equi-grade, while 12 projects have been assigned real-estate star gradings.

In a bid to expand our reach to the SME segment, the company has also introduced SME Fundamental Grading this year.This product, it is believed, will contribute progressively more to the revenue base of the company in the years to come.

Knowledge Strength - CARE Research Division

Our business derives strength from leveraging our research capabilities.The independent CARE Research Division continues to widen its canvas, today covering 46 industries under its Research services offerings (up from 39 in FY12). Also, 116 sectors are covered under the CARE Industry Risk Metrics (CIRM). These cutting edge research reports across the spectrum of sectors that are available on a subscription basis have found progressively more acceptance in the market.

Apart from off the shelf reports, CARE Research also undertakes customized research in areas such as demand analysis, cost analysis, customer satisfaction, niche industry studies, industry write ups for IPO DRHP documents etc.

In order to build the brand of CARE as knowledge based company CARE Research contributes by:

- Publishing thematic articles on various sectors, some of which are printed and sent to banks, companies and policy makers.The articles are widely quoted in media and appreciated as being thorough and insightful.These reports are also circulated to clients, media, bankers, brokers, mutual funds, investors, government officials, etc.

- Associating as a knowledge partner and preparing background papers for events such as ADEA-FADA awards,AIBI Summit, Global Steel Conference etc

In expanding the scope of research services, the CARE Research Division, this year launched MLD (market linked debentures) valuation and has brought out a thematic monthly report on PPMLD (Principal protected market linked debentures), a first of its kind in the market.

Views of Sector Specialists

An initiative taken in the area of sectoral research and analysis was the publication of views from the designated Sector Specialists within the Ratings team.These reports have also been circulated widely to the clients and media with some being published.

Economics

The Economics Division continues to provide near real time economic analysis through reports that are released almost immediately after economic announcements are made. The coverage of economic reports encompasses regular updates on global and domestic economic indicators and/or events, topical notes on new interesting economic developments, debt market related updates, studies on macro-phenomena and surveys on contemporary trends. These reports are circulated widely to clients, banks, mutual funds, government officials and the media. The purpose is to showcase the brand CARE Ratings as well as disseminate your company''s viewpoint on issues relating to both the global and domestic economy.

As a part of building our visibility, we continue to print and circulate major reports to several opinion makers which have been appreciated. This is over and above the wide circulation through e-mails to clients, banks, mutual funds, investors, media, government officials, etc.

In addition, the Economics Division has also brought out a number of whitepapers relating to Indian capital markets (both debt markets and equity markets) and background studies on financial reforms in the country.

CARE IPO

With the aim of unlocking value for the shareholders of the company and improving visibility of the brand - CARE Ratings, your company made an IPO through an offer for sale, with disinvestment by existing shareholders. The offer for sale was for 7,I99,700 equity shares which was a dilution of 25.22% of post offer paid up capital. The issue which got listed on December 26, 20I2 received an overwhelming response and was subscribed 34.05 times. CARE is part of S&P BSE 500 index and S&P BSE Mid Cap index.

In the context of our IPO through an offer for sale, as per the RBI directive, the company is in the process of meeting the minimum capitalization norm of USD 0.50 mn which is applicable to CRAs.

Brand CARE Ratings

We have been continuously focusing on deepening our brand by holding and sponsoring various conferences and events as well as continuous engagement with the media. There were essentially five major heads under which we have built the CARE brand. First, we have organized events such as CARE Ratings'' Banking Summit, Mumbai and CARE Ratings'' Debt Market Summit (CDMS 2013), New Delhi. Second, we have been knowledge partner for various events held by associations such as CII,AADA, FICCI, SME Chamber of India, Global Steel Conference etc. Third, we have sponsored events such as CFO Awards. Fourth, the company''s top management has participated actively in global events such as BRICS Business Forum, International Rating Roundtable Conference, and ACCRA CEOs Roundtable Discussion etc. Fifth, CARE has ventured to launch webinars on various issues and topics as part of its knowledge sharing endeavours.

CARE also completed 20 years in April 2013 and has held a special event for its clients in Mumbai.

Human Resources

Human resources are the most critical asset for a company as plans can be executed successfully only in case we have the right people.Your organization realises the importance of developing and maintaining a highly skilled and motivated staff. The focus has been on recruiting the best talent from top management institutes. However, for specialized functions at higher levels lateral recruitment has been done from some of the best companies so as to match experience and superior skills with different roles.

