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POLICY ON CONFLICT OF INTEREST (Archive)

Part I: Policy on Managing Conflict of Interest

Infomerics Valuation and Rating Private Limited (IVRPL) is a Credit Rating Company accredited by RBI and licensed to operate as a Credit Rating Agency by SEBI. IVRPL provides rating services to a variety of sectors and clients. IVRPL adopts the best practices relating to transparency, disclosures and good governance.

IVRPL has established policies and procedures to effectively manage conflict of interests. The key lies in adequate disclosures and a strong governance architecture comprising codes of conduct and robust firewall mechanisms.

A. Managing Conflicts of Interest

i) How conflict of interest is avoided at Board level and with shareholders as well as affiliates (NREs).

IVRPL has a Code of Conduct for its employees, Directors and Rating Committee members and all are required to abide by the Code. Further the Directors, Rating Committee members and employees are to submit their annual declaration of their holdings to the Company.

Further, as per SEBI CRA regulations, none of the employee/directors of major shareholders can be employee/Director of IVRPL or a Rating Committee member of IVRPL.

Non-ratings activities: In line with SEBI directives, all non-rating businesses have been separated from IVRPL to its subsidiary Infomerics Analytics and Research Pvt. Ltd. (IARPL).

ii) Avoidance of conflict of interest at Rating Committee level

The External Rating Committee (ERC) and Rating Review Committee (RRC) of IVRPL comprise majority independent members.

ERC: Apart from Chief Rating Officer (CRO), all the other members of both ERCs are independent. These independent members are experienced professionals from the banking sector. The details of external rating committee members are available on IVRPL’s website and in company brochures. All ERC members are appointed in their professional capacity. A disclosure of interest is taken from each ERC member about the companies/entities in which he/she is interested as a director or in any other capacity. If any of the members is interested in a rated entity, the agenda papers for such entity are not sent to him/her and he/she does not participate in the discussion while assigning the rating and such fact is also disclosed in all the publications including the rating note and the press release.

RRC: Our Rating Review Committee comprises majority independent members. If any of the members is interested in a rated entity, the agenda papers for such entity are not sent to him/her and he/she does not participate in the discussion while assigning the rating and such fact is also disclosed in all the publications including the rating note and the press release.

iii) Independence at organisational level:

At the organization level, IVRPL has independent teams handling business development activities and separate analyst teams handling rating activities. In terms of hierarchy, the business development and rating organization are vertically separated. While the CEO handles

the business development activities and heads the function, the rating activities are headed by the CRO who reports directly to the Rating Sub Committee of the Board. The business development team has no say in the rating process or outcome of the rating. Further, IVRPL has in place a quality control and monitoring team which is independent of the team handling the rating assignment. Select rating notes prepared in connection with initial rating assignments are independently reviewed by this team before being considered by the Rating Committees.

iv) Independence at individual level

The Analyst team handling the rating assignment is independent of the business development team and is not involved in any form of negotiation for rating fee.
Rating analysts’ compensation comprises a largely fixed component. There is no linkage between the analyst’s compensation and the rating fees paid by issuers. This ensures that there is no potential conflict of interest faced by the team undertaking the rating assignment. In respect of the variable compensation, IVRPL has a well-defined set of parameters for performance evaluation which are not related to rating revenue.
If any employee has made any investment in its personal capacity or through its family members in any companies/entities, then he/she must disclose details of all his/her investments to the Compliance Officer; and based on the same, the Company shall ensure that such Employees are not involved in any of the credit rating assignments of that companies/entities, in which such employees is having his/her investments.
Any employee, who is involved in any credit rating activities, shall not be involved in any non-rating activities.
Employee independence is ensured by the process established at IVRPL wherein the analyst presents his/her analysis on the case through the Rating note and is free to air his/her views on the cases handled during the rating committee meetings.
Further, IVRPL does not permit soliciting of gifts or acceptance of gifts in return of favours/ preferential treatment of any kind. IVRPL has a “No Gift Policy” which is published in the intranet and the website and forms part of the Operations Manual.

