CRA

A credit rating agency (CRA, also called a Ratings Service) is a company that assigns credit ratings rating of the debtor's ability to pay back the debt by making timely interest payments and of the likelihood of default. An agency may rate the creditworthiness of issuers of debt obligations, the debt instruments,[1] and/or in some cases, the servicers of the underlying debt,[2] but not individual consumers. Debt instruments the agencies rate may include government bonds, corporate bonds, CDs, municipal bonds, preferred stock, and collateralized securities, such as mortgage-backed securities and collateralized debt obligations.[3] The issuers of the obligations/securities may be companies, special purpose entities, state and local governments, non-profit organizations, or sovereign nations.[3] A credit rating permitsor makes much more easythe trading of securities on a secondary market. A credit rating affects the interest rate a security pays out, with higher ratings leading to lower interest rates. Individual consumers are not rated for credit-worthiness by credit rating agencies, but by credit bureaus, or consumer credit reporting agencies, which issue credit scores. The value of such security ratings has been widely questioned. Hundreds of billions of securities given the agencies highest rating were downgraded to junk during the 200709 financial crisis.[4][5][6] Ratings downgrades during the European sovereign debt crisis of 201012 have been blamed by EU officials for accelerating the crisis.[3] Credit rating is a highly concentrated industry with the two largest CRAs Moody's Investors Service, Standard & Poor's having 80% market share globally, and the "Big Three" credit rating agencies Moody's, S&P and Fitch Ratings controlling approximately 95% of the ratings business.[3]

SPV
Securitisation offers higher quality assets to investors by virtue of the fact that the structures insulate investors from the bankruptcy risk of the Originator. In order to ensure that the assets actually achieve the bankruptcy remoteness, it is essential to move them out of the balance sheet of the Originator and park them with another independent entity. Typically an SPV is employed to purchase the assets from the Originator and issue securities against these assets. Such a structure provides a comfort to the investors that they are investing in a pool of assets which is held on their behalf only by the SPV and which is not subject to any subsequent deterioration in the credit quality of the Originator. The SPV is usually a thinly capitalised vehicle whose ownership and management are independent of the Originator. The main objective of SPV is to distinguish the instrument from the Originator In India too, Originator should have the same flexibility in choosing an appropriate legal structure for the SPV based on its individual requirements whether in form of a company, trust (with or without a company as a trustee), MF, a statutory corporation, a society, firm, etc., in short all possible forms of a business entity that is capable of being

formed. Consequently, the provisions of the parent law for incorporation of such entity, i.e., the Companies Act, Trust Act, the Partnership Act, etc. will apply to the formation of such SPVs. 7.3.2 While different forms of SPVs have evolved in various markets, Indian mortgage sector has taken cues from the US market. The securitisation SPV assumes a character different from a mere conduit in US. NHB has now taken upon itself the role similar to that being performed by Fannie Mae and Freddie Mac in the US. NHB is presently engaged in bringing to the market its pilot issue of MBS backed by mortgage pool of four Housing Finance Companies. The pilot issue has been under discussion for two years now and currently the structure and the modalities are being finalised by NHB. Based upon the experience of the issue, NHB is likely to take a longer view of what role it needs to play to give a fillip to the secondary mortgage market in India. Other players in the housing market like commercial banks, HUDCO, State housing boards etc. may also desire to participate in the secondary mortgages market as Originator or SPV or ancillary service providers. For this segment of the market, as well as the segment relating to issuance of ABSs, certain other kinds of SPVs would develop over a period of time. 7.4 Key features desired in an ideal SPV 7.4.1 Based upon the international practices as discussed in para 7.2 above, the WG came to the conclusion that an SPVshould, therefore, satisfy the following key characteristics: (a) An SPV must be capable of acquiring, holding and disposing of assets. (b) It would be an entity, which would undertake only the activity of asset securitisation and no other activity. (c) An SPV must be bankruptcy remote i.e. the bankruptcy of Originator should not affect the interests of holders of instruments issued by SPV. (d) An SPV must be bankruptcy proof. i.e. it should not be capable of being taken into bankruptcy in the event of any inability to service the securitised paper issued by it.

Priority sector lending

PRIORITY SECTOR LENDING Priority Sector lending includes lending to those sectors that impact large sections of the population, the weaker sections and the sectors which are employment-intensive such as agriculture, and tiny and small enterprises. The categories under priority sector include agriculture, micro & small enterprises, education, housing, export credit, and others. CATEGORIES OF PRIORITY SECTOR
(A)

Agriculture (Direct Finance) Direct Finance to agriculture includes short term and long term loans given for agriculture and allied activities (dairy, fishery, piggery, poultry, bee-keeping, etc.) directly to individual farmers, Self Help Groups (SHGs) or Joint Liability Groups (JLGs) of individual farmers without limit and to others (such as corporate, partnership firms, and institutions) upto certain limits for taking up agriculture/allied activities. Finance to others(corporate, partnership firms and institutions) Loans to corporate including farmers' producer companies of individual farmers, partnership firms and co-operatives of farmers directly engaged in Agriculture and Allied Activities, viz.,