As of March 31, 2013, we had 565 employees spread across the country which marks an increase over the 500 staff strength as on March 31, 2012. This has been necessitated from the demands of business development and ratings which has widened, as we have been reaching out to potential customers across the country with special focus on the MSME segment. Out of these, there are 432 professionally qualified personnel with MBA/PGDM/CFA etc, 49 CAs, 21 Post graduates (including Economists) and 63 graduates.

We do recognise the importance of training our staff so that they are equipped with better skill sets for both professional and personal development. We do have in place a rigorous induction programme for all new joinees where experts in various domains from within the organization impart training. We also send our staff for specialised training programmes on a regular basis.

IT initiatives

Recognizing the importance of information technology, your company took several initiatives in this domain. The Ci3 core application has from time to time been improvised in order to facilitate better and efficient processing, MIS reporting and control. It is an end-to-end solution for all information relating to rating activity which enables ease in generating reports, monitoring and planning. Ci3 is now upgraded to latest technology platform with seamless workflow for business.

This year your company transited from its existing accounting software system to the Oracle enterprise application (ERP) for accounting and human resources management systems. The Oracle application has now been successfully implemented and integrated in all operations of the company.

A major milestone attained is the creation of our Disaster Recovery (DR) site at Pune. DR site is built to support entire operation of the company.

Global Forays

Your company has reached an advanced stage in the formation of a proposed global rating agency - ARC Ratings SA (with participation of rating agencies from Portugal, Brazil, Malaysia and South Africa). This diversification in the global space will help build alternative business streams over the next few years and complement our domestic business besides helping to de-risk our income flows.

Rating Committee

Your company is committed to maintaining high standards of professional quality and integrity. In line with this, we have an internal rating committee comprising senior executives of our Company and an external rating committee, comprising a majority of independent members. Each rating report is considered by our internal rating committee or our external rating committee, if not both. Ratings decided by our internal rating committee are reported to the external rating committee. Our rating committees are assisted in the evaluation by a team of professional analysts with relevant industry knowledge. The external rating members are Shri Y. H. Malegam (Chairman), Shri P. P. Pattanayak, Shri V. Leeladhar, Shri V. K. Chopra and Shri D. R. Dogra.

Conflict of interest

There is a clear policy to segregate staff on the basis of business and ratings to ensure that there is no conflict of interest. Besides, there is a strict code of conduct rules for staff which, clearly ensures that the rating analyst does not have any interest in terms of equity or otherwise in the company being rated by him/her. This we believe is necessary for providing unbiased ratings which in turn enhances the credibility of the organization.

The following are the Standing Committees of the Board (See Annexure - A on Corporate Governance Report)

Audit Committee

The Committee met 4 times in FYI3. The Committee comprises Shri S. Venkatraman, Dr N.K. Sengupta, Ms Bharti Prasad and Shri Rajesh Mokashi.

Investment Committee

The Investment Committee comprises the following Directors, namely: Shri O.VBundellu, Shri S. Venkatraman, Shri D.R. Dogra and Shri Rajesh Mokashi. The Committee met 3 times during the year 2012-2013 and decided on various investment options for the company''s funds to derive the maximum return while optimizing risk levels.

Remuneration Committee

The Remuneration Committee comprises the following Directors, Shri S. Venkatraman, Dr N.K. Sengupta, Ms Bharti Prasad and Shri D.R. Dogra. The Committee met once during the year.

IPO Committee

The IPO Committee comprises of the following Directors, Shri O.V.Bundellu, Shri S.Venkatraman, Shri D.R. Dogra and Shri Rajesh Mokashi. It met 5 times during the year. This Committee has been dissolved since the completion of the IPO through offer for sale.

Shareholders / investor grievance committee

The Shareholders / Investor Grievance Committee was constituted during the year. The Investor Grievance Committee carries out such functions for the redressal of shareholders'' and investors'' complaints, including but not limited to, transfer of equity shares, non-receipt of balance sheet, non-receipt of dividends and any other grievance that a shareholder or investor of the Company may have against the Company. The Committee comprises the following Directors Shri S. Venkatraman, Ms Bharti Prasad and Shri D.R. Dogra.

