Report for Credit rating agency

1. ICRA
NEPAL
Presented by
Bibek K.C.
Binod Shah
Bishwanath Das
Himkarn Singh
Ira Dahal
Janaki Tharu
Kabita Chaudhary

2. Background
• ICRA Limited is an Indian independent and professional
investment information and credit rating agency.
• It was established in 1991 and originally named was investment
information and credit rating agency.
• The company changed its name to ICRA limited and went public
on 13 April 2007 with a listing on the Bombay Stock Exchange
and the National Stock Exchange.

3. Type Public
Industry Financial service
Founded 1991
Head quarters Gurgaon, India
Key people Ramnath Krishnan, Managing Director &
Group CEO Arun Duggal, Non-Executive
chairman and independent director.

4. About ICRA Nepal
• First Credit Rating Agency in Nepal
• Subsidiary of ICRA Limited of India
• Incorporated on November 11, 2011 and granted license by the Securities
Board of Nepal on October 3, 2012.
• Parent Company was set up in 1991 by leading financial/investment
institutions, commercial banks, and financial services
•Today, ICRA and its subsidiaries together form the ICRA Group of Companies.
•Public Limited Company, with its shares listed on the Bombay Stock Exchange
and the National Stock Exchange.
• The ultimate parent company of the international Credit Rating
Agency, Moody’s Investors Service, is ICRA’s indirect majority shareholder.

5. What do ICRA Nepal Rating Conveys?
• Symbolic representations of its current opinion on the relative credit risks
associated with the rated debt obligations or issues
• Assigned on a Nepalese credit rating scale for Rupee denominated debt
obligations.
• Ratings may be understood as relative rankings of credit risk within Nepal
• Not designed to enable any rating comparison among instruments across
countries rather these address the relative credit risks within Nepal.

6. Quality and Commitment
Facilitating Efficiency in Business:
ICRA Nepal’s Ratings, Gradings, information products and solutions reflect independent,
professional and impartial opinions.
Building Research Capability:
We strongly believe that the quality of analytical output is a reflection on an
organization's research capabilities.
Commitment to the Development of the Financial Market of Nepal:
The focus and commitment of ICRA Nepal will remain on developing innovative
concepts and products in a dynamic market environment, generating and promoting
wider investor awareness and interest.

7. Service Objectives:
• Provide information and guidance to institutional and individual investors/creditors.
• Enhance the ability of borrowers/issuers to access the money market and the capital
market
• Wider range of the investing public.
• Assist the regulators in promoting transparency in the financial markets
• Provide intermediaries with a tool to improve efficiency in the funds raising process.

9. Rating Services
• ICRA Nepal’s Issuer Ratings seek to provide an opinion on the general
creditworthiness of the rated entities in relation to their senior unsecured
obligations.
• ICRA Nepal’s Issuer Ratings are not specific to any particular debt instrument
issued by the rated entities.
• A rating service, such as Moody's Investors Service, or Standard & Poor's, ev
aluates bond issuers to determine the level of risk they pose to would-
be investors.

10. ExampleofRatingServices
AgriculturalDevelopmentBankLimited:Ratingsreaffirmed
Rating Action
• ICRA Nepal has reaffirmed the issuer rating of [ICRANP-IR] A (pronounced ICRA NP issuer
rating A) to Agricultural Development Bank Limited (ADBL), indicating an adequate degree
of safety regarding timely servicing of financial obligations.
• Instruments with this rating are considered to have an adequate degree of safety regarding
timely servicing of financial obligations. Such instruments carry low credit risk.
Rationale
• The rating reaffirmation continues to derive comfort from ADBL’s strong ownership profile
with ~51% equity stake held by the Government of Nepal (GoN).
• The rating also positively factors in the strategic importance accorded by the GoN to ADBL,
as a nodal agency for agricultural financing.

