ICRA meeting comments

As a small retail investor, I often write to the investor relations trying to talk to them, typically in order to improve my understanding of the business. I have had varied success with this approach.

Last week, I had the opportunity to have a call with the rating officer at ICRA. Readers will be familiar with the skepticism we have with the business model of the credit rating agencies that we blogged about last december.

The rating officer openly admitted that they did not want to commit in writing, so the phone call. So here is the gist of the conversation

a. IRB Model is definitely a threat to the credit rating agencies
b. The advisory business of ICRA is working with the big banks to help to the IRB model.
c. Banks can apply for the internal models from 2014
d. 2 Years of parallel testing between the bank's model and the credit rating agencies model. The higher of the CAR will be adopted for the banks. After this, if the the RBI is satisfied, they will let the big banks move to the new model.
e. 2014 through 2016 is parallel testing period. So no threat for another three years.
f. All Basel II loans are eligible for internal rating. From annual reports, 2011 and 2012, 45% of all loans rated were Basel II loans.

If you are a long term investor and wondering about whether it is a good idea to invest in this.... caveat emptor....