Corporate Governance and Nomination Committee

We have also adopted the Corporate Governance and Nomination Committee Charter and constituted Corporate Governance and Nomination Committee. This committee will be responsible for developing CARE''s approach to Board governance issues and the company''s response to the corporate governance guidelines; reviewing the composition and contribution of the Board and its members as also the Rating Committee and its members and recommending Board/Rating Committee nominees and maintaining an effective working relationship between the Board/Rating Committee members. The Committee will meet at least twice annually. The Committee comprise of Shri O.V Bundellu, Dr N.K. Sengupta and Shri S. Venkataraman.

Pursuant to the requirement under Section 2I7(2AA) of the Companies Act, I956 with respect to Directors Responsibility statement, it is hereby confirmed.

I. that in the preparation of the annual accounts for the financial year ended March 20I3, the applicable accounting standards have been followed along with proper explanation relating to material departures;

II. that the Directors have selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give true and fair view of the state of affairs of the Company at the end of the financial year and of the profit and loss of the Company for the year under review;

III. that the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, I956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and

IV. that the Directors have prepared the accounts for the financial year ended March 3I, 20I3 on a ''going concern'' basis.

Auditors

Prior to the IPO through an offer for sale, as the shareholding of Corporations owned or controlled by the Central Government in CARE exceeded 5I%, the company was covered under provisions of section 6I9B of the Companies Act, I956. The statutory Auditors for FYI3 were appointed by the Comptroller and Auditor General of India (CAG). Post IPO, as less than 5I% of shareholding is owned or controlled by the Central Government, the statutory auditors will be appointed by the shareholders.

Employees Salary

As required in terms of section 2I7(2A) of the Companies Act,I956, read with the rules framed there under a statement of employees drawing a salary of Rs Sixty Lakhs if employed throughout the year is to be provided as Annexure to the Annual Report. However, in terms of Section 2I9 (I) (b) (iv) of the Companies Act, I956, the Directors'' Report is being sent to all Shareholders of your Company without this annexure. Any Shareholder interested in obtaining a copy of the said annexure may write to the Company Secretary at the Registered Office of your Company.

Acknowledgements

The Board places on record its appreciation of the contribution of its employees to the company''s operations and the trust reposed in it by market intermediaries, issuers and investors. The Board also appreciates the support provided by the Reserve Bank of India, Securities Exchange Board of India, Comptroller and Auditor General of India and the Company''s Bankers, IDBI Bank, State Bank of India and HDFC Bank.

On behalf of the Board of Directors

O.V. Bundellu

Chairman

Place: Mumbai

Date: 10th August 2013


Mar 31, 2012

The directors have pleasure in presenting the Nineteenth Annual Report of your company along with the audited accounts for the year ending March 31, 2012.

Economic background

Following the financial crisis of 2008-09, the Indian economy had recovered to grow by 8.4% per annum in the subsequent two successive years. However, conditions turned adverse in FY12 with growth slowing down to 6.5% and industrial growth, in particular, to just 2.8%. Production was affected by a slowdown in investment, where the gross fixed capital formation rate declined from 32.5% in FY11 to 32.0% in FY12. While overall demand remained subdued with the government trying to get its reins on the deficit, high persistent inflation had the RBI taking an aggressive stance on interest rates. The repo rate was hiked by 175 bps during the year to combat inflation. All these conditions played a major role in driving the financial markets during the year which confronted the twin issues of tight liquidity conditions and increasing cost of funds.

Global economic conditions too were challenging with growth slipping to 3.9% in 2011 (5.3%) with the USA growing by 1.7% (3.2%) and Euro region by 1.4% (1.9%). Among the emerging markets China registered growth of 9.2% (10.4%) which was still lower than that of 2010. The Euro crisis response has been volatile with Greece, Ireland, Portugal, Spain and Italy raising indebtedness issues. The ECB, EFSF and IMF had worked hard to resolve the default crisis in Greece which finally has pledged to resort to austerity measures. Alongside, monetary policy has been liberal with the Fed maintaining its rate at 25 bps, while the ECB has lowered rates more recently to 75bps and Bank of England to 50 bps. Quantitative easing in the USA and LTRO (long term refinancing operations) in Euro enabled the flow of liquidity to provide a boost to Bank lending. However, given that austerity measures had to be pursued by the Euro nations under stress such as Greece, Portugal, Spain and Italy, there was a tendency for Banks to deleverage.