11. Cont.….
• The higher credit growth (~23% in FY2021 and ~34% in 6M FY2022) and degrowth in the
deposit base (~7% degrowth in 6M FY2022) has led to the higher credit to deposit-CD
ratio (~95% as of mid-January 2022) for the bank.
• As per the regulatory norms, the bank is required to reduce the CD ratio to 90% by mid-
July 2022 and the ability of the bank to do so will remain a key rating monitorable.
• Inability to reduce the CD ratio would result in regulatory breach and could result in rating
revision.
• This risk is further accentuated by the higher deposit concentration among the top-20
depositors (~25%); which could render the deposit profile volatile in the event of deposit
price-war as seen in the past.
• The bank’s decline in non-interest income and increase in credit cost also remains a
concern to the bank’s incremental profitability.

12. Keyratingdrivers:
• Credit strengths
• Credit challenges

13. Creditstrengths
• Strong ownership profile and policy support from Government
• Strong presence across Nepal and adequate track record
• Strong capitalization profile despite recent moderation
• Improved cost of fund and base rate

14. Creditchallenges
• Relatively high gross NPLs and delinquency levels
• Higher credit growth amid the uncertain operating environment
• Moderation in deposit, high CD ratio; concentrated deposit profile
• Declining profitability due to increased credit cost and moderation in non-interest
income

15. Company profile (Example)
•ADBL is one of the three class-A commercial banks with a majority holding by the GoN.
• ADBL has a 51% shareholding from the government, the only promoter of the bank
with the rest stake held by the public.
•The bank’s equity share is listed in the Nepal Stock Exchange (NEPSE) and its market
capitalisation was ~NPR 56 billion as of mid-January 2022.

16. Keyfinancialindicators
YEAR ENDED Jul-18 (Audited) Jul-19 (Audited) Jul-20 (Audited) Jul-21 (Audited) Jan-22 (Provisional)
Net interest income 6,637 7,615 6,716 6,866 3,743
Profit before tax 4,964 5,724 4,400 5,062 2,087
Profit after tax 3,442 4,192 3,332 3,528 1,423
Total assets 135,420 151,458 179,320 222,440 229,097
OPERATING RATIOS
Yield on average advances 13.70% 14.08% 12.56% 9.79% 9.58%
Cost of deposits 6.70% 7.00% 6.83% 5.05% 5.12%
Net Interest Margin/Avg. Total Assets 5.03% 5.31% 4.06% 3.42% 3.32%
Non-interest Income/Avg. Total Assets 1.07% 1.25% 1.44% 1.43% 1.00%
Operating Expenses/Avg. Total Assets 2.96% 2.77% 2.53% 2.35% 1.91%
Credit Provisions / Avg. Total Assets -0.62% -0.20% 0.31% 0.06% 0.55%
PAT / Avg. Total Assets 2.61% 2.92% 2.01% 1.76% 1.26%
PAT / Net Worth 13.75% 15.29% 11.73% 11.76% 8.86%
Gross NPAs 3.95% 3.29% 2.85% 1.85% 2.06%
0+ days delinquencies - 8.27% 21.09% 8.35% 16.13%
CAPITALISATION RATIOS
Capital Adequacy Ratio 19.66% 19.54% 19.33% 16.94% 16.30%
Tier I Capital 19.29% 19.27% 16.50% 14.42% 14.42%
Net NPAs/Net Worth 7.10% 5.25% 3.81% 1.78% 1.78%
COVERAGE & LIQUIDITY RATIOS
Total Liquid Assets/Total Liability 23.44% 23.90% 28.36% 28.91% 21.29%
Total Advances/Total Deposits 96.46% 85.63% 85.63% 92.57% 95.32%

17. Gradingservices
• The Grading Services offered by ICRA Nepal employ pioneering concepts and methodologies,
and include Grading of Initial Public Offers (IPOs).
• The Grading Services will also cover Microfinance Institutions (MFIs), Construction Entities,
and Real Estate Developers and Projects.
• An ICRA Nepal IPO Grade represents a relative assessment of the “fundamentals” of the issue
graded in relation to the universe of other equity securities listed on the Nepal Stock
Exchange.

