‘Basel, IPOs and securitisation the future triggers’

Late last week, R Ravimohan handed over the reins of Crisil to Roopa Kudva, after more than 13 years at the helm. When Ravimohan joined Crisil in 1994, it was a minnow, clocking revenues of Rs 10 crore. Last fiscal, Crisil registered revenues of Rs 300 crore. Ravimohan, the outgoing MD & CEO, has been appointed managing director and regional head of global ratings major Standard & Poor’s in South Asia. S&P owns 51% of Crisil. Excerpts from an interview with Satish John.

On your tenure … from a Rs 10 crore company to a Rs 300 crore one?
It’s been a fantastic ride — 30 times growth for Crisil is fabulous. I am very pleased with what we have done. Looking at the opportunities and where we are headed, Crisil will have a lot more to do in the coming days.

Between 1987 and 1992, interest rates were fixed by the government. So, whether you were a AAA-rated or BB-rated company, everybody paid 14% interest or whatever the government decided. So that time, there was actually no reason for ratings to be done.

That has changed. Most ratings are not mandated, but investors now factor ratings in their pricing decisions. It took us 10-15 years to reach this level.

So, has the ratings business in India carved out a place of its own?
The Indian debt markets are still very shallow, but they will pick up. In which case, ratings will serve the actual purpose they serve elsewhere in the world — to validate the price. When people start betting on, let’s say a AA rating going down, that’s when the trading interest arises and people make money out of it.

What would be your new role?
S&P, globally, is the leading provider of financial intelligence. The Indian markets are becoming an important part of the global markets and integration is happening very fast. Every Indian company that raises money today raises it across the globe. Here, our cross-border ratings advisory will play a meaningful role. India is a financial hub and all the financial players from the top 30 percentile are here.

Pakistan, Sri Lanka and Bangladesh are the new markets you’ll look at?
We have to look at them, but S&P has been operating in those markets. Up till now, S&P Singapore and Tokyo have supported these operations. Henceforth, all these will be supported by S&P India. A lot of cross-border issuances are happening out of these countries. So our job will be to cater to this demand from India.

So will you wear two hats? S&P’s and Crisil’s?
No. Only one hat. The S&P hat. Roopa Kudva will wear the Crisil hat.

Will you look at equity research in a big way?
It’s already being done out of Crisil. How we take that and use it to suit our clients’ global needs will be looked at in the future.

Would the research be under the Crisil label?
It will be better to put it under the S&P label because it’s a better-known name.

Will S&P hike its stake in Crisil and what’s this governance agreement signed between the two?
They are not looking to hike their stake. Whether they hike or not, we are clear that from an operational point of view, given the same type of business we are in, there is a lot of scope for joint operations.

We want to operate in an integrated manner, but Crisil’s resources belong to its shareholders. Though, it is majority owned by S&P, they are a different set of shareholders. Similarly, the resources of McGraw Hill S&P belong to McGraw Hill shareholders. Though there’s a lot of commonality, they are a different set of shareholders.

So, we want to make sure that the shareholders of these two entities are not compromised in anyway. The agreement demarcates, for instance, how Crisil raises the bill when its resources are being put to use by S&P. For instance, we are now trying to sell our India research through the S&P network in the world and those are all captured in the governance agreement.

Does Crisil have an independent character? You are getting into credit bureau for retail borrowers and infrastructure advisory segments where S&P is not present?
S&P is very supportive in all the new ventures. They want to see how they can be integrated into S&P over time. Even the decision to exit the newswire business was not dictated by S&P. We felt we did not have the ability to make the investments that are needed in the bus ness.

What were the kind of investments needed in hardware that dissuaded Crisil from continuing in the newswire business?
We estimated anything in the region of Rs 50-60 crore. If you look at the balance sheets of Reuters and Bloomberg, they have very large investments. It’s not a business where you make a one-time investment and forget it. You have to make such investments periodically.

There are also technology risks because technology keeps changing all the time. So you keep making these big investments. Crisil is a small company with a small balance sheet.

So where does the synergy come in?
We figure out what makes sense in our areas of co-operation, by working closely with S&P. Therefore, we try and create synergies. We have become very inter-dependent. Also, in terms of talent management, we use the S&P network as a promise to Indian talent that they have the opportunity to work anywhere in the world. S&P has some very unique training programmes. The S&P University has no parallel.

On the future….
We could have 4-5 big triggers. The first will be the Basel opportunity. Essentially, what RBI is doing is to instill better credit discipline in the banking system. Basel II norms require all credits over the limit of Rs 10 crore to be rated by 2009. I think it’s a big opportunity. IPO grading is another big opportunity. Securitisation is the third big opportunity. And advisory services, because infrastructure investments have just begun.

What’s your take on the financial markets?
Three or four things have happened. Due to globalisation, financial instruments have become more sophisticated... It’s going to be an interesting market till fundamentals catch up. Or liquidity catches up. Till then, it’ll have a short fuse. So, I say, traders beware. My advice to them is not to be complacent and take things for granted.