The Hindu Business Line : Crisil releases first set of bank loan ratings

Mumbai, June 30 Crisil has assigned its first set of Bank Loan Ratings (BLRs) based on Basel II, the new regulatory framework on capital adequacy for banks. The banks will be able to use the ratings to determine risk weights for their loan exposures, said a press release from Crisil.

The new guidelines on capital adequacy issued by the Reserve Bank of India require banks to link the minimum size of their capital to the credit risk in their portfolios which is a departure from the present framework, under which banks calculate the minimum size of their capital as a proportion of the entire loan portfolio, regardless of the degree of credit risk.

The rating agency assigns BLR to various types of facilities provided by banks, such as working capital demand loans, cash credit, project loans, loans for general corporate purposes and non-fund based facilities. The ratings will be assigned on both long-term and short-term rating scales, similar to ratings for debentures and commercial paper respectively, said the release.

The criteria for assigning BLRs will be identical to the criteria applied for ratings on bonds and debentures, after taking into account features such as technical defaults and minor differences in defining due dates specific to bank facilities. Bank loan ratings indicate the degree of risk with regard to timely payment of interest and principal on the facility being rated. A corporate house with a bank loan rating will be able to improve the bargaining power with lenders to get lower interest rates and better credit terms and also showcase the rating to various counter parties and investors.

According to Mr Raman Uberoi, Senior Director, Crisil Ratings, “BLRs will help develop an active secondary market for bank loans, as they have done in many developed economies. These ratings also augur well for the development of the Credit Default Swap market, where ratings on the underlying reference obligations are indispensable.” Crisil has rated the bank facilities of Hero Honda Motors Ltd, Hero Honda Finlease Ltd, NTPC Ltd, Reliance Industries Ltd and Ultra Tech Ltd.

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