18. ExampleofGradingServices
PrabhuLifeInsuranceLimited:[ICRANP]IPOGrade4assignedto
proposedIPO
•Grading action
•ICRA Nepal assigns IPO1 gradings on a scale of 1 through 5, with Grade 1 indicating strong
fundamentals and Grade 5 indicating poor fundamentals.
• For the grading categories 2, 3 and 4, the sign of + (plus) appended to the grading symbols
indicates their relative positioning within the grading categories concerned. Thus, the
grading of 2+, 3+ and 4+ are one notch higher than 2, 3, and 4, respectively.
• PLIL is proposing to come out with an IPO of 6,000,000 equity shares with a face value of
NPR 100 each, at par.
• The proposed issue is being launched to meet the minimum capital requirement for life
insurers rolled out by the regulator, Insurance Board of Nepal

19. Rationale
• The grading factors in PLIL’s good ownership profile and sharing of established brand in
Nepal as ‘Prabhu’.
• Similarly, a high proportion of the endowment business in the overall premium earnings
(~94% in FY2019) and adequate reinsurance arrangements including the catastrophic
provision also remain grading positives.
• The grading is also constrained by PLIL’s moderate policy continuation rate despite the initial
years of operations (~71%3 renewal in FY2019 in terms of premium).
• Due to PLIL’s small asset base and life fund at present, its ability to generate returns on a
sizeable equity base remains moderate.
• The grading also remains constrained by the fragmented nature of the industry and
increasing competition (19 LICs in Nepal).

20. Gradingstrengths
• Institutional ownership with brand sharing of ‘Prabhu’
• High portion of long-term endowment business in overall premium earnings
• Adequate reinsurance support
• Adequate quality of investment with good investment earning potential

21. Gradingchallenges
• Limited track record with small market share
• Subdued return indicators with high cost of operations
• Solvency profile

22. Aboutthecompany(Example)
•On an overall basis, institutions hold 60% share and rest by the individuals.
•PLIL is a new player in the life insurance industry of Nepal.
•PLIL was licensed by the Insurance Board in 2016/17, taking the total number of life insurers
to 19 from nine.
•As of mid-October 2019, the company has been in operations with 82 branches, 6,041
individual agents and 18 corporate agents spread across the nation for procuring new
business and extending after-sales services.

23. Keyfinancialindicators:
Amount in NPR million FY2018 (Audited) FY2019* (Provisional) 3MFY2020 (Provisional)
Number of months in operation 7 12 3
First year premium (FYP) 82 348 74
Renewal premium (RP) - 58 48
Single premium (SP) 33 67 10
Total gross premium (TGP) 114 474 133
Net premium 112 456 133
Premium on endowment policies 114 447 122
% share of endowment in total premium 100% 94% 92%
Premium on term policies - 27 10
% share in total premium 0% 6% 8%
Total management expenses 90 211 55
% of gross premium 79.00% 44% 42%
Total investment 1,475 1,755 1,839
Yield on investment - 10.14% 9.99%
Profit after tax 43 74 12
Return on equity 5.12% 4.86% 3.22%
Solvency margin 1.01 NA NA

24. Methodology
1. Issuer Rating Methodology:
ICRA Nepal’s Issuer Ratings seeks to provide an opinion on the fundamental
creditworthiness of the rated entities in terms of their ability and willingness to
service the debt obligations in a timely manner.

25. ICRA Nepal’s Credit Risk Assessment Framework
1. Industry Risk:
» Growth Prospects
» Cyclicality
» Competitive Intensity
» Regulatory Risk
2. Business Risk
» Relative Scale
» Competitive Position
» Diversification
» Operating Efficiency
» Project Risks

26. 3. Financial Risk
» Profitability
» Leverage
» Coverage
» Cash Flows & Liquidity
4. Management Risk
» Quality of Management
» Financial Policies
» Governance Structure and Practices

27. ICRA Nepal’s Issuer Ratings Scale and Definitions
[ICRANP-IR] AAA Issuers with this rating are considered to have the highest degree of safety regarding timely
servicing of financial obligations. Such issuers carry lowest credit risk.
[ICRANP-IR] AA Issuers with this rating are considered to have high degree of safety regarding timely servicing
of financial obligations. Such issuers carry very low credit risk.
[ICRANP-IR] A Issuers with this rating are considered to have adequate degree of safety regarding timely
servicing of financial obligations. Such issuers carry low credit risk.
[ICRANP-IR] BBB Issuers with this rating are considered to have moderate degree of safety regarding timely
servicing of financial obligations. Such issuers carry moderate credit risk
[ICRANP-IR] BB Issuers with this Rating are considered to have moderate risk of default regarding timely
servicing of financial obligations.
[ICRANP-IR] B Issuers with this Rating are considered to have high risk of default regarding timely servicing
of financial obligations.
[ICRANP-IR] C Issuers with this Rating are considered to have very high risk of default regarding timely
servicing of financial obligations
[ICRANP-IR] D Issuers with this Rating are in default or are expected to be in default soon