a) Restrictions on Employees

The Company shall ensure that if any employee or any family members of such employee has any kind of investment in any rated entity, the Company will not approve or allow to participate such employee in any credit rating activities of that rated entity, in which such employee is having his/her investments.
If any employee (individually or through his/her family member) owns any securities (including derivatives of securities) of any entity related to a Rated Entity, the ownership of which either constitutes a conflict of interest or creates the impression of a conflict of interest that Company deems to be unacceptable, such employee(s) shall not be involved in any credit rating activities of that particular entity.
The Company shall not allow any employee in any credit rating activities, if such employee had a recent employment or other significant business relationship with the rated entity.
The Company shall not allow any employee in any credit rating activities, if that employee had an immediate relation (i.e., a spouse, partner, parent, child or sibling) who works for the rated entity in circumstances where this employment relationship either constitutes a conflict of interest or creates the impression of a conflict of interest that IVRPL deems to be unacceptable.

b) Procedures And Controls to Managing Conflicts of Interests

The procedures and controls that the Company follows to manage the identified conflicts of interests include the following:

All the Employees (who are involved in Credit Rating activities) and the Board of Directors of the Company, shall submit a Declaration Form stating the details of their investments and any instances of conflict of interest.
Chinese walls restricting flow of confidential and price sensitive information within the Company, physical separation of departments and sharing of information only on a “need to know basis”.
Appointment of Independent Internal auditors to ensure that appropriate systems and controls are maintained and their effectiveness or otherwise is being reported to the Company’s Board of Directors.
Personal account dealing requirements applicable to Employees in relation to their own investments needs an approval from the Compliance Team by submission of an Investment Request Form.
The Board of Directors of the Company and the Compliance team share the responsibility for keeping the Policy in place. Any situation or transaction involving an actual or potential conflict of interest should promptly be reported to the Compliance Team who would determine whether a conflict exists.

c) Non-Compliance And Consequences

In case of (a) failure by the Employees to comply with this Policy, or (b) failure to provide Declaration, or (c) in case of concealment of information(s), or (d) violation of the Restrictions, the Board of Directors may take appropriate disciplinary action against such Employees, including dismissal from employment. In addition, with respect to certain Policy requirements the Employee may also be subject to personal civil and criminal liability, subject to consideration from the Board.
Employees who find that they have violated this Policy must inform the Compliance Team promptly. Similarly, Employees who become aware of a violation of this Policy must also inform Compliance Team promptly. Company prohibits retaliation against Employees who in good faith report an actual or potential violation of this Policy.
In the event of a conflict of interest that arises through a violation of this Policy, the Board of Directors, in consultation with Compliance Team, must determine whether there is a possibility that the objectivity of a rating was impacted and whether there are grounds for withdrawing the rating. In cases where it is possible that the objectivity of a rating was impacted, the rating must be reviewed by a rating committee.

d) Disclosure And Evaluation of Conflicts

Each Employee shall fully disclose all material facts of every actual or potential conflict of interest:

Existing at the time when he/she becomes an Employee; or
That arises while he/she is an Employee, at the time such actual or potential conflict arises; and
Through the “Conflict of Interest Declaration” to the Compliance Officer, who would keep the records of all such Employees and will periodically review the same. All disclosures made to the Compliance Officer (who shall disclose his/her conflicts to the Board), will maintain such data and shall ensure that Company does not allow such Employees to involve in any Credit Rating activities, who are under any conflict of interest.

B. Transparency And Disclosure

IVRPL believes that transparency and adequate disclosure about its businesses, practices and rating criteria enable the market to assess a rating agency’s integrity. IVRPL makes the following disclosures to affirm that integrity of the ratings is not being compromised on account of business considerations:

Rating criteria: IVRPL’s rating criteria are disseminated through its website, publications, and investor discussions. IVRPL has published criteria for all the major business segments in the corporate, infrastructure and financial sectors.
Rationale for each rating: Rating Rationales for all the ratings assigned by IVRPL are publicly available. IVRPL’s analysts are also accessible for discussions on the rationale of any rating.
Default and transition data: IVRPL publishes its default and rating transition data in line with SEBI guidelines.

C. Non-Rating Entities

Infomerics group has the following Non-Rating Entities (NREs)

Infomerics India Foundation (IIF), which has been formed as an advisory/policy making body to give guidance to the Infomerics group on various aspects. IIF, comprising individuals of eminence, is an ‘NGO’ with Governing body and steering committee in policy making and direction.
Infomerics Analytics and Research Pvt Ltd (IARPL) is a 100% subsidiary of IVRPL, which has been established for rendering services in the field of grading, scoring, analysis, evaluation, certification and appraisal. IARPL meets a variety of business research needs with credible, high-quality research and analysis on various facets of the Indian economy and industries. IARPL does not participate in any rating related activities and does not use the rating symbols used by IVRPL in any of its products.

