Banks will have to treat such credit facilities as unrated and specify the applicable risk weights, reserve Bank of India Said, as it tightens the noose around Rating Disclosure Criteria by credit rating firms.
Simply put, if a borrower avails credit facilities from three banks – A, B and C and the external rating firm does not make such disclosure, then no bank can calculate the said rating, and hence he High risk load has to be followed. Criteria – 100% or 150% as applicable.
If the borrower takes a loan from Banks A, B and C and the rating is obtained only in respect of the credit facility extended by Bank A, then Bank A may calculate the said rating for the purpose of risk weighting. Banks B and C are allowed to obtain risk weights for their respective non-rated credit facilities. However, the primary condition is that the rating firm has to disclose the name of Bank A.
The stringent norms will be applicable from March 31, 2023 reserve Bank of India Told.
RBI observed that such disclosures by credit companies are often not made due to absence of requisite consent by the borrowers.
“Therefore, it is informed that without the above disclosure by ECAI (External Credit Appraisal Institution) a bank credit rating will not be eligible for capital computation by banks. Banks will treat such exposures as unrated and assign the applicable risk weights. ,” said the RBI.