The Indian economy was affected by the global crisis in various ways. To begin with trade flows were impacted. Secondly, foreign investors looked positively towards the Asian markets sporadically though the perceived recovery in the USA did at times cause the flow of funds to reverse. This led to volatility in their flows in 2011. Third, the rupee became vulnerable to the dollar-euro relationship, and remains so even today with the possibility of a Greek default and problems in countries like Spain still making the rupee volatile. The rupee moved from Rs 44.37/$ in March 2011 to a range of between Rs 45.28 to 52.67 during August to December before closing at Rs 50.32 in March 2012. FII inflows in particular were lower for the year at $ 18.9 bn as against $ 32.2 bn in FYii.The RBI has been active in the forex market to defend the rupee and has put in $ 20.1 bn during FYI2. Such sale of dollars did in turn put pressure on liquidity conditions in the market.

GDP growth was 6.5% for the year as against 8.4% last year. This was to be brought about by growth of 2.8% in agriculture and 2.5% in manufacturing. Growth has been under pressure with inflation reining high for most part of the year. It ranged between 9-10% up to December when it crossed the double digit mark. It started moderating subsequently to end at 6.9% in March 2012. The RBI had subsequently taken a decision to lower the repo rate for the first time in two years by 50 bps with the rider that the market was not to expect further rate cuts until inflationary conditions improved.

The government''s budget was affected by lower than expected growth in GDP and hence lower revenue growth as well as higher expenditure. This impacted revenue collections as well as pressurized the deficit as the subsidy burden in particular increased on account of food, fuel and fertilizers. The disinvestment programme too was not realized and consequently the fiscal deficit increased from a targeted 4.6% to 5.9% for FYI2 (revised subsequently to 5.8%). For FYI3, it has been budgeted at 5.1%, which again would be contingent on several assumptions being met. Higher deficit meant higher borrowings which in turn strained liquidity in the system.

The monetary scene in the country was subdued. Bank deposits grew by 13.4% in FYI2 as against 15.9% in FYII. Bank credit on the other hand grew by I7% (2I.5%). Lower growth in deposits may be attributed to households spending more on account of inflation and saving less consequently. Bank credit on the other hand increased with the following sectors accounting for the same: beverages and tobacco, paper, petroleum, coal, chemicals, cement, vehicles, and gems and jewellery. There was a distinct slowdown in growth in case of credit to infrastructure and basic metals and metal products industries. The shortage in liquidity led to the RBI intervening positively through open market operations (OMOs). Net OMOs were Rs I.34 lakh crore (Rs 0.67 lakh crore). Further, the average repo borrowings from the RBI were over Rs I lakh crore from December onwards. By March it averaged Rs I.55 lakh crore. Towards the end of the year, the RBI had also lowered the CRR by I25 bps which released Rs 80,000 crore.

At the same time, government borrowing overshot the initial estimate of Rs 4.17 lakh crore and the total borrowings were Rs 5.1 lakh crore. This put pressure on interest rates. The 10-year GSec yield moved within a range of a low of 8.13% in April to a high of 8.88% in October. In March it ended at 8.53%. The average base rate of banks had increased from 9.17% in April 2011 to 10.48% in March 2012.

The performance of your company should hence be viewed against this background of extremely challenging economic and financial conditions

Change in accounting policy:

During the year, the Company changed its revenue recognition policy for surveillance fees. Uptill now the Company was recognising surveillance fees in full in the year in which they became due. However, in the current year the management has estimated a portion of surveillance fees to be recognised as income, commensurate with the efforts involved on the date the surveillance activity is completed. The balance surveillance fee is recorded equally over the 12 months surveillance period which commences 1 year after the date of assigning a rating.

Financial Performance

The financial results of the Company for the year ended March 31, 2012 are presented below:

(Rs. Lakh)

Particulars For the year ended For the year ended March 31, 2012 March 31, 2011

Income from Operations 178,08 170,87

Other Income 28,21 5,76

Total Income 206,29 176,63

Total Expenditure 56,78 42,62

/(-) Prior period adjustments - 9

Profit before Tax (PBT) 149,51 134,10

Provision for Tax 41,97 43,15

Profit after Tax (PAT) 107,54 90,95

Appropriations

Interim Dividend 28,55 -

Tax on Interim Dividend 4,63 -

Final Dividend - 6,19

Tax on final dividend - 1,00

Transferred to General Reserve 12,00 20,00

Balance carried forward 62,36 63,76

Total income increased by 16.79% with income from operations increasing by 4.21%. This may be attributed to both increase in rating assignments from new companies as well as from existing clients offset by impact due to change in accounting policy. Total expenditure increased by 33.22% mainly due to an increase in the wage bill which was on account of an increase in staff count from 303 as on March 31, 2011 to 500 on March 31, 2012. Profit before tax increased by 11.50% in FY12 and with tax provisions reducing by 2.73%, profit after tax increased by 18.24%.

