Crisil unveils bank loan ratings

Bank loans will now be rated in India. This new rating, today launched by rating agency, Crisil, is expected to serve the interests of debt market participants.

"Crisil bank loan ratings will provide a uniform benchmark for credit and pricing decisions in the bank loan market," said R Ravimohan, managing director & CEO.

This is the first new product launch to be brought in India from Standard and Poor's (S&P) stable of products, following the international rating major having taken majority control in the domestic rating agency.

Internationally, bank loan ratings are widely accepted and extensively used. S&P rates approximately 1,350 company loans for an aggregate of over $982 billion.

Bank loan rating is a unique product, tailor-made to suit the requirements of the Indian bank loan market. Aside from 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.

"Loan ratings focus on both the risk of default, and the likelihood of ultimate recovery in the event of default," Ravimohan said.

The assessment of recovery prior to loan sanction is a path-breaking initiative, stated Crisil in its press communique.

"We believe 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," said Ravimohan.

Loan ratings will help 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," said Roopa Kudva, executive director and chief rating officer, Crisil.