Fitch Assigns Sundaram Finance Ltd's Bank Loan Programmes<@SM>'AA+(ind)' Ratings; Outlook Stable

The following is a press release from Fitch Ratings:

Fitch Ratings-London- 29 February 2008: Fitch Ratings has today assigned aSundaram Finance Ltd (SFL) a National Long-term rating of 'AA+(ind)' with StableOutlook and a National Short-term rating of 'F1+(ind)'. At the same time, theagency has assigned SFL's INR10.5bn Long-term bank loan (term loan) programme aNational Long-term rating of 'AA+(ind)' with Stable Outlook to and its INR6bnShort-term bank loan programme a National Short-term rating of 'F1+(ind)'.

SFL's ratings are supported by its well-established franchise, "best in class"asset quality in the vehicle loan segment and reasonable financial flexibility,while taking into account its lower profitability compared with peer non-bankingfinance companies (NBFCs) and industry/geographical concentration in its lendingbusiness.

SFL's credit processes combine market/customer knowledge with constantmonitoring and follow-ups, which have enabled it to control delinquencies (90dpd:1.06% in FY07) through industry cycles. Given these strengths, Fitch doesnot expect significant deterioration in SFL's asset quality ratios over the next12-18 months, even as the environment becomes more challenging.

SFL has better financial flexibility amongst peer NBFCs due to its strongdeposit franchise in south India and long standing banking relationships. Whilethe company has a fixed-rate loan portfolio, asset liability tenors are fairlywell matched.

Given its focus on the new commercial vehicle and car finance market, whichhas relatively lower yields (on the back of lower delinquencies), SFL's ROA (FY07:1.6%; annualised 9M08: 1.86%) lags behind that of NBFCs with a higherunsecured portfolio and is likely to remain so in the near-term as SFL's coremarket is now dominated by banks with lower funding costs. ROA would get furtherdepressed (by 20-30 basis points) if the up-front assignment income from the bi-lateral sale of receivables is amortised in line with securitisation guidelines.That said, SFL has developed a reasonable fee stream. Given the investmentsbeing made in non-fund based income generation through Sundaram Direct, thisshould support ROA.

The company's capital position (reported 9M08 CAR: 14.7%) was strengthened bythe INR0.99bn profit in November 2007 from the sale of part of the equity in itssubsidiary Sundaram Housing Finance. SFL has other unrealised gains (approximately INR3bn) on its investments and can also issue tier II capital tofurther strengthen capital. Till then, the company's growth could be constrainedas its current internal capital generation levels are lower than most NBFCs.

SFL (established in 1954) is one of the oldest NBFCs in India, and primarilyfinances new commercial vehicles (around 60% of loans) and passenger cars (about30% of loans). It also has joint ventures with BNP Paribas in asset managementand housing finance, as well as with Royal & Sun Alliance in general insurance.SFL has a strong asset franchise and a reasonable deposit franchise in SouthIndia (around 70% of business), and operates through 183 lending branches. Inaddition, the company set up a financial product (insurance, mutual funds)distribution division under the name Sundaram Direct in 2004. This rapidlyexpanding franchise (150 branches as of December 2007, expected to expandfurther) sells products for a number of national and multinationalintermediaries, including SFL's own associates, and also originates leads forlending business. SFL is listed on major national stock exchanges.

Contacts: Arshad Khan, Mumbai, Tel: +91 22 4000 1733; Chintan Doshi, +91 224000 1775; Ananda Bhoumik, +91 22 4000 1720.

Media Relations: Shivani Sundralingam, Singapore, Tel: + 65 6796 7215.

Note to editors: Fitch's National ratings provide a relative measure ofcreditworthiness for rated entities in countries with relatively lowinternational sovereign ratings and where there is demand for such ratings. Thebest risk within a country is rated 'AAA' and other credits are rated onlyrelative to this risk. National ratings are designed for use mainly by localinvestors in local markets and are signified by the addition of an identifierfor the country concerned, such as 'AAA(ind)' for National ratings in India.Specific letter grades are not therefore internationally comparable.

Fitch's rating definitions and the terms of use of such ratings are availableon the agency's public site, www.fitchratings.com. Published ratings, criteriaand methodologies are available from this site, at all times. Fitch's code ofconduct, confidentiality, conflicts of interest, affiliate firewall, complianceand other relevant policies and procedures are also available from the 'Code ofConduct' section of this site.

(END) Dow Jones Newswires 02-29-08 0715ET Copyright (c) 2008 Dow Jones & Company, Inc.