Apart from the above, the following entities (which are not into the same line of business) have Directors who are common with IVRPL.

HLM Associates & Consultants Private Limited
Fidelity Growth Fund Private Limited
Bandel Cheese Private Limited
V Malik & Associates

Details of common directors and CEOs are furnished on the website.

Mode / Permanency of arrangement

Other companies are not in related line of business.

Part – 2: Firewall Policy

Physical separation of non-ratings and ratings activities: The teams handling ratings and non-ratings businesses are physically separated where feasible (in larger offices) while in smaller offices, they may share the same office. Office premises are separated for business development teams and analytical teams. In terms of hierarchy, the business development and rating organization are vertically separated. While the CEO handles the business development activities and heads the function, the rating activities are headed by the CRO who reports directly to the Rating Sub Committee of the Board.
No non-ratings employee is a member of IVRPL’s internal rating committee.
No non-ratings employee is allowed access to Rating Committees
Firewall policy to regulate information transfer: IVRPL has put in place a firewall policy to ensure that the ratings and non-ratings businesses do not have access to each other’s non-public information.

IVRPL remains committed to taking all the necessary steps to insulate its ratings activity from any emerging situation that could create a potential conflict of interest.

Disclaimer: By making this document available to the public, IVRPL does not assume any responsibility or liability to any third party arising out of or relating to the contents of this document. This document shall not form a part of any contract with any third party and no third party shall have any right (contractual or otherwise) to enforce any of this document's provisions, either directly or indirectly. IVRPL in its sole discretion may revise the contents of this document to reflect changes in market, legal, economic and regulatory circumstances and changes to IVRPL's controls, policies and procedures.

Approved in the BM dated 28th December 2022

____________________________________________________________________________________________________________________________________________________________________________

Infomerics Valuation and Rating Private Limited (herein after referred to as “Infomerics”) is an analytical company providing Ratings and Research services. Infomerics shall adopt the best practices relating to transparency, disclosures and good governance. In keeping with this tradition, Infomerics is pleased to present to all its stakeholders its approach on managing conflicts of interest.

Infomerics has established policies and procedures to effectively manage conflict of interests. The key lies in adequate disclosures and a strong governance architecture comprising codes of conduct and robust firewall mechanisms. This document outlines the nature of the conflicts that Infomerics faces and its treatment of them.

NATURE OF THE CONFLICT

THE GENERIC CONFLICT OF INTEREST INHERENT IN THE "ISSUER PAYS" RATING BUSINESS MODEL

In this business model there is an apprehension that a rating agency may assign higher ratings than warranted in order to increase its revenues from the issuer. However, the benefits of the ‘issuer pays’ model far outweigh any other business model such as investors or regulators paying for ratings as enumerated hereunder.

Ratings are a tool to enhance transparency and efficiency in the debt securities market. A model in which investors pay for the ratings would lead to a situation where ratings would enable some investors (subscribers) to price debt securities correctly. In contrast, the ‘issuer-pays’ model, where ratings are in the public domain and the information is available to the market as a whole, facilitates the functioning of an efficient market. Hence, the latter approach is preferable as it avoids asymmetry of information between various market participants.

In a ‘regulator pays’ business model, typically, the regulator will only specify minimum standards for rating agencies. In the current model, research quality standards are determined by market demands while investor needs provide the impetus for improving analytical practices. The continuous improvements in analytical standards that are being witnessed today may thus be impaired in a ‘regulator pays’ model, which may ultimately reduce the flow of information to the financial markets.

Given these limitations of the investor or the regulator paying for ratings, the ‘issuer pays’ model has, over time, been accepted globally, and in India, as the most efficient and sustainable business model.

Infomerics believes that the success of the ratings business model is driven by the credibility enjoyed by the agency in the eyes of investors. Any attempt to assign higher than warranted ratings to issuers will result in a clear loss of credibility. This, in turn, will erode the rating agency’s future business from issuers. Hence, this is a strong disincentive for rating agencies to let conflicts of interest undermine their rating decisions.

