Rating agencies, banks differ over loan defaults

Bank loan rating, as per Basel II norms, is proving to be a bone of contention between rating agencies and banks. While credit rating agencies do not brook even a day’s delay in loan repayment, it is normal practise for banks to give companies the long rope of 90 days after the expiry of the due date when it comes to recognising a default The issue has come to the fore with Basel II norms on capital adequacy for banks kicking in from April 1. Under these norms, all corporates with borrowing of more than Rs 10 crore must be rated. As per RBI guidelines, from April 1, 2009 onwards all fresh sanctions or renewals in respect of unrated corporates that have bank loans of more than Rs 50 crore, will attract a risk weight of 150 per cent. This would push up capital costs for banks. On the other hand, exposures to corporates that have quality ratings would entail much lower risk weights, between 20 and 100 per cent, depending on the rating. This would result in ‘capital relief’ for banks.