During the year the Company has changed its revenue recognition policy for surveillance fees. Had the Company continued with its earlier policy, Rating Income including Surveillance Fees for the year would have been higher by Rs. 19.79 crore resulting in an increase of 15.80% in income from operations in FY12 over FY11. Profit after tax and revenue reserves would have been higher by Rs. 13.37 crore (i.e. an increase of 32.94% in FY12 over FY11).

Issue of Bonus shares

CARE, in September, 2011 allotted bonus shares in the ratio of 2:1, i.e. two shares for every one share held and issued 1,90,35,208 new shares. The paid up capital of the Company went up to Rs. 28,55,28,120 from Rs. 9,51,76,040.

Dividend

An interim dividend @Rs. 10/- per share was declared and paid in March 2012. No final dividend is recommended for FY 2011-12.

Business operations

While overall economic conditions were challenging, your company was aggressive in terms of both lengthening the customer base and deepening the relationships with existing clients. This effort is evidenced in the following achievements. Your company has now completed over 15,000 rating assignments since inception to reach 15,824 as of March 2012. The total amount of debt rated has increased to Rs. 40.46 lakh crore as of March 2012 from Rs. 31.19 lakh crore as on March 2011. As of March 2012, we had business relationships with 3,900 clients (2,094 in March 2011).The relentless thrust on expanding the client base will set the foundations for further leveraging in future.

Instrument Number of Volume of debt assignments completed rated (Rs crore) FY12 FY11 FY12 FY11

Short term 109 123 52,522 88,801

Medium term - 4 - 1,242

Long term 307 238 195,518 196,973

Bank facility rating 4,883 1,654 678,821 519,862

Others 681 168 - -

Total 5,980 2,187 926,860 806,878

Two facets stand out in the table above. The first is that the total number of assignments completed more than doubled, increasing by 173% in FY12 and the other is that there was an increase in the total volume of debt rated by 15%.

In terms of the number of assignments completed, there was an increase in the number of long term rating by 29% and bank loan ratings by 195% indicating higher penetration levels in these areas. However, there was a decline in short-term rating assignments by 13%. The miscellaneous category (including gradings) witnessed an increase of 305% which was mainly due to the NSIC - MSME ratings.

Total volume of debt rated however had increased for bank facility but declined in case of both short term (- 41%) and long term (marginally by - 0.7%) which were reflective of the slowdown in overall investment in the economy.

CARE''s business during the year

Your company continued to focus on widening the client base across both the large and SME segments to provide services for borrowers. Further, the existing relations with clients have been deepened with our business teams working on cross selling products. While conventional rating of debt has been accepted, the use of other products such as grading has yet to catch on and hence efforts have been made to educate corporates on their use. Some of the more noteworthy products that have caught interest are Edu grade and Real estate star ratings besides equi grade.

We have particularly witnessed significant interest being shown in equi grade which deals with equity research. These products, it is believed will contribute progressively more to the revenue base of the Company in the years to come.

Overseas operations

Your company also commenced operations in the Republic of Maldives and completed two rating assignments there. We have established our office in Male which is fully operational and we are working closely with the authorities and do hope to grow the business along with the market in course of time. More importantly we see this venture as an enterprise which can be leveraged going ahead in our global forays to be made.

Acquisition of majority stake in Kalypto Risk Technologies Private Limited

Kalypto Risk Technologies Private Limited (KRTL), a company providing risk management software solutions with a focus on banking and financial services domain addressing the areas of enterprise risk management. KRTL is engaged in developing specialized risk management solutions addressing the area of credit and operation risk for financial institutions and banks. The credit risk product serves as a foundation to meet evolving regulatory risk requirements in the backdrop of Basel II recommendations and for integrating the bank''s entire credit risk information.The operational risk product facilitates Banks in assessing, identifying, measuring, monitoring, controlling and reporting of losses resulting from inadequate or failed internal processes, people or systems. Your company has acquired 75.13% stake in KRTL at an investment of Rs 893.68 lakhs. This acquisition will result in diversification of revenue streams by enhancing product offerings and building up alternative revenue streams for the organization.