28. 2. Credit Rating Methodology for Non-banking Finance Companies :
•Non-banking finance companies (NBFCs) are institutions, which are engaged in limited
banking activities and do not have a full-fledged banking license.
•The NBFCs are given greater flexibility in operational matters and allowed to lend
independent of priority sector targets and statutory reserve requirements

29. NBFCs extend the following types of loans:
• Vehicle loans
• Construction equipment loans
• Personal loans
• Loans against property
• Loans against shares
• Business loans

30. The parameters for assessing the business and financial risks of an NBFC are
1. Business Risk
Business Mix
Management, Systems and Governance Structure
Franchise and Size
Operating Environment
2. Financial Risk
Profitability
Liquidity
Capital Adequacy
Asset Quality

31. 3. Rating Methodology for Local Level Governments
•Local Level Governments (LLGs) play a critical role in the delivery of social, economic
and infrastructure services like public health, sanitation, primary education, water
supply, and maintenance of road networks in urban areas.
•CRA Nepal’s credit rating framework primarily evaluates the LLG’s operational and
financial strength along with the fiscal relationship between the LLG and the respective
province as well as the federal government.

32. Key Rating
1. Legal and Regulatory Framework
2. Economic Environment
3. Operational Efficiency
4. Financial Strength
5. Project Pipeline and Execution Track Record
6. Quality of Reporting, Monitoring and Reform Efforts Criteria

33. Approach for financial ratio analysis
Financial ratios used by ICRA Nepal:
• Profitability
• Leverage
• Coverage
• Liquidity

34. Profitability
•Measure of the earnings generated by an entity in a given time period in relation to the
resources deployed
•Influenced by multiple factors
•Track record of higher profitability is shown by an entity compared with its peers
Why Important??
•To invest regularly in product development, marketing, physical assets and human capital so
as to sustain or improve their competitive position
•Improves their ability to attract fresh capital for future business requirements
Ratios used to Analyze entity’s profitability:
•Operating profit margin
•Net profit margin
•Return on Capital Employed

35. How to analyze??
•Operating Income = Revenues from Operations (net of indirect taxes)
•Operating Profit = Profit before Depreciation, Amortization, Interest, Tax and Non-
Operating or Non-Recurring Income and Expense
•Capital Employed = Total Debt + Net Worth + Deferred Tax Liability – Capital Work in
Progress – Capital Advances
Ratio Computation
Operating Profit Margin (Operating Profit)/ (Operating Income)
Net Profit Margin Net profit after tax/ Operating income
Return in Capital Employed (Profit before Interest and tax)/ (Average Capital
Employed)

36. Leverage
• Leverage is a measure of an entity’s dependence on borrowed funds
• Lower the dependence on borrowings, leverage (better) the leverage
• Borrowing leads to pay principal as well as interest, pushes up the fixed cost burden on the
borrowing entity & in the limiting case, increases the default
Why Important?
• Leverage denotes the extent of financial risk taken by an entity
• Entity with lower leverage has higher financial flexibility to raise incremental external capital
(debt or equity) for re-investment in business or other purposes
• Entity with lower leverage is better equipped to withstand volatility in cash flow generation
in situations of economic downturn, competitive challenges, unexpected rise in costs,
changing consumer preferences, or regulatory changes
• Higher volatility in cash flows have lower tolerance to financial leverage, it should increase
the proportion of fixed financial expenses in their cost structure, by increasing the
probability of default

