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The Reserve Bank of India (RBI) on Monday said that a bank loan rating by rating agencies not having lenders’ names won’t be considered for capital computation by banks.
Such loans will have to be treated by banks as unrated and they will assign risk weights to them.
In a circular issued to all banks on Monday, the RBI noted that disclosures relating to lenders’ details are not available in a large number of Press Releases (PRs) issued by external credit assessment institutions (ECAIs) due to the absence of requisite consent by the borrowers to the ECAIs.
“It is, therefore, advised that a bank loan rating without the above disclosure by the ECAI shall not be eligible for being reckoned for capital computation by banks… They (banks) shall treat such exposures as unrated and assign applicable risk weights,” the RBI said.
It cautioned that if the relevant information is not provided, then banks would have to assign risk weights to such unrated exposures.
This could further lead to lowering of provision for capital and underpricing of risks, the central bank cautioned further.
–IANS
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(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)
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