While conflicts of interest do exist, the onus is on the rating agency to manage these conflicts effectively and to reassure all its stakeholders of its ability to do so

MANAGING SUCH CONFLICTS

Managing conflicts lies in adequate disclosure, effective codes of conduct, and strong firewall mechanisms. The measures taken by Infomerics in each of these areas are outlined below:

A) TRANSPARENCY AND DISCLOSURE

Infomerics believes that transparency and adequate disclosure about its businesses, practices and rating criteria enable the market to assess a rating agency’s integrity. Infomerics makes following disclosures to affirm that integrity of the ratings is not being compromised on account of business considerations:

i. Non-ratings activities: In its financial results, Infomerics discloses its non-ratings businesses and their revenues.

ii. Measures to avoid conflict of interest: Infomerics discloses the measures that it takes to avoid conflicts of interest. In case Infomerics and the issuer have any common independent directors or Rating Committee members, such directors/rating committee members do not participate in the Rating Committee Meeting and rating process. A disclosure to this effect is also made with the announcement for the rating and the credit rating report.

iii. "Issuer Pays" model: Infomerics publicly discloses the fact that the issuer pays for the ratings.

iv. Multi-layer process: Each Infomerics rating has to pass through multiple iterations in the analytical process and is then brought up before a rating committee comprising eminent and experienced professionals. This ensures that individual biases or shortcomings, if any, do not colour INFOMERICS’s rating opinions.

v. Rating criteria: Infomerics’ rating criteria are disseminated through its website, publications and investor discussions. Infomerics has published criteria for all the major business segments in the corporate, infrastructure and financial sectors.

vi. Rationale for each rating: Rating Rationales for all the ratings assigned by Infomerics are publicly available. Infomerics’ analysts are also accessible for discussions on the rationale of any rating.

vii. Default and transition data: Infomerics publishes its default and rating transition data.

B) CODE OF CONDUCT

i. Rating fees are not in any way linked to issue success or rating level: Infomerics’ rating fees are decided upfront before the rating exercise commences. The fee payable to Infomerics is in no way linked to the rating that is assigned to the instrument nor is there any linkage with the potential success or failure of the proposed issue.

ii. Separate business development, criteria and analytical teams: Infomerics has separate teams for business development and for executing rating assignments. This ensures that business pressures do not in any manner influence the teams involved in developing rating criteria and in assigning the rating.

iii. Analyst compensation is not linked to rating fees: There is no linkage between the analyst’s compensation and the rating fees paid by issuers. This ensures that there is no potential conflict of interest faced by the team undertaking the rating assignment.

iv. Team approach to avoid individual bias: Infomerics ensures that all rating assignments are conducted in teams. This ensures that there is always a second opinion and that individual biases, if any, do not influence the rating committee’s decision. Infomerics has an external Rating Committee comprising senior professionals who have no relations with the business/revenue of the Company, for considering investment grade cases, Internal Rating Committees for Non-Investment grade cases and Rating Review Committee for considering appeals. The ‘team approach’ eliminates bias in the ratings assigned.

v. Ethical business development: The business development function within Infomerics aims at developing highest ethical standards. Rating mandates are not solicited by promising specific ratings to issuers. Further, the fees for the rating assignment is collected upfront, before the rating proposals are put up to the respective rating committees.

C) FIREWALLS

i. Physical separation of non-ratings and ratings activities: The ratings and non-ratings businesses have firewalled office premises and separate business development teams and analytical teams.

ii. Firewall policy to regulate information transfer: Infomerics has put in place a rigorous firewall policy to ensure that the ratings and other verticals do not have access to each other’s non-public information.

iii. No non-ratings employee is allowed access to rating committees

Infomerics remains committed to taking all the necessary steps to insulate its ratings activity from any emerging situation that could create a potential conflict of interest. This document is available without charge to the public on Infomerics’ public website, www.infomerics.com.

However, by making this document available to the public, Infomerics does not assume any responsibility or liability to any third party arising out of or relating to the contents of this document. This document shall not form a part of any contract with any third party and no third party shall have any right (contractual or otherwise) to enforce any of this document's provisions, either directly or indirectly. Infomerics in its sole discretion may revise the contents of this document to reflect changes in market, legal, economic and regulatory circumstances and changes to Infomerics' controls, policies and procedures.

