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.

Dear reader,

Business Standard has always endeavored to provide up-to-date information and commentary on developments that matter to you and that have wider political and economic implications for the country and the world. Your constant encouragement and feedback on how to improve our offering has only strengthened our resolve and commitment to these ideals. Even in these challenging times stemming from Covid-19, we remain committed to keeping you informed and updated with credible news, authoritative opinions and incisive commentary on relevant topical issues.
However, we have a request.

As we battle the economic impact of the pandemic, we need your support even more so that we can continue to bring you more great content. Our subscription model has received an encouraging response from many of you who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of bringing you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practice the journalism we are committed to.

Support quality journalism and subscribe to Business Standard.

digital editor

Comments are closed.