37. Ratios use to analyze an entity’s leverages:
• Gearing
•Total Indebtedness ratio
•Debt to profit ratio
• Accruals to debt ratio
Total Debt = Long-Term and Short-Term Debt (including subordinated debt) + Off-Balance
Sheet Liabilities (such as receivables discounted) + debt component of hybrid instruments as
assessed by ICRA Nepal based on the instruments’ contractual terms
Shareholders’ Funds or Tangible Net Worth = Net Worth - Revaluation Reserves -
Miscellaneous Expenditure not Written-off + Minority Interest + Share Application Money +
equity component of hybrid instruments as assessed by ICRA Nepal based on the instruments’
contractual terms
Total Outside Liabilities = Total Debt + All Long-Term and Short-Term External Liabilities such
as Deferred Tax Liability, Creditors and Operating or Non-Operating Liabilities
Net Cash Accruals = Net Profit after Tax + Depreciation – Dividend on Preference and Equity
Shares
Ratio Computation
Gearing (Total Debt)/(Tangible Net Worth)
Total Indebtedness (Total Outside Liabilities)/(Tangible Net Worth)
Debt to profit ratio (Total Debt)/(Operating Profit)
Accruals to Debt Ratio (Net Cash Accruals)/(Total Debt)
How to Analyze??

38. Coverage
• Measure of an entity’s debt servicing ability
• Calculated as the ratio of profits (or cash flows) to the debt servicing obligations in a given time
period
• Higher is the ratio, higher the cushion available to withstand variability in profits (or cash flows), for
making good its financial obligations
• Function of an entity’s profits, leverage and debt characteristics
Why Important?
• Higher profitability and lower leverage will generally have better coverage ratios
• However, there may be exceptions to this such as in project funding structures for long-dated assets
like road projects, power projects or hotel projects where the loan tenures are typically long.
• In such cases, even as profit generation may remain weak in the initial years of the project and
leverage ratios may appear onerous,
• In case the coverage ratio of an entity is below 1.0 time in a given period, it may have to seek
recourse from other sources of liquidity—such as cash balances or liquid investments or equity
infusion to avert a situation of default on debt servicing

39. Ratios Use to Analyze the Entity’s coverage are:
• Interest Coverage Ratio
• Debt Service Coverage Ratio
How to Analyze??
Ratio Consumption
Interest Coverage Ratio (Operating Profit)/(Gross Interest expenses)
Debt Service Coverage Ratio (Net Profit After Tax + Gross Interest +
Depreciation)/(Gross Interest + Repayment + Dividend
on Preference Shares)

40. Liquidity
• Measure of an entity’s ability to meet its short-term cash obligations from various internal or
external resources
• Internal resources & External resources
• Higher the cushion available between the resources & obligations, the better is the liquidity
profile of an entity
• Driven by vulnerability of entity to timely refinancing/renewal of short term sources of
funding
Why Important??
• Crucial element of credit analysis
• To assess the ease with which an entity can access cash or cash equivalents, one is interested
in metrics beyond leverage
• Low leverage does not necessarily indicate low default risk as an entity may find itself short
of liquid assets for conversion to cash quickly and cheaply to meet its impending cash
obligations

41. Ratios use to analyze an entity’s liquidity:
• Current Ratio
• Working Capital Cycle
• Working Capital Intensity
How to Analyze??
Current Assets = Cash + Inventory + Debtors + Other Operating and Non-Operating Current
Assets
Current Liabilities = Current Portion of Long-Term Debt + Short-Term Debt (including
Working Capital Debt) + Creditors + Other Operating and Non-Operating Current Liabilities
Net Working Capital = (Current Assets – Cash) – (Current Liabilities – Current Portion of
Long-Term Debt – Short-Term Debt – Capital Creditors)
Ratio Computation
Current Ratio (Current Assets)/(Current Liabilities)
Working Capital Cycle Debtors Days + Inventory Days – Payable Days
Working Capital Intensity (Net Working Capital)/(Operating Income)

42. Rating methods for Banks
• ICRA Nepal's Rating assesses the credit risk of a bank which is a function of the business and
financial risk as well as the likelihood of external support available to the bank in case of any
financial stress.
• ICRA Nepal makes use of publicly available financial data as well as the bank's own statistical
information for its credit evaluation.
• Conformance with the Generally Accepted Accounting Principles (GAAP)
• Going concern basis rather than on a particular date

