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Ratings devoid of lenders detail should be treated as unrated exposure: RBI

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In a move that may put pressure on the capital adequacy of banks, the (RBI) on Monday said loan ratings without information about lenders’ details should be treated as unrated exposure.


Capital should be set aside using risk weightings applicable for unrated exposure to companies and non-banking finance


companies.


The said these instructions would be effective on March 31, 2023. Thus, any burden on account of higher capital charges will be in the current financial year (FY23).


The press releases (PRs) issued by external credit assessment institutions (ECAI) on ratings often do not have lenders’ details.

This is despite the regulator’s communication in June last year on giving the names of the and the corresponding credit facilities by August 31, 2021, after obtaining consent from borrowers.


These disclosures are not available in communications issued by ECAIs owing to the absence of borrowers’ consent, the said. This may result in applying risk weightings without satisfying themselves regarding adherence to prescribed conditions. This can, consequentially, lead to potentially lower provisions of capital as well as underpricing risks.


Under Basel III capital regulations, derive risk weightings for unrated exposures based on ratings for a specific rated debt subject to certain conditions.


The bank’s facility ranks on a par (aka pari passu) or senior to the specific rated debt in all respects.


The maturity of the unassessed claim is not later than the maturity of the rated claim, the said.

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