Credit rating of Rs 35,000 cr debt could be downgraded due to RBI dictate: Icra

The Reserve Bank of India (RBI) diktat ordering credit rating agencies to adopt specific criteria while awarding enhanced credit ratings (EC) to banking facilities could potentially downgrade the credit ratings of around 100 entities , which corresponds to Rs 35,000 crore of rated debt, rating agency Icra said.

The rating agency is making some changes to its methodology for evaluating explicit forms of third-party support like guarantees, letters of comfort (LoC), co-debtor structures, etc.

The energy, healthcare, engineering, construction and road sectors represent 60% of the total entities whose ratings could potentially be affected. These sectors represent 44% of the total debt likely to be affected.

Read also : How RBI Rising Repo Rate May Affect You

According to the dictate of the RBI, in order to attract the comfort of credit enhancement, credit rating agencies can only rely on explicit guarantees given by externally rated third parties, including parent entities. /groups, or by financial institutions such as banks and non-bank financial companies. .

In addition, credit rating agencies have been prohibited from relying on other support structures like LoC, letter of support, debtor-co-debtor structure, etc., to derive rating comfort. while assigning CE ratings. And CE ratings cannot be assigned on the basis of credit enhancement derived from the pledge of shares.

“Triggered by the change in methodology, the revised non-CE ratings, on average, could be about two notches lower than the existing pending CE ratings. The average risk-weighted weight of the debt concerned is estimated at around 35% currently, and could increase to 48% in the event of a potential rating downgrade. This translates into a possible increase in lenders’ capital requirements of around Rs 400 crore, which is not significant,” said Jitin Makkar, Senior Vice President and Head of Credit Policy, Icra.

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