Banks told not to vie for creamy loans

The Reserve Bank of India (RBI) has warned banks against competing to lend to top-rated corporates under the Basel-II regime, saying it could squeeze their margins. The new capital norms require banks to set aside lower capital for loans to corporates with higher credit ratings. Under Basel-II, the risk weight for loans to AAA-rated companies is just 20 per cent against 150 per cent for BB or lower-rated companies. This means banks would have to provide only Rs 1.8 of capital for every Rs 100 lent to an AAA-rated corporate, while they would need to set aside Rs 13.5 of capital for loans to corporates rated BB or lower