What changed
Previously, only five domestic credit rating agencies (CARE, CRISIL, FITCH India, ICRA, Brickwork) were accredited for risk weighting banks' claims under the New Capital Adequacy Framework. RBI has now added SME Rating Agency of India Ltd. (SMERA) as a sixth eligible agency. The long-term and short-term rating-risk weight mapping for SMERA will be identical to that of the other agencies.
What it means for you
Banks can now use SMERA ratings to determine risk weights for capital adequacy purposes, potentially expanding the pool of rated exposures they can efficiently capitalise. This is particularly relevant for SME lending, as SMERA specialises in rating small and medium enterprises. The move aligns with Basel II's Standardised Approach and may reduce capital charges for banks holding SMERA-rated assets.
What you must do
- Update internal systems and risk-weight mapping tables to include SMERA as an eligible credit rating agency.
- Train credit and risk teams on accepting SMERA ratings for capital adequacy calculations under the Standardised Approach.
- Review existing SME loan portfolios to identify exposures that can benefit from SMERA ratings for lower risk weights.
- Ensure compliance with the same rating-risk weight mapping applicable to other accredited agencies.
Who it affects
All scheduled commercial banks (excluding Local Area Banks and RRBs), Credit risk management teams, SME lending divisions, Capital adequacy and Basel II compliance officers
Can we use SMERA ratings for all types of claims?
Yes, SMERA ratings can be used for risk weighting claims for capital adequacy purposes, just like the other five agencies. The mapping for long-term and short-term ratings is the same.
Does this change affect the risk-weight mapping?
No, the rating-risk weight mapping for SMERA remains identical to that of CARE, CRISIL, FITCH India, ICRA, and Brickwork as per the existing framework.
When did this circular become effective?
The circular was issued on September 13, 2012, and is effective from that date for all scheduled commercial banks covered.