More provision for loans over Rs 50 cr

From April 2009, the problem will grow bigger since all loans above Rs 20 crore will require similar treatment unless companies get themselves rated.  Banks have taken up the issue with the Reserve Bank of India (RBI), saying they may have to provide additional capital due to the 150 per cent risk weight under Basel-II, against 20 to 100 per cent for rated companies.  Basel-II is the second of the global banking accords that provide banks with guidelines to measure various types of risk they take. Indian banks have to be Basel-II-compliant from this financial year.  Under central bank norms, banks will have to assign a 20 per cent risk weight to AAA-rated companies, while those with poorer ratings will need higher provisioning.  A risk weight means that banks will have to set aside, say, Rs 1.5 crore for a loan of Rs 100 crore as a provision against a possible default.  Though it is possible to pass on the burden to borrowers by charging higher interest rates, bankers said it would be difficult in a situation, in which companies use quotes provided by one bank to negotiate a better deal with another entity.  Banks blame rating agencies, saying they have been unable to create adequate capacity to deal with the situation.