What changed
RBI observed that ECAI press releases on rating actions often omit lender details, creating information asymmetry. Despite a June 2021 advisory to disclose bank names and facilities, compliance remained poor. Now, any bank loan rating not accompanied by such disclosure in the ECAI press release is ineligible for capital computation; banks must treat the exposure as unrated.
What it means for you
Banks can no longer rely on a borrower's external rating for capital relief unless the ECAI explicitly names the bank and the specific facility rated. This forces banks to either secure borrower consent for disclosure or assign higher risk weights (100% or 150%) to such exposures, increasing capital requirements. It tightens the link between rating transparency and capital adequacy, reducing the risk of underpricing.
What you must do
- Review all existing loan ratings used for capital computation and verify that the ECAI's press release discloses your bank's name and the rated facility.
- For new ratings, include a clause in loan agreements requiring borrower consent for ECAI disclosure of bank and facility details.
- Update internal risk-weighting systems to flag any exposure where the ECAI press release lacks required disclosure, and apply unrated risk weights from March 31, 2023.
- Train credit and risk teams on the new rule, especially for syndicated or multiple-bank exposures where only one facility is rated.
Who it affects
All Scheduled Commercial Banks (including Small Finance Banks), Credit risk and capital management teams, Banks with unrated exposures relying on derived risk weights from rated debt of the same borrower
What happens if an ECAI press release does not name my bank but names another lender's facility?
You cannot use that rating for capital computation. Your exposure must be treated as unrated, and you must assign the applicable risk weight (100% or 150%) as per extant instructions.
Can we still derive risk weights for our unrated facility if the ECAI discloses the rated facility of another bank?
Yes, but only if the ECAI press release discloses the name of the bank and the specific facility rated. If that disclosure is made, the other banks can derive risk weights subject to conditions in paragraph 6.8.1(i) of the Master Circular. If no disclosure, no bank can use the rating.
When does this rule take effect?
The instructions are effective from March 31, 2023. You should ensure compliance by that date for all existing and new ratings.