Time credit rating should be taken seriously: Sharma

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Ahmedabad, Dec 15 (UNI) Corporates with turnover of Rs 50 crore or more have to be rated this year by March 2008, while those with Rs 5 crore or less a year later, according to SBI General Manager Rakesh Sharma.

Addressing company heads at a seminar organised jointly by FICCI and Crisil here yesterday, Mr Sharma said the deadline for implementing Basel II, originally set for March 31, 2007, has now been extended and foreign banks in India and Indian banks operating abroad are to meet those norms by March 31, 2008, while all other scheduled commercial banks will have to adhere to the RBI guidelines by March 31, 2009.

India had adopted Basel I guidelines in 1999. Subsequently, the Reserve Bank of India had issued draft guidelines for implementing a New Capital Adequacy Framework, in line with Basel II, which aims to create an international standard that can help protect the international financial system from the types of problems that might arise. In practice, Basel II framework, developed by the Basel Committee on Banking Supervision, aims at less sophisticated approaches for credit and operational risk, Mr Sharma informed.

The higher the risk of loss associated with an investment the more of it must be covered in this manner, requiring assets to be risk-weighted by outside credit rating agencies like Crisil, Icra or Fitch. A 100 per cent risk loss implies that the whole of an investment can be lost under certain contingencies and a zero per cent risk-weight implies that the asset concerned is riskless.

The other benefit that Indian banks can exploit is the fact that they have a large short-term portfolio in the form of cash credit, overdraft and working capital demand loans, which are currently unrated, and carry a risk weight of 100 per cent. They also have short-term investments in commercial papers in their investment portfolio, which also currently carry a 100 per cent risk weight, Mr Sharma said.


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