*Policy on Conflict of Interest (Version II) is approved in the BM dated 01st February 2022.

Last Updated - February 2022

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Infomerics Valuation and Rating Private Limited (herein after referred to as “Infomerics”) is an analytical company providing Ratings, Research, Risk and Policy Advisory services. Infomerics shall adopt the best practices relating to transparency, disclosures and good governance. In keeping with this tradition, Infomerics is pleased to present to all its stakeholders its approach on managing conflicts of interest.

NATURE OF THE CONFLICT

A) THE GENERIC CONFLICT OF INTEREST INHERENT IN THE "ISSUER PAYS" RATING BUSINESS MODEL

b) Conflict of interest induced by non-rating engagements with issuers Advisory or research engagements with rating clients could lead to more favourable ratings being assigned in order to increase revenues for the advisory or research businesses.

Non-ratings businesses (such as advisory or research activity) enhance the quality of the ratings activity by providing a separate revenue stream to cushion against any volatility in the ratings business income and thereby reducing the pressure on ratings activity. It enables the agency to enrich its knowledge and information base and thereby enhancing the quality of its credit rating opinion.

While conflicts of interest do exist, the onus is on the rating agency to manage these conflicts effectively and to reassure all its stakeholders of its ability to do so

MANAGING SUCH CONFLICTS

Managing conflicts lies in adequate disclosure, effective codes of conduct, and strong firewall mechanisms. The measures taken by Infomerics in each of these areas are outlined below:

A) TRANSPARENCY AND DISCLOSURE

i. Non-ratings activities: In its financial results, Infomerics discloses its non-ratings businesses and their revenues.
ii. Measures to avoid conflict of interest: Infomerics discloses the measures that it takes to avoid conflicts of interest. In case Infomerics and the issuer have any common directors, such directors do not participate in the Rating Committee Meeting and rating process. A disclosure to this effect is also made with the announcement for the rating and the credit rating report.

iii. "Issuer Pays" model: Infomerics publicly discloses the fact that the issuer pays for the ratings.

v. Rating criteria: Infomerics’s rating criteria are disseminated through its website, publications and investor discussions. Infomerics has published criteria for all the major business segments in the corporate, infrastructure and financial sectors.

vi. Rationale for each rating: Rating Rationales for all the ratings assigned by Infomerics are publicly available. Infomerics’s analysts are also accessible for discussions on the rationale of any rating.

vii. Default and transition data: Infomerics publishes its default and rating transition data.

B) CODE OF CONDUCT

i. Rating fees are not in any way linked to issue success or rating level: Infomerics’s rating fees are decided upfront before the rating exercise commences. The fee payable to Infomerics is in no way linked to the rating that is assigned to the instrument nor is there any linkage with the potential success or failure of the proposed issue.

ii. Separate business development, criteria and analytical teams: Infomerics has separate teams for business development, for developing criteria, and for executing assignments. This ensures that business pressures do not in any manner influence the teams involved in developing rating criteria and in assigning the rating.

iii. Analyst compensation is not linked to rating fees: There is no linkage between the analyst’s compensation and the rating fees paid by issuers. This ensures that there is no potential conflict of interest faced by the team undertaking the rating assignment.

iv. Team approach to avoid individual bias: Infomerics ensures that all rating assignments are conducted in teams. This ensures that there is always a second opinion and that individual biases, if any, do not influence the rating committee’s decision.

v. Ethical business development: The business development function within Infomerics aims at developing highest ethical standards. Rating mandates are not solicited by promising specific ratings to issuers.

C) FIREWALLS

i. Physical separation of non-ratings and ratings activities: The ratings and non-ratings businesses have firewalled office premises and separate business development teams and analytical teams. In fact, the separation of the ratings businesses from other businesses exists right through the business hierarchy with separate division heads for the ratings and non-ratings businesses.

ii. Firewall policy to regulate information transfer: Infomerics has put in place a rigorous firewall policy to ensure that the ratings and non-ratings businesses do not have access to each other’s non-public information.

iii. No non-ratings employee is a member of Infomerics’s rating committee.

iv. No non-ratings employee is allowed access to rating committees

POLICY ON MANAGING CONFLICT OF INTEREST AND FIREWALL POLICY

POLICY ON CONFLICT OF INTEREST (Archive)