bank loan ratings

8/2/2019 Bank Loan Ratings

1/6

Bank Loan Ratings (Basel II)

A bank loan rating indicates the degree of risk regarding timely payment of the bank facility being rated;

the facility includes principal and interest, if any, on the principal.

CRISIL commenced rating bank loans post the Reserve Bank of India's guidelines on capital adequacy for

banks, in 2007. The Basel II guidelines, as they are called, require banks to provide capital on the credit

exposure as per credit ratings assigned by approved external credit assessment institutions (ECAIs), such as

CRISIL. Basel II is a recommendatory framework for banking supervision, issued by the Basel Committee on

Banking Supervision in June 2004. The objective of Basel II is to bring about international convergence of

capital measurement and standards in the banking system. The revised framework for capital adequacy

has been effective from March 31, 2008, for all Indian banks with an operational presence outside India

(12 public sector banks and five private sector banks) and for all foreign banks operating in India. It has

been applicable to all other commercial banks (except local area banks and regional rural banks) from

March 31, 2009.

CRISIL rates the maximum number of companies for their bank loans in India. It has, so far, assignedratings to the bank facilities of more than 8383 entities as on December 31, 2011, representing over 50 per

cent of all the companies which have their bank loans rated in India; CRISIL has rated bank facilities of all

types: term loans, project loans, corporate loans, general purpose loans, working capital demand loans,

cash credit facilities, and non-fund-based facilities, such as letters of credit and bank guarantees.

CRISIL bank loan ratings cover companies of all sizes with bank facilities ranging from Rs.50 million to

Rs.500 billion. The break-up of ratings according to size of bank facilities is given below

CRISIL's bank loan coverage is pan-Indian, as can be seen below:


2/6

Some of the highlights of CRISIL's bank loan rating operations, underlining its superior capabilities as a

rating agency of choice, are as follows:

A direct presence in 65 major industrial centres across India to handhold first-time rating clients The largest and most experienced team of rating analysts A qualified team of industry analysts and economists that contributes to a large knowledge base State-of-the-art automated workflow with dedicated support-services teams Regular presentations and interaction with industry associations, regulators, and decision makers

Company Name Instrument Category RatingAssigned

3S Infrastructure Term Loan Facilities CRISIL B

3i Infotech Limited Cash Credit Limit CRISIL D

3i Infotech Limited Term Loan Facilities CRISIL D

3i Infotech Limited Short-Term Loan CRISIL D

A B Chem (India) Term Loan Facilities CRISIL BB

A B Chem (India) Proposed Long-Term Bank Facility CRISIL BB

A B Chem (India) Cash Credit Limit CRISIL BB

A B Chem (India) Proposed Short Term Bank Facility CRISIL A4+

A B Chem (India) Letter of Credit Limit CRISIL A4+

A detailed flow chart of CRISIL's rating process is as below:
http://www.crisil.com/ratings/bank-loan-ratings-list.jsphttp://www.crisil.com/ratings/bank-loan-ratings-list.jsphttp://www.crisil.com/ratings/bank-loan-ratings-list.jsphttp://www.crisil.com/ratings/bank-loan-ratings-list.jsphttp://www.crisil.com/ratings/bank-loan-ratings-list.jsphttp://www.crisil.com/ratings/bank-loan-ratings-list.jsphttp://www.crisil.com/ratings/bank-loan-ratings-list.jsphttp://www.crisil.com/ratings/bank-loan-ratings-list.jsphttp://www.crisil.com/ratings/bank-loan-ratings-list.jsphttp://www.crisil.com/ratings/bank-loan-ratings-list.jsphttp://www.crisil.com/ratings/bank-loan-ratings-list.jsphttp://www.crisil.com/ratings/bank-loan-ratings-list.jsphttp://www.crisil.com/ratings/bank-loan-ratings-list.jsphttp://www.crisil.com/ratings/bank-loan-ratings-list.jsphttp://www.crisil.com/ratings/bank-loan-ratings-list.jsphttp://www.crisil.com/ratings/bank-loan-ratings-list.jsphttp://www.crisil.com/ratings/bank-loan-ratings-list.jsphttp://www.crisil.com/ratings/bank-loan-ratings-list.jsp


3/6


4/6

Bank Loan Ratings (Basel II) - FAQs by Banks

1. Is credit rating of loans mandatory under RBI guidelines?

Credit rating is not mandatory. However, it is in the interest of banks to have ratings on their

corporate exposures from an external credit rating agency, such as CRISIL. The banks could save

capital, depending on the credit profile of their corporate exposures.