43. Factors conceded in the rating process are:
Business Risks
• Operating and Regulatory
Environment
• Ownership Structure and Govt.
Support
• Governance Structure
• Franchise
• Management, Risk positioning,
systems and strategy
Financial Risks
• Asset Quality
• Diversity of funding and liquidity
• Profitability
• Capital Adequacy

44. Corporate Debt Ratings
•An ICRA Nepal Rating is a symbolic indicator of ICRA Nepal's current view on the relative
capability of the corporate body involved to timely service debts and obligations.
•ICRA Nepal's independence and professionalism assure trustworthy, consistent, and
unbiased ratings.
•Investors can use ratings to factor credit risk into their investing decisions.
•Long-term, medium-term, and short-term debt instruments are all rated by ICRA Nepal.

45. Rating Symbols for Corporate Debt
Instruments:
•[ICRANP] LAAA: Instruments carry lowest credit risk.
•[ICRANP] LAA: Instruments carry very low credit risk.
•[ICRANP] LA : Instruments carry low credit risk.
•[ICRANP] LBBB: Instruments carry moderate credit risk.
•[ICRANP] LBB: Instruments having moderate risk of default regarding timely servicing of
financial obligations.
•[ICRANP] LB : Instruments having high risk of default regarding timely servicing of financial
obligations.
•[ICRANP] LC : Instruments having very high risk of default regarding timely servicing of
financial obligations.
•[ICRANP] LD : Instruments with this Rating are in default or are expected to be in default
soon.

46. IPO Ratings
•It is a service aimed at facilitating the assessment of equity issues offered to the public.
•It is a symbolic representation of ICRA Nepal’s assessment of the “fundamentals” of the
issuer concerned on a relative Grading scale.
•IPO Grades are assigned on a five-point point scale, where IPO Grade 1 indicates the
highest Grading and IPO Grade 5 the lowest Grading.
•It is not an opinion on the price of the issue, pre- or post-listing.

47. IPO Grading Scale
• [ICRANP] IPO Grade 1 : Strong fundamentals
• [ICRANP] IPO Grade 2 : Above-average fundamentals
• [ICRANP] IPO Grade 3 : Average fundamentals
• [ICRANP] IPO Grade 4 : Below-average fundamentals
• [ICRANP] IPO Grade 5 : Poor fundamentals
What an [ICRANP] IPO Grade Is Not??
• It is not a recommendation to buy, sell or hold the securities Graded
• It is not a comment on the valuation or pricing of the IPO Graded
• It is not an indication of the likely listing price of the securities Graded
• It is not a certificate of statutory compliance

48. Fund Management Quality Rating
•It provides investors with an independent opinion on the overall quality, governance
process, and fund management expertise of the Asset Management Company (AMC) rated.
•For AMCs, ICRA Nepal ratings are a credible means that can be used to highlight their
investment management characteristics.
•It also provide investors with a useful benchmark to differentiate among AMCs.
•ICRA Nepal ratings however are not intended to comment on the future performance of the
schemes or funds being managed by the AMCs rated.

49. ICRA Nepal Fund Management Quality
Ratings: Scale and Definitions
[ICRANP] AMC Quality 1 (AMC1): Provide the highest assurance on management quality.
[ICRANP] AMC Quality 2 (AMC2): Provide high assurance on management quality.
[ICRANP] AMC Quality 3 (AMC3): Provide adequate assurance on management quality.
[ICRANP] AMC Quality 4 (AMC4): Provide inadequate assurance on management quality.
[ICRANP] AMC Quality 5 (AMC5): Provide poor assurance on management quality.

50. INVESTOR AWARENESS ON CREDIT RATING
•Credit Rating: Credit Rating Agency about the risk involved in a borrowing programme
of an issuer.
•How does a Rating help an Investor: ICRA Nepal Credit Ratings provide an investor
with critical information.
•How are Credit Ratings done: ICRA Nepal Ratings are based on an in-depth study of
the industry.

