Banks now required to use the revised rating symbols of the credit rating agencies - Prudential Guidelines on Capital Adequacy and Market Discipline - New Capital Adequacy Framework (NCAF)
October 13, 2011:
Four domestic credit rating agencies viz. CARE, CRISIL, FITCH India and ICRA have been accredited for the purpose of risk weighting the banks' claims for capital adequacy purposes. The long term and short term ratings issued by the chosen domestic credit rating agencies have been mapped to the appropriate risk weights applicable as per the Standardised Approach under the Basel II Framework.
SEBI has, vide its circular on 'Standardisation of Rating Symbols and Definitions' on the June 15, 2011 has instructed Credit Rating Agencies (CRAs) registered with SEBI to adopt common rating symbols and rating definitions, which shall henceforth be used for the new ratings / reviews by the CRAs.
Under the revised standardized system, there is no change in the long term rating symbols except that rating symbols will henceforth display the rating agency's name as a prefix. For example it will be CARE AAA instead of AAA
In case of short term ratings, a rating scale denoted by 'A' on a scale of '1' to '4' (i.e. A1, A2, A3 and A4) and 'D' has been prescribed. For example Earlier Rating Symbol PR-1 will be now CARE A1.
The four accredited CRAs, which are registered with SEBI, have therefore revised their rating symbols of long term and short term debt instruments.
Reserve Bank of India has advised banks to henceforth use the revised rating symbols of the credit rating agencies for the purpose of assigning risk weights to the various exposures.
The aforesaid change in rating symbols and definitions however does not effect, in any manner, the rating methodology followed by the CRAs for rating such instruments and will have no bearing on the existing ratings assigned by the CRAs under the Basel-II framework.
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