2. Should a bank get all its loans rated by a bank loan rating agency?

Yes, it is desirable that all the loan accounts are rated by an external credit rating agency.

3. What could be the extent of saving on capital that a bank would get if its assets were rated?

If a bank has high-quality assets (for example, if the majority of its assets are in the 'AAA' and 'AA'

categories) it will save capital because of low credit risk; the difference is apparent in the

illustration below.

Illustration of capital-saving potential by banks on a loan of Rs.1000 MillionRating Basel I Basel II

Risk weight Capital

required1

Risk

weight

Capital

required

Capital saved

(rs. mn) (rs. mn)

AAA 100% 90 20% 18 72

AA 100% 90 30% 27 63

A 100% 90 50% 45 45

BBB 100% 90 100% 90 0

BB and

below

100% 90 150% 135 (45)

1 Capital required is computed as loan amount x risk weight x 9 per cent.

4. In case of consortium lending, does the borrower need to take a separate rating for each facility

with each banker?

Yes, the borrower will need separate ratings for each facility with each banker.

5. Does CRISIL rate working capital facilities extended by the bank on its short-term scale or on its

long-term scale?

Long-term loans or facilities (with original contracted maturities of one year or more) and cash

credit facilities are rated on CRISIL's long-term rating scale. Short-term facilities (with original

contracted maturities of one year or less) are rated on CRISIL's short-term rating scale.

6. Who rates foreign currency facilities extended by domestic banks?


5/6

Bank facilities extended to resident corporate entities, irrespective of the currency of exposure, are

rated by domestic rating agencies, such as CRISIL. On the other hand, bank facilities extended to

non-resident corporate entities are rated by global rating agencies, such as Standard & Poor's.

7. If a company's non-convertible debentures are rated, can the same rating be used by banks for

all exposures to the company?The rating applicable to the existing debt instrument of a borrower may be applied to the bank's

unrated claims for capital relief only in case of the following cases:

The bank's claim ranks pari passu with, or is senior to, the specific rated debt in allrespects.

The bank's claim has a maturity that is not later than the maturity of the rated claim.In case of short-term exposures, the risk weight to be used for the unrated claim will be

one category higher than the risk weight for the rated claim.

8. Does CRISIL map the internal ratings of the bank with CRISIL's ratings?

As per the guidelines, banks can only use ratings from external credit rating agencies to calculatethe capital required against credit risk. Hence, mapping of ratings will not be really helpful to banks

under the standardised approach.

9. Is CRISIL capable of handling rating requests from many corporate entities at the same time?

Yes, CRISIL is fully equipped to handle large volumes of ratings. Presently, CRISIL has:

A direct presence in 65 major industrial centres across India to handhold first-time ratingclients

The largest and most experienced team of rating analysts (175 analysts and 75 dataspecialists)

A qualified team of industry analysts and economists that contributes to a large knowledgebase (expert team of 100 plus industry analysts)

A state-of-the-art automated workflow, with dedicated support-services teams Increased frequency of rating committee meetings to handle increased volume of rating

assignments

10.How long does it take to complete a loan rating assignment?

From the day it receives a written request for a bank loan rating, along with all information

required for the analysis, CRISIL takes three to four weeks to complete the exercise of assigning a

bank loan rating.

11.Will the bank loan rating be released to the public?

Yes, the rating will be made public once the borrower accepts the rating in writing. All accepted

ratings are made public by CRISIL through rating rationales, which are uploaded onto CRISIL's

website, and monthly bulletins. The rating will remain in the public domain until the rated loans or

facilities are repaid in full or extinguished.

12.Who pays for the ratings?


6/6

Rating fees are usually paid by the borrower, since the request for a rating is made by the borrower.

CRISIL requires the borrower to sign a rating mandate, and make the payment towards the

applicable rating fee. However, CRISIL can enter into specific arrangements for obtaining its fee

from banks. In all cases, the mandate for carrying out the rating exercise has to be signed by the

borrower before the rating exercise can be initiated.

13.Does CRISIL rate the entire portfolio of a bank?

Yes, CRISIL can rate the entire portfolio of a bank. A bank can also sign a memorandum of

understanding (MoU) with CRISIL, whereby all borrowers who approach the bank for a rating will be

rated on priority by CRISIL. However, each borrower will have to mandate CRISIL separately for

carrying out the rating exercise.

14.How does the bank benefit from signing an MoU with CRISIL?

A bank can benefit from quick turnaround times and efficient monitoring of progress, given CRISIL's

ability to dedicate resources, and function as a single point of contact for the bank.

bank loan ratings

Documents