Categories: Banking

RBI Lists 6 Rating Agencies for Banks’ Capital Adequacy Purposes

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The Reserve Bank of India (RBI) issued the list of six credit rating agencies that banks can use for the purpose of risk weighting banks’ claims for capital adequacy purposes. The six credit rating agencies are Acuite Ratings & Research Limited, Credit Analysis and Research Limited (CARE), CRISIL Ratings Limited, ICRA Limited, India Ratings and Research Private Limited (India Ratings)\ and INFOMERICS Valuation and Rating Pvt Ltd. Banks have to get ratings from these agencies to comply with Basel-III capital regulations.

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RBI Struck Down A Rating Agency:

The RBI said no fresh ratings shall be obtained from Brickwork Ratings India Private Limited. In October last year, the Securities and Exchange Board of India has cancelled the Certificate of Registration (CoR) granted to Brickwork Ratings India Private Limited as a Credit Rating Agency (CRA) and directed it to wind down its operations within a period of six months.

The Sebi undertook a joint inspection with RBI in January 2020 of the records and documents of Brickwork, for the period from October 2018–November 2019 to ascertain any violation of credit rating agency rules.

What is Credit Rating:

A credit rating is an assessment of the creditworthiness of a borrower in general terms or with respect to a particular debt or financial obligation. A credit rating can be assigned to any entity that seeks to borrow money — an individual, corporation, state or provincial authority, or sovereign government.

What are Credit Rating Agencies:

A credit rating agency (CRA) is a company that assigns credit ratings, which rate a debtor’s ability to pay back debt by making timely principal and interest payments and the likelihood of default. There are five credit rating agencies registered under SEBI namely, CRISIL, ICRA, CARE, SMERA and Fitch India .

What is Capital Adequacy Ratio:

The Capital Adequacy Ratio (CAR) of a bank is the ratio of its capital to its risk-weighted assets and current liabilities. The capital adequacy ratio, also known as the capital-to-risk-weighted-assets ratio (CRAR), is used to protect depositors and promote the stability and efficiency of global financial systems.

What are Basel norms:

Basel norms or Basel accords are the international banking regulations issued by the Basel Committee on Banking Supervision. The Basel norms is an effort to coordinate banking regulations across the globe, with the goal of strengthening the international banking system. It is the set of the agreement by the Basel committee of Banking Supervision which focuses on the risks to banks and the financial system.

Basel is a city in Switzerland.
It is the headquarters of the Bureau of International Settlement (BIS), which fosters cooperation among central banks with a common goal of financial stability and common standards of banking regulations.
It was founded in 1930.
The Basel Committee on Banking Supervision is housed in the BIS offices in Basel, Switzerland.

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