Brickwork’s Ratings Allowed Under Certain Conditions

The Reserve Bank of India (RBI) has issued revised guidelines regarding the use of domestic credit rating agencies for determining capital adequacy under the Basel III Capital Regulations after a comprehensive review of the current regulatory framework, addressing previous advisories, and setting new conditions for the use of specific credit rating agencies.

The regulations identify the accredited domestic credit rating agencies used for risk weighting banks’ claims to determine capital adequacy. This list is crucial for banks to comply with capital adequacy standards and effectively manage their credit risk.

A Press Release 2022-2023/1033 dated October 12, 2022, advised against obtaining fresh ratings or credit evaluations from Brickwork Ratings India Private Limited (the CRA) due to concerns about the reliability of its ratings at that time.

The RBI has revised its stance, allowing banks to use the CRA’s ratings for risk weighting certain claims. For fresh rating mandates, ratings can be obtained from the CRA for bank loans not exceeding Rs. 250 crore. For existing ratings, rating surveillance may be conducted for the residual tenure of the loans, and in cases where ratings are assigned to working capital facilities exceeding Rs. 250 crore, rating surveillance is to be conducted only until the next renewal of such facilities by the banks. This provision ensures that larger exposures are reassessed using potentially more reliable sources during renewals, adding an extra layer of scrutiny to significant credit risks.

By permitting the use of Brickwork Ratings under specified conditions, the RBI aims to maintain continuity and stability in the credit ratings of existing loans while ensuring that new and significant exposures are evaluated with due diligence.

The revised guidelines come into effect immediately. These guidelines apply to all banks using credit ratings for risk-weighting their claims under the Basel III Capital Regulations.