ICRA to rate new instruments floated by SCBs

MUMBAI: Credit rating agency ICRA will undertake ratings of new instruments floated by scheduled commercial banks (SCBs) within the provisions of the new Reserve Bank of India (RBI) guidelines.

ICRA would communicate through notched-down rating of new instruments if they are in breach of regulatory capital adequacy, which implies relatively greater uncertainty and, thus, higher probability of default than the conventional instruments, the agency said in a release.

"Our policy is in line with the practice followed by international rating agencies", ICRA Chief Rating Officer Naresh Takkar said.

While in ICRA's view, no clause contained in the RBI guidelines necessitates rating differentiation between Lower Tier I and Upper Tier II for stronger banks, that was not the case with banks that have relatively weak credit profiles.

For the later class, the clauses on nature of interest and superiority of claims may well warrant a notching-down of lower Tier 1 to below Upper Tier II. This, however, would be decided by ICRA's Rating Committee on a case-to-case basis, Takkar said.

Prior to the January announcement of guidelines by the RBI on the use of new instruments for capital raising by banks, apart from internal generation, the only options available to Indian SCBs to shore up their capital were equity issues and subordinated debt.

However, the Basel Accord offered a wider scope to banks seeking to reinforce their capital base.