dairy, fishery, animal husbandry, poultry, bee-keeping and sericulture (up to cocoon stage) up to an aggregate limit of 2 crore per borrowe Other Indirect Finance includes: Loans up to Rs.5 crore per borrower to dealers /sellers of fertilizers, pesticides, seeds, cattle feed, poultry feed, agricultural implements and other inputs. Loans for setting up of Agriclinics and Agribusiness Centres. Loans up to Rs. 5 crore to cooperative societies of farmers for disposing of the produce of members. Loans to Custom Service Units managed by individuals, institutions or organizations who maintain a fleet of tractors, bulldozers, well-boring equipment, threshers, combines, etc., and undertake farm work for farmers on contract basis. Loans for construction and running of storage facilities (warehouse, market yards, godowns and silos), including cold storage units designed to store agriculture produce/products, irrespective of their location. ( If the storage unit is a micro or small enterprise, such loans will be classified under loans to MSE sector). Loans to MFIs for on-lending to farmers for agricultural and allied activities as per the conditions specified in paragraph VIII of this circular. Loans sanctioned to NGOs, which are SHG Promoting Institutions, for on-lending to members of SHGs under SHG-Bank Linkage Programme for agricultural and allied activities. Loans sanctioned to RRBs for on-lending to agriculture and allied activities

Other activities Loans for food and agro processing will be classified under Micro and Small Enterprises, provided the units satisfy investments criteria prescribed for Micro and Small Enterprises, as provided in MSMED Act, 2006. The small and micro (service) enterprises also include small road & water transport operators, small business, professional & self-employed persons, and other service enterprises engaged in activities as listed in the Act and satisfy the investment in equipment criteria i.e. not exceeding Rs. 10 Lakh and Rs. 2 crore respectively . Finance granted by commercial banks to MSE sector (both mfg. and services) which satisfy the definition of MSMED Act 2006 are eligible for being classified under priority sector lending . Bank loans to Micro and Small Enterprises (MSE) engaged in providing or rendering of services will be eligible for classification as direct finance to MSE Sector under priority sector up to an aggregate loan limit of 5 crore per borrower/unit, provided they satisfy the investment criteria for equipment as defined under MSMED Act, 2006.

Micro Credit Loans of very small amounts, not exceeding Rs.50,000 per borrower provided directly by banks either to borrowers or indirectly through a SHG/JLG mechanism provided the borrowers household annual income in rural areas does not exceed Rs. 60,000/- and Rs. 120,000/- in non-rural areas. Loans outstanding under loans for general purposes under General Credit Cards (GCC). If the loans under GCC are sanctioned to Micro and Small Enterprises, such loans should be

classified under respective categories of Micro and Small Enterprises. Overdrafts, up to 50,000 (per account), granted against basic banking / savings accounts provided the borrowers household annual income in rural areas does not exceed .60,000/- and for non-rural areas it should not exceed 1,20,000/-. Loans sanctioned by banks directly to individuals for setting up off-grid solar and other off-grid renewable energy solutions for households. (D) State sponsored organization for SC/ST Advances sanctioned to State Sponsored Organisations for Scheduled Castes/ Scheduled Tribes for the specific purpose of purchase and supply of inputs to and/or the marketing of the outputs of the beneficiaries of these organisations. (E) Education Loans granted to individuals for educational purposes including vocational courses up to Rs. 10 lakh for studies in India and Rs. 20 lakh for studies abroad Loans granted to educational institutions which qualify under MSMED Act 2006 are eligible to be classified under priority sector under MSE (services) provided they qualify under MSMED Act 2006. (F)Housing Loans up to Rs. 25 Lakh in metropolitan centres with population above 10 Lakh and Rs. 15 Lakh in other centres to individuals for purchase/construction of a dwelling unit per family, excluding loans granted by banks to their own employees, w.e.f. 01.04.2011 (upto March 2011 the limit would be Rs. 20 Lakh). Loans given for repairs to the damaged dwelling units of families up to Rs. 2 Lakh in rural and semi-urban areas and up to Rs. 5 Lakh in urban and metropolitan areas Assistance given to any governmental agency for construction of dwelling units or for slum clearance and rehabilitation of slum dwellers, subject to a ceiling of Rs. 10 Lakh of loan amount per dwelling unit. Assistance given to a non-governmental agency/HFCs approved by the NHB for the purpose of refinance/on lending for purchase/construction/reconstruction of dwelling units or for slum clearance and rehabilitation of slum dwellers, subject to a ceiling of loan component of Rs. 10 Lakh per dwelling unit (Upto 24.04.2012 the ceiling would be Rs. 5 Lakh) The eligibility under priority sector loans to HFCs is restricted to five percent of the individual banks total priority sector lending, on an ongoing basis. The maturity of bank loans should be co-terminus with average maturity of loans extended by HFCs

Loans sanctioned by banks for housing projects exclusively for the purpose of construction of houses only to economically weaker sections and low income groups, the total cost of which does not exceed 10 lakh per dwelling unit,will qualify for priority sector status. For the purpose of identifying the economically weaker sections and low income groups, the family income limit of Rs.1,20,000 per annum, irrespective of location, is prescribed. (G)Weaker Sections : includes :Small and marginal farmers with land holding of 5 acres and less, and landless labourers, tenant farmers and share croppers; Artisans, village and cottage industries where individual credit limits do not exceed Rs. 50,000 and beneficiaries of National Rural Livelihood Mission (NRLM). SC and ST and DRI beneficiaries. Beneficiaries under Swarna Jayanti Shahari Rozgar Yojana (SJSRY) and Scheme for Rehabilitation of Manual Scavengers (SRMS); Advances to Self Help Groups and distressed poor to prepay their debt to informal sector.

Loans to distressed poor to repay their debt to informal sector against appropriate collateral or group security. Loans granted under (a) to (i) above to persons from minority communities as may benotified by Government of India from time to time. (H)Export creditapplicable for both domestic and foreign banks (less than 20 branches) as per the revised target mentioned.