The Hindu Business Line : ‘Basel II norms positive for debt market development’

Mumbai, May 5 The new norms for capital adequacy framework under Basel II are positive for the development of debt market, as it would encourage more companies, said rating agency Crisil in a report released on Monday.

According to the report, the new ratings assigned by Crisil in 2007-08 were more than the sum of those assigned in the earlier four years. This increase was driven by the rapid growth in bank loan ratings (BLRs).

In the just-ended fiscal, Crisil rated bank facilities of Rs 192,000 crore — representing close to one-eighth of the Indian banking system’s corporate exposure.

Close to 60 per cent of the newly assigned long term BLRs are in the ‘A’ and ‘BBB’ rating categories.

These are companies that have been in existence for several years and have been repaying their bank loans regularly. However, they have not been accessing the corporate debt market as investors were not aware of their repaying capacity and portfolio, and hence, not interested in their commercial paper and bond issuances, said Mr N. Muthuraman, Director, Rating Criteria and Product Development.

But as more such companies get their bank loan facilities rated, investors like mutual funds and pension funds will have access to information about them. This will give the investors a sense of comfort about the debt servicing capabilities of these companies. “It is a question of the market getting familiar,” Mr Muthuraman said.

The bond market’s minimal appetite for risk has been one of key reasons for it remaining small and under-developed. The addition of the new ‘A’ and ‘BBB’ category ratings in large numbers is expected to give the Indian bond market a much-needed boost, the report said.

“The RBI regulation has acted as a catalyst for the debt market,” Mr Muthuraman said.

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