CRISIL pioneers bank loan ratings in India

CRISIL has launched the first bank loan ratings in India. Commenting on the launch, R Ravimohan, managing director and CEO, CRISIL, said "We expect CRISIL 'bank loan ratings' to provide a uniform benchmark for credit and pricing decisions in the bank loan market".

Internationally, bank loan ratings are widely accepted and extensively used. Today, Standard and Poor's (S&P) rates approximately 1350 company loans for a total of more than US $ 982 billion.

A CRISIL bank loan rating is a unique product, tailor-made to suit the requirements of the Indian bank loan market. In addition to commenting on the timely payment of principal and interest, the rating will give an opinion on the extent of recoverability of the loan post-default, by capturing the impact of covenants, security and other repayment protection provided specifically to lenders. Adds Ravimohan, "Loan ratings focus on both the risk of default, and the likelihood of ultimate recovery in the event of default."

The assessment of recovery prior to loan sanction is a path-breaking initiative by CRISIL. CRISIL believes that the strengthening of the legal framework in India through the enactment of the SARFAESI Act, and the sharpened focus on non-performing loans by banks, have already set the stage for a rigorous assessment of loan recoveries.

According to Roopa Kudva, executive director and chief rating officer, CRISIL, "CRISIL bank loan ratings will support Indian banks in the implementation of the Basel II accord, by providing an independent opinion on loan-specific risk. This can be used by banks for risk pricing, capital allocation and portfolio management".

A CRISIL bank loan rating is a two-dimensional rating. The first component of the rating indicates the probability of timely payment of principal and interest. The rating symbol for this component is analogous to CRISIL's rating symbol for its traditional long-term debt ('AAA' to 'D' scale). In case of short term bank loans with maturities of less than 365 days, the rating would be assigned on CRISIL's short term rating scale ('P1+' to 'P5'). The second component of the rating is an indication of the extent of ultimate recovery of principal in case of default. This component is on a five-point scale, from 'R1' (highest) to 'R5' (lowest). All CRISIL Bank Loan Ratings will have a prefix of 'BLR' attached to the rating symbol.