Knowledge strength-CARE Research Division

Our business is concentrated on leveraging our research capabilities when doing a rating exercise. The independent CARE Research Division has now widened its canvas to cover 39 sectors, which are up from 28 in FY11. These research reports, which are available on a subscription basis, have found progressively more acceptance in the market. We are working towards enhancing the coverage so that customers, especially those from institutions, are able to procure latest cutting edge research on the entire spectrum of sectors.

Economics

The Economics Division continues to provide real time economic analysis through reports that are released almost immediately after economic announcements are made. These reports are circulated widely to clients, banks, mutual funds, government officials and the media. The purpose is to both showcase CARE Ratings brand as well as disseminate your company''s viewpoint on all issues relating to both the global and domestic economy.

As part of building our visibility we have started printing and circulating our major reports to several opinion makers and the response has been encouraging. This is over and above the wide circulation through e-mail to clients, banks, mutual funds, investors, media, government officials etc.

Rating Committee

Your company is committed to maintaining high standards of professional quality and integrity. In line with this, we have an internal rating committee comprising senior executives of our Company and an external rating committee, comprising a majority of independent members. Each rating report is considered by our internal rating committee or our external rating committee, if not both. Ratings decided by our internal rating committee are reported to the external rating committee. Our rating committees are assisted in the evaluation by a team of professional analysts with relevant industry knowledge. The external rating committee members are Shri Y. H. Malegam (Chairman), Shri P. P. Pattanayak, Shri V. Leeladhar, Shri V.K. Chopra and Shri D.R. Dogra.

Working with the Government of India

Your company had collaborated with the Department of Economic Affairs, Ministry of Finance, to bring out a dossier on the Indian Economy. The dossier was comprehensive and covered all aspects of the economy highlighting the strengths in detail.

Brand CARE Ratings

We have been continuously espousing our brand in various conferences and events as well as media. We had organized two major events during the year. The first was a seminar on Credit Default Swaps in Mumbai and the other a debate on the Union Budget 2012-13 in New Delhi. (The former was graced by Smt S. Gopinath (Ex Deputy Governor, RBI) and Smt. Shilpa Kumar (Chairperson FIMMDA). For the latter, the main speakers were Shri T K Arun (Opinions Editor: The Economic Times) and Shri Sunil Jain (Opinions Editor: Financial Express). Our DMD, Shri Rajesh Mokashi was the third speaker on both the occasions while our MD & CEO, Shri D R Dogra, made the inauguration and welcome addresses.

Besides, we were active in terms of participation as sponsors in various events such as CII Finance and Investment Summit 2012, CNBC CFO Awards 2012, ASSOCHAM 2nd Annual Summit on Financial Markets, The CFO Summit 2011 and the ET REIFBS 2011 (Economic Times Real Estate Investment Forum and Business Spaces Conference).

Your company''s top management has participated actively in global events such as the WG Round Table on- The Importance of Rating for Countries and Companies in Africa, at Theodor-Heuss-Academy, Gummersbach (Cologne), Germany, where a presentation on ''Rating of Companies in Africa: Specific Challenges'' was made by our MD & CEO, Shri D. R. Dogra and Shri Mehul Pandya, General Manager. Shri D. R. Dogra was also appointed Director on the Board of Directors of Association of Credit Rating Agencies in Asia (ACCRA) on January 20, 20I2.

CARE''s participation was also visible in FICCI''s seminar involving business meeting with the Prime Minister of Mauritius, RBI''s Second International Research Conference, Kotak Institutional Equities ''Global Investor Conference'', Meeting of FICCI - Maharashtra State Council, International Conference on ''Growth with stability in affordable Housing Markets'', India Investment Conference - Positioning Portfolio for Turbulent Times, Global Steel Conference 20I2, International Conference on Accounting, Finance and Taxation, ASSOCHAM, 2nd Annual Summit on Financial Markets.

Human Resources

Human resources are the most critical asset for a company as plans can be executed thoroughly only in case we have the right people. Your organization realizes the importance of developing and maintaining a highly skilled and motivated staff. The focus has been on recruiting the best talent from top management institutes. However, for specialized functions at higher levels, lateral recruitment has been done from some of the best companies so as to match experience and superior skills with different roles.

