Rationale and key rating drivers

ICRA has reaffirmed the rating of [ICRA]AAAmfs for Aditya Birla Sun Life Corporate Bond Fund, Aditya Birla Sun Life Income Fund and Aditya Birla Sun Life Banking & PSU Debt Fund, Aditya Birla Sun Life Money Manager Fund, Aditya Birla Sun Life Savings Fund, Aditya Birla Sun Life Low Duration Fund and Aditya Birla Sun Life Floating Rate Fund, and [ICRA]AA-mfs for Aditya Birla Sun Life Short Term Opportunities Fund. ICRA has also reaffirmed the rating of [ICRA]A1+mfs for Aditya Birla Sun Life Liquid Fund and Aditya Birla Sun Life Overnight Fund. ICRA has also removed Aditya Birla Sun Life Short Term Fund from rating watch with negative implications. The reaffirmation of ratings of the debt schemes follows ICRA's monitoring of the credit risk profile of the month end portfolio position for these schemes for the last 12 months. The credit risk scores for these schemes were comfortably within the benchmark limits for their current level of ratings. The rating of Aditya Birla Sun Life Short Term Fund (ABSLSTF) was downgraded and placed on ‘rating watch with negative implications' on account of exposure to IL&FS special purpose vehicle (SPV) namely Jharkhand Road Projects Implementation Company Limited (JRPICL) coupled with uncertainty over resolution allowing the IL&FS SPVs to meet their financial obligations. Despite presence of a ringfenced payment waterfall mechanism as detailed in the escrow agreement, JRPICL had not met its financial repayment obligations. As per the National Company Law Appellate Tribunal (NCLAT) order dated February 11, 2019, JRPICL had been categorised as ‘Amber Entity1 '. However later in CY2019, the entity was reclassified as ‘Green Entity2 ', following which it has been regular in servicing its repayment obligations. Based on clarity from the NCLAT with respect to debt servicing by JRPICL, the rating of ABSLST is being removed from ‘rating watch with negative implications'. The rating indicates ICRA's opinion on the credit quality of the portfolios held by the funds. The rating does not indicate the asset management company's (AMC) willingness, or ability, to make timely payments to the fund's investors. The rating should not be construed as an indication of the expected returns, prospective performance of the mutual fund scheme, NAV or of volatility in its returns. ICRA's mutual fund rating methodology is based on evaluating the inherent credit quality of the fund's portfolio. As a measure of the credit quality of a debt fund's assets, ICRA uses the concept of “credit scores”. These scores are based on ICRA's estimates of the credit risk associated with each exposure of the portfolio taking into account its maturity. To quantify the credit risk scores, ICRA uses its database of historical default rates for various rating categories and maturity buckets. The credit risk ratings incorporate ICRA's assessment of a debt fund's published investment objectives and policies, its management characteristics, and the creditworthiness of its investment portfolio. ICRA reviews relevant fund information on an ongoing basis to support its published rating opinions. If the portfolio credit score meets the benchmark of the assigned rating during the review, the rating is retained. In an event that the benchmark credit score is breached, ICRA gives a month's time to the debt fund manager to bring the portfolio credit score within the benchmark credit score. If the debt fund manager is able to reduce the portfolio credit score within the benchmark credit score, the rating is retained. If the portfolio still continues to breach the benchmark credit score, the rating is revised to reflect the change in credit quality.