Credit Rating Advisory
 | What is Bank Loan Rating? |
A
bank loan rating
indicates the degree of risk regarding timely payment of the bank facility being rated; which includes repayment of interest as well as instalments.
| Why there is a need for Bank Loan Rating? |
As per the Basel II norms, banks calculate their capital requirement based on the ratings assigned by external credit rating agencies to these bank loans. According to the Reserve Bank of India (RBI) guidelines issued, banks have moved to the standardized methodology for credit risk capital calculation as stated in the Basel II norms.
Bank loan ratings
require banks to maintain capital reserve for total exposures based on the bank loan ratings assigned. Higher the rating lower is the credit risk and consequently, lower is the capital requirement. This enables banks to free-up capital with resultant benefits that may be passed on to borrowers.
| | Why there is Basel II? |
Capital is the starting point for any business and, similarly, in a bank, capital is one of the critical factors which decide its financial soundness. In the banking industry basically there are three types of risks – Credit, Market and Operational. Based on the risk appetite, each bank executes its business plans. It is important to monitor its financial soundness on a regular basis. Apart from enhancing the shareholder value, the bank’s management is equally responsible to ensure that the bank’s financial standing is not crippled by irrational decisions, led by market factors. A sufficiently justifiable capital level is fair yard stick for a stakeholder, including the regulator, to assess the overall financial position of the bank. Also from the bank’s perspective, there is always a cost of capital. Hence, it will try to leverage by maintaining sufficient capital only. Having said that it is important for the bank to maintain sufficient capital for foreseeable future, else it will impact the future growth of the business plans.
Basel II is more risk-sensitive than the erstwhile regime and aims to significantly reduce the incentive for capital arbitrage. Higher risks will at least, in principle, result in higher risk weights and, thus, higher capital requirements.
Accord is the protection of depositors and shareholders by prescriptive rules for measuring capital adequacy, thereby evolving a common language to assess the quality of assets and liabilities of the banks and evolving methods of determining regulatory capital and ensuring efficient use of capital.
| | Process of Bank Loan Rating |
Generally every
bank loan rating
assignment has three stage process.
1. Pre Rating Process:
- Selection of particular
credit rating agency
.
- Rating agreement with a selected rating agency and finalise the terms of rating assignment.
- Providing necessary and crucial primary documents/information related to entity along with prescribed fees.
2. Rating Process:
- Rating team do primary study of a particular case.
- Rating team will do in-depth analysis of various aspects and applies different financial tools for analysis purpose.
- Rating team do plant visit of entity and discuss various critical issues of a respective case with the management of the entity.
- Rating committee assign the rating based on its analysis.
3. Post Rating Process:
Rating agency
communicate the rating to entity.- On acceptance of rating, rating agency publish the
credit rating
of entity.
- Within 12 months from the date of rating assigned, rating agency do review exercise of the accepted rating.
| Why there is a need of credit rating consultancy? |
Generally every agency has in place a policy not to promise, assure or guarantee – either implicitly or explicitly, a particular rating outcome to the client. As the rating exercise is the highly technical matter, client will never in a position to understand that what is his deserved rating and what are the parameters for good rating.
the accurate venture
has wide experience in credit rating domain , can assist client in the entire rating process and help client for getting a deserved and optimum credit rating.
| | How the accurate venture assists in credit rating procedure? |
- Selection of a right
credit rating agency
based on the different parameters.
- Understand the need of a client and its banker.
- Doing in-depth analysis of entity on different rating parameters and applied various financial tools.
- Continuous remained in touch with rating agency and explain various rating aspect of a particular case in detail.
- Providing all the necessary documents and information to rating agency throughout the rating exercise and satisfy all the needs or queries of rating team.
- In-depth analysis of key rating parameters considered by rating agency and represent the case again to rating team if rating agency has not consider any facts.
- Continuous monitoring of assigned rating.
