Title: Doing what is right: The CRISIL Story
Authors: Hemanth Gorur & Sumit Chowdhury
Publication date: December 2012
Pages: 168, Hardbound
Price: Rs. 295
Publisher: Westland Ltd
Doing what is right: The CRISIL Story traces the company’s growth in the past 25 years. It tells the unique story of a small credit rating company that made it “big” against all odds. Founded in the late 1980s, offering a credit rating service that had no takers, and without any real assets or capital, CRISIL seemed destined to fail. Instead, it became one of India’s most imminent companies—from being India-focused to playing a quiet but critical role in global markets. The book is also a story of CRISIL’s remarkable leaders, who brought it all together over a quarter of a century. It aims to shows that doing well can go hand in hand with doing what is right.
CRISIL was India’s first credit rating agency formed to rate debt instruments and to help investors in benchmarking risk versus returns. When CRISIL started operations, the Indian capital markets were regulated. Capitalism was the poor cousin of well-entrenched socialist regime. Getting a business-to-business enterprise off the ground was all getting a license and managing the system. The business environment was very promoter-centric, while liberalization was the new buzzword and was a much-anticipated phenomenon. CRISIL was one of the first ideas to ride that wave. It was different in the sense that it had no promoter.
In 1991, CRISIL had already rated 165 debt instruments worth Rs. 42 billion, including fixed deposits, debentures and commercial paper. CRISIL, today stands as a Rs. 8-billion global analytical company with research centres in Argentina, China, Poland, the US and UK. CRISIL Research is India’s largest independent research house covering nearly 70 industries and 150 corporations and serving more than 1,200 Indian and global clients.
“Setting up anything like CRISIL in the Indian markets was always tough. You can always follow a leader, improve and then grow faster. But to get acceptance in the role of a pioneer is the most challenging part. CRISIL had to do this because it was the first of its kind,” Milind Barve, MD, HDFC Asset Management Company, said.
CRISIL was established by bankers Narayanan Vaghul (then with ICICI) and Pradip Shah (then with HDFC) in 1987. N Vaghul—the brain behind the idea of CRISIL—has been most forthcoming with his reminiscences of the genesis of CRISIL and this lent context to the story. Pradip Shah—the moving force behind an unknown start up called CRISIL—stands out of his ability to relive those days of early hardship with amazing alacrity. GSRK Rao—one of the earliest members of the CRISIL core team—comes in for the special mention for an account of the initial days and for a constant stream of anecdotes that have enhanced the liveliness of the narrative.
Ravi Mohan, at the helm from 1995-2007, initiated the diversification process, which is skillfully being carried through by Roopa Kudva, the current MD and CEO. The book is a collaborative effort of many people. As CRISIL grew over the years, many things changed. The company’s business lines diversified. Its customer base grew and its global footprint expanded and leaders changed.
The interviews for the book were done by Sumit Chowdhury, while Hemanth Gorur authored the book. Several leading personalities have spoken to the authors and shared their anecdotes of their association with CRISIL. These include UK Sinha, Chairman, SEBI, KV Kamath, Chairman, Infosys, Ishaat Hussain, Director, Tata Sons and Chanda Kochhar, MD & CEO, ICICI Bank.
CRISIL adopted unusual mechanisms to weave together the complementary yarns of independence, credibility and analytical rigour more firmly into the fabric of the organisation. For instance: Young analysts visiting clients facilities were instructed not to get carried away by the customer’s stature or office interiors. Neither were they permitted to receive even a pen as a gift from the client. Each analyst team that went to the client site had a backup that did not visit the client facility by design, in order to provide a balanced and unbiased perspective. “Ratings are pure. I will never go out and sell a rating,” Mr Pradip Shah said.
“Over business is a business of confidence, Avers Bhargava, board member of CRISIL pointed out. Rating fees were charged upfront and the fee was paid by the client for the rating services, not the rating itself. CRISIL looked at each rating exercise as a matter of weighing up the client who had paid to be rated against the investor who used the rating to make an investment and pricing decision with respect to the debt instrument rated. Invariably, the latter won.
CRISIL ensured that the analytical teams were separated from the business development teams to isolate them from market pressures. A series of domestic and global acquisitions followed, prominent among them being INFAC, a domestic research company acquired for Rs. 70 million in 2000 and Irevna, a Chennai-based research and analytics offshore company, acquired for Rs. 430 million in 2004. The INFAC acquisition was strategic since it supported the existing ratings, advisory and analytics business and marked the turning point of CRISIL.
The run-up to Standard & Poor’s acquisition in 2005 is thoroughly fleshed out as is CRISIL’s string of acquisitions to establish a global footprint. These acquisitions not only transformed CRISIL but also marked its explosive growth. The acquisitions were one of its measures to diversify into non-rating businesses and hence reduce dependence of CRISIL on ratings.
CRISIL also launched India’s first rating service for SMEs (small and medium enterprises) in 2005. In 2009, the company launched its independent equity research. At around the time Roopa Kudva took over the reins of the company in 2007, CRISIL was expanding geographically on a war footing. New locations and centres were being made operational with alacrity and speed. By 2011, ratings as a business contributed 40% of CRISIL’s top-line, a far cry from the early days when it was the flagship and the only business. Global revenues from its research and analytics business had increased to more than half of the organisation’s overall revenues.
The book narrates the story behind the success of CRISIL which today is a global analytical company providing ratings, research, and risk and policy advisory services. ‘Doing what is right: The CRISIL Story’ will make investors, markets and even lay readers see CRISIL in a new light. The book is an excellent read.
Sumit Chowdhury is the founder director of My Life Chronicles. An alumnus of the Indian Institute of Management Bangalore, he has worked with corporates like Infosys, Honeywell and SAIL. He gave up his corporate life to give shape to his passion – story telling.
Hemanth Gorur is an alumnus of the Indian Institute of Management Calcutta. He is an author, biographer and published columnist. Hemanth’s corporate career has spanned multinational giants such as IBM, PwC, and Siemens. He is presently director and chief writer at My Life Chronicles.
Westland Ltd is a subsidiary of Trent Ltd, the retail arm of the Tata group, the largest diversified industrial group in India. The group includes EastWest Books and Tranquebar Press. The company publishes literary as well as commercial fiction and non-fiction, and is engaged in both the publishing and distribution of books. After more than 50 years of experience in import and distribution of major academic and English language trade publications from all over the world, Westland’s focus has shifted to publishing in the last few years. Today, Westland is the fifth-largest English-language trade publisher in India and has published a host of bestsellers.