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Rating agencies to assess viability, recommend haircuts in NPA cases

RBI had outlined an action plan including role for rating agencies in resolution of stressed loans

Abhijit Lele  |  Mumbai 

Rating agencies to assess viability, recommend haircuts in NPA cases

The Reserve Bank of India (RBI) is expected to rope in rating agencies to assess the viability of debt, crystallise sustainable debt and recommend haircuts lenders need to take in restructuring packages for stressed assets.

Officials at rating agencies said while the was yet to engage them in formal discussions, the broad contours of their assignment are expected to be making independent assessment of recovery prospects, and estimating haircuts for restructuring cases.

A senior executive with the Indian subsidiary of a global rating agency said while the central bank had held preliminary discussions with the rating agencies, it was still early to speak about their specific role. Besides the initial work, rating agencies would also be expected to monitor the performance of restructured accounts as part of their assignment.

Rating agencies active in India include CRISIL, a subsidiary of Standard and Poor's, ICRA, a subsidiary of Moody's and India Ratings, a unit of Fitch, among others.

On Monday, the had outlined an action plan, including the role for rating agencies in the resolution of stressed loans. The regulator wants rating agencies to play a vital role in the resolution process. “With a view to preventing rating-shopping or any conflict of interest, the is exploring the feasibility of rating assignments being determined by the itself,” the central bank said in a statement.

The rating agencies would be paid from a fund to be created out of contributions from the banks and the

A top executive with an Indian rating agency said with the central bank paying for the rating engagement, it would give space for independent opinion also avoid problems in information disclosure by the company.

In the normal course, companies pay for the rating assignment and further monitoring. But it is seen that rated entities hesitate to share information when performance is bad. In many cases, they stop paying fees and refuse to give information. And rating agencies suspend rating after a while, the official said.

In February, Deputy Governor Viral Acharya, while addressing the in Mumbai, had proposed each resolution plan be vetted and rated by at least two credit rating agencies to assess the financial health of the company. The ambit of mandate may also include assessment of economic health and the company’s management quality.

The rating would be for the asset and not just for bank debt, in case additional debt was issued under the resolution plan, he had proposed. Feasible plans would be those that improve the rating of the asset (currently likely to be “C” or “D”) such that a minimum of the two credit ratings were at or above a threshold level, for example, at least just below the investment-grade level.

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Rating agencies to assess viability, recommend haircuts in NPA cases

RBI had outlined an action plan including role for rating agencies in resolution of stressed loans

RBI had outlined an action plan including role for rating agencies in resolution of stressed loans
The Reserve Bank of India (RBI) is expected to rope in rating agencies to assess the viability of debt, crystallise sustainable debt and recommend haircuts lenders need to take in restructuring packages for stressed assets.

Officials at rating agencies said while the was yet to engage them in formal discussions, the broad contours of their assignment are expected to be making independent assessment of recovery prospects, and estimating haircuts for restructuring cases.

A senior executive with the Indian subsidiary of a global rating agency said while the central bank had held preliminary discussions with the rating agencies, it was still early to speak about their specific role. Besides the initial work, rating agencies would also be expected to monitor the performance of restructured accounts as part of their assignment.

Rating agencies active in India include CRISIL, a subsidiary of Standard and Poor's, ICRA, a subsidiary of Moody's and India Ratings, a unit of Fitch, among others.

On Monday, the had outlined an action plan, including the role for rating agencies in the resolution of stressed loans. The regulator wants rating agencies to play a vital role in the resolution process. “With a view to preventing rating-shopping or any conflict of interest, the is exploring the feasibility of rating assignments being determined by the itself,” the central bank said in a statement.

The rating agencies would be paid from a fund to be created out of contributions from the banks and the

A top executive with an Indian rating agency said with the central bank paying for the rating engagement, it would give space for independent opinion also avoid problems in information disclosure by the company.

In the normal course, companies pay for the rating assignment and further monitoring. But it is seen that rated entities hesitate to share information when performance is bad. In many cases, they stop paying fees and refuse to give information. And rating agencies suspend rating after a while, the official said.

In February, Deputy Governor Viral Acharya, while addressing the in Mumbai, had proposed each resolution plan be vetted and rated by at least two credit rating agencies to assess the financial health of the company. The ambit of mandate may also include assessment of economic health and the company’s management quality.

The rating would be for the asset and not just for bank debt, in case additional debt was issued under the resolution plan, he had proposed. Feasible plans would be those that improve the rating of the asset (currently likely to be “C” or “D”) such that a minimum of the two credit ratings were at or above a threshold level, for example, at least just below the investment-grade level.

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Business Standard
177 22

Rating agencies to assess viability, recommend haircuts in NPA cases

RBI had outlined an action plan including role for rating agencies in resolution of stressed loans

The Reserve Bank of India (RBI) is expected to rope in rating agencies to assess the viability of debt, crystallise sustainable debt and recommend haircuts lenders need to take in restructuring packages for stressed assets.

Officials at rating agencies said while the was yet to engage them in formal discussions, the broad contours of their assignment are expected to be making independent assessment of recovery prospects, and estimating haircuts for restructuring cases.

A senior executive with the Indian subsidiary of a global rating agency said while the central bank had held preliminary discussions with the rating agencies, it was still early to speak about their specific role. Besides the initial work, rating agencies would also be expected to monitor the performance of restructured accounts as part of their assignment.

Rating agencies active in India include CRISIL, a subsidiary of Standard and Poor's, ICRA, a subsidiary of Moody's and India Ratings, a unit of Fitch, among others.

On Monday, the had outlined an action plan, including the role for rating agencies in the resolution of stressed loans. The regulator wants rating agencies to play a vital role in the resolution process. “With a view to preventing rating-shopping or any conflict of interest, the is exploring the feasibility of rating assignments being determined by the itself,” the central bank said in a statement.

The rating agencies would be paid from a fund to be created out of contributions from the banks and the

A top executive with an Indian rating agency said with the central bank paying for the rating engagement, it would give space for independent opinion also avoid problems in information disclosure by the company.

In the normal course, companies pay for the rating assignment and further monitoring. But it is seen that rated entities hesitate to share information when performance is bad. In many cases, they stop paying fees and refuse to give information. And rating agencies suspend rating after a while, the official said.

In February, Deputy Governor Viral Acharya, while addressing the in Mumbai, had proposed each resolution plan be vetted and rated by at least two credit rating agencies to assess the financial health of the company. The ambit of mandate may also include assessment of economic health and the company’s management quality.

The rating would be for the asset and not just for bank debt, in case additional debt was issued under the resolution plan, he had proposed. Feasible plans would be those that improve the rating of the asset (currently likely to be “C” or “D”) such that a minimum of the two credit ratings were at or above a threshold level, for example, at least just below the investment-grade level.

image
Business Standard
177 22