51. •How long does a Rating valid: The corporate and the Rating is monitored till the life of the
instrument.
• Credit Rating is not: Credit Ratings are not recommendations to buy or sell or hold a
specified Rated security nor are they offered as guarantees or protections against default.
•Who are the beneficiaries of the Rating Services.
•Investors
•Issuers
•Intermediaries
•Regulators

52. Grading of Initial Public Offers (IPOS)
•IPO Grading : The assessment of equity issues offered to the public.
•Why is IPO Grading necessary: The increased participation of new investors in the stock
market.
•How is an IPO Grading indicated: The IPO grading is fundamentals would be graded on a five-
point point scale from Grade 1 to Grade 5.

53. Mapping of ICRA Nepal’s Long-Term and Short-Term
Rating

54. Short-Term Rating
• ICRA Nepal assigns short-term Ratings with symbols from [ICRANP]A1 to [ICRANP]D to debt
instruments with original maturity up to one year.
•ICRA Nepal’s short-term Ratings measure the probability of default on the Rated debt
securities over their entire tenure.

55. Linkage between Long-term and Short-term Rating
• ICRA Nepal Ratings are specific to the Rated instruments, the short-term Ratings in general
have a linkage with the long-term Ratings of the issuers .
•Besides the fact that short term instruments like commercial paper are usually on-going
programmes and it also largely influenced by the issuer’s longer-term credit profile.

56. ICRANepalesePolicyOnWithdrawalOf CreditRating
• In the case of debt instrument , program under the preview of any Act/Rules/Regulation,
ICRA Nepal strictly follow the provision if any , contained in such Act/Rules/Regulation for
withdrawal of the credit Rating concerned.
• Under regulation 23 of the credit rating regulation, 2011 , a credit rating can not withdrawn
so long as the obligation under the rated security are outstanding, except in case the
company whose security is rated is wound up or merged or amalgamated with other
company.

57. Theadditionalgroundforwithdrawalofcreditratingasfollows:
1. The rating is normally withdrawn when the rated instrument / Bank lines is fully repaid
or has not been issued & the issuer company has sought withdrawal of the credit rating.
2. The company have to apply for rating withdrawal to ICRA Nepal in writing.
3. The company whose debt instrument / program / Bank loan is rated is liquidated, the
credit rating is withdrawal by ICRA Nepal.
4. The company whose debt instrument/ program are rated does not cooperate and the
ICRA Nepal confirmed that rating being meaningless, then such rating may be
withdrawn.
5. If the term and condition of the rated debt instrument/program /Bank loan are changed
significantly following restructuring of debt with the consent of the majority of the
investors, ICRA Nepal may withdrawal the credit rating after reviewing it to factors in the
changed terms and conditions and others relevant information's.

58. PolicyonDefaultRecognition
When an entity fails to meet its debt servicing obligation in a timely manner, ICRA
Nepal use the policy of default recognition. It is based on the current banking norms and
regulatory provision.
ICRA Nepal definer the Default differently:
1. In case of borrowing program through market that have pre-defined repayment
schedule:-
• Missed or delayed payment y an entity in breach of the agreed terms of the
borrowing program.
2. In case of bank facilities:-
• Missed or delayed payment by an entity i breach of the agreed terms of the
loan facility more than 30 days. If they do not have pre-specified schedule,
• ICRA Nepal recognize default only on continuous and sustained overdraws.

59. 3. In case of commercial dispute:-
• In case the delay is primarily because of the wea liquidity position of the entity,
the delay in debt servicing is treated as a default.
• In case the liquidity position of the rated entity is comfortable such that it was in
a position to services all its debt obligation in a timely manner and the delay in debt
servicing is on a specific instrument on account of a bona-fide commercial dispute.
• it may impact the financial risk profile of the entity because of reason such
as invocation of certain covenants .

60. ImpactofDefaultOnCreditRating
•Upon a default, ICRA Nepal downgrade the rating for all the rated instruments to (ICRANP)
lD or (ICRANP)D, regardless of the magnitude of the default.
•However, if strong reason exist foe differentiating among the rating of the debt instrument
that is in default and that of the other debt instrument that aren't, the reason and
protective factors for such instrument, as assessed by ICRA Nepal, would have a critical
bearing on the rating of the other instrument may not be revised but suitable reviewed.
•The other debt instrument on which there is no default are senior to the debt in default
and the default probability of the senior debt is distinctly lower than that of the debt in
default.

61. Thank You