As of March 3I, 20I2 we had 500 employees spread across the country which is a substantial increase from 303 as on March 3I, 20II. This has been necessitated from the demands of business development and ratings which has widened, as we have been reaching out to potential customers across the country with special focus on the MSME segment. Out of these, 337 are management graduates, out of which 87 are having engineering background. Further, there are 88 Chartered Accountants and II Post Graduates in specialized fields like Economics, Commerce etc. The remaining 64 have other varied qualifications according to the required roles.

We also do recognize the importance of training our staff so that they are equipped with better skill sets for both professional and personal development. Apart from a rigorous induction programme for all fresh recruits, we had sent 54 colleagues for attending 28 external training programmes across the country. This serves us dual purpose of skills enhancement as well as employee retention strategies.

IT Upgradation

The Ci3 application has been made fully operational during the year. It helps in better MIS reporting and control. It is an end-to-end solution for all information relating to rating activity which enables ease in generating reports, monitoring activity as well as used for planning.

The web site of any company is a useful marketing tool. Your company''s web site has been changed to present a different look and offers easier maneuverability to visitors. A lot of data and reports are available on the website. As this is an evolving process, we are still in the process of making changes in the web site to be more effective not just from the point of view of information but also marketing.

Directors

Pursuant to the provisions of Section 256 of the Companies Act, I956 and Articles of Association of the Company, Shri O V Bundellu retires by rotation and being eligible offers himself for reappointment.

The following are the Standing Committees of the Board Audit Committee

The Committee met four times in FY I2. The Committee comprises of Shri S. Venkatraman, Dr. N.K.Sengupta, Ms Bharti Prasad and Shri Rajesh Mokashi.

Investment Committee

The Investment Committee comprises Shri O.V. Bundellu, Shri S. Venkataraman, Shri D. R. Dogra and Shri Rajesh Mokashi. It met four times in FYI2. The Committee decided on various investment options for the company''s funds to derive the maximum return while optimizing the risk level.

Remuneration Committee

The Remuneration Committee comprises Dr. N.K.Sengupta, Shri S. Venkataraman, Ms Bharti Prasad and Shri D.R. Dogra.

IPO Committee

The IPO Committee comprises Shri O.V Bundellu, Shri S. Venkataraman, Shri D.R. Dogra, Shri Rajesh Mokashi and Shri Navin K. Jain. It met two times in FY12.

Directors Responsibility Statement

Pursuant to the requirement under Section 217(2AA) of the Companies Act, 1956 with respect to Directors Responsibility statement, it is hereby confirmed.

I. that in the preparation of the annual accounts for the financial year ended March 31, 2012, the applicable accounting standards have been followed along with proper explanation relating to material departures;

II. that the Directors have selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give true and fair view of the state of affairs of the Company at the end of the financial year and of the profit and loss of the Company for the year under review;

III. that the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act,1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and

IV that the Directors have prepared the accounts for the financial year ended March 31, 2012 on a ''going concern'' basis.

Auditors

As the shareholding of Corporations owned or controlled by the Central Government in CARE exceeds 51% the company is covered under provisions of section 619B of the Companies Act, 1956. The statutory Auditors for FY12 were appointed by the Comptroller and Auditor General of India (CAG).

Employees Salary

As required in terms of section 217(2A) of the Companies Act,1956, read with the rules framed there under a statement of employees drawing a salary of Rs Sixty Lakhs if employed throughout the year or Rs Five Lakhs per month if employed for part of the year is attached to this report.

Conflict of interest

There is a clear policy to segregate staff on the basis of business and ratings to ensure that there is no conflict of interest. Besides, there is a strict code of conduct which clearly ensures that the rating analyst does not have any interest in terms of equity or otherwise in the company being rated by him/her. Individual declarations have been taken from all employees in this regard. This we believe is necessary for providing unbiased ratings which in turn enhances the credibility of the organization.

Acknowledgements

The Board places on record its appreciation of the contribution of its employees to the company''s operations and the trust reposed in it by market intermediaries, issuers and investors. The Board also appreciates the support provided by the Reserve Bank of India, Securities Exchange Board of India, Comptroller and Auditor General of India and the Company''s Bankers, IDBI Bank, State Bank of India and HDFC Bank.

On behalf of the Board of Directors

O. V. Bundellu

Chairman

Place : Mumbai

Date : July 17, 2012

 
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