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2012-09-14

RBI allows banks to use SMERA ratings to check loan risks

The Reserve Bank on Thursday said banks may use ratings of SME Rating Agency of India (SMERA), in addition to grades provided by other agencies, to assign risks to loans for the purpose of computing capital adequacy requirements.

The Reserve Bank on Thursday said banks may use ratings of SME Rating Agency of India (SMERA), in addition to grades provided by other agencies, to assign risks to loans for the purpose of computing capital adequacy requirements.

"It has now been decided that banks may also use the ratings of the SME Rating Agency of India Ltd (SMERA) for the purpose of risk weighting their claims for capital adequacy purposes in addition to the existing five domestic credit rating agencies," the RBI said in a notification.

Currently, five rating agencies CARE, CRISIL, FITCH India, ICRA and Brickwork are authorised by the RBI to provide risk weight to loans.

Under the system, the balance sheet assets, non-funded items and other off-balance sheet exposures are assigned prescribed risk weights and banks have to maintain unimpaired minimum capital funds equivalent to the prescribed ratio on the aggregate of the risk weighted assets and other exposures.

The long term and short term ratings issued by these domestic credit rating agencies have been mapped to the appropriate risk weights applicable as per the Standardised Approach under the Basel II Framework, the RBI added.
 

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