Crisil assigns bank loan ratings to 5 cos

MUMBAI: The Basel II regulatory framework has thrown up new business opportunities for rating agencies. Crisil, for the first time, has provided bank loan ratings to five companies indicating the credit risk. These ratings come in the backdrop of the implementation of the Basel II norms inching closer. The agency has assigned its top rating (AAA) to Hero Honda Motors, Reliance and NTPC, and AA+ ratings to UltraTech Cement and Hero Honda Finlease.

RBI, in April 2007, had issued guidelines on the new capital adequacy framework, based on the Basel II framework, which will come into effect by March 31, 2008, for all banks with operations outside India as well as all foreign banks that have presence here. These guidelines require banks to link the minimum size of their capital to the credit risk in their portfolios, a departure from the present framework wherein the banks calculate the minimum size of their capital as a proportion of their entire loan portfolio, regardless of credit risk.

By giving significant relief in the capital that banks must hold against their corporate loan exposures, the new guidelines create an incentive for banks to use credit ratings. Under them, a company rated AAA will carry a risk weight of 20%, a company rated AA will carry a 30% risk weight, and an A-rated company will carry a 50% weight. Companies rated BBB will carry a 100% risk weight, and those rated BB and below (including unrated ones) will carry a 150% risk weight.

Thus, under the new regime, if a bank gives a loan of Rs 1,000 crore to a AAA- company, it will have to set aside a capital of Rs 18 crore, as against Rs 90 crore under the present regime. However, for a BB- company, a Rs 1,000-crore loan would require a capital of Rs 135 crore, as against Rs 90 crore required now. “These ratings will be similar to our bond ratings and we will review them periodically,” says Raman Uberoi, senior director, Crisil, India. “At present, we have looked at large companies, but will include small and medium-sized companies soon,” he adds.

BLRs will be assigned to all forms of bank-lending, including cash credit, working capital demand loans, guarantees, and letters of credit. While the requirement for companies to get a BLR was not there until now, under the new guidelines, banks will require their prospective borrowers to get themselves rated. While, it is not a pre-requisite for loan sanctioning, banks could insist on companies being rated as it enables them to save considerably on capital.