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‘More PSU banks adopting Basel II norms’

Kochi: Many public sector banks are taking steps to implement Basel II norms, Mukesh Agarwal, director-business development, Crisil, has said.

Several private sector banks had no strategy in place for adopting the norms, he said at a function organised by the Bankers’ Club Greater Kochi.

“If a bank has high quality credit exposures, it will save capital on account of credit risk.

Conversely, a bank with relatively lower rated credit exposure will have to provide more capital.”

Credit rating is not mandatory under Basel II. Nevertheless, banks may be able to save capital if their loan portfolios are rated.

If a bank chooses to keep some of its loans unrated, it may have to provide a risk weight of 150 per cent for credit risk on such loans.

Fresh unrated disbursals and renewals greater than Rs.500 million will attract a risk weight of 150 per cent after April 1, 2008. This minimum size will be reduced to Rs.100 million bringing many more loans within the 150 per cent risk weight bracket from April 1, 2009.

By getting loans rated, banks can save capital on loans in the higher rating categories, he said.

Rating is not a pre-requisite for a loan sanction or for renewal of working capital facilities.

However, a bank can insist on a rating for the loan before sanction or renewal, as it will help the bank in saving capital, according to him.

A company has the option to accept or reject the ratings assigned to it by the rating agencies like Crisil.

Once the rating is accepted, Crisil will issue a rating letter and post it on the website and carry it in its monthly ratings publication.

Only ratings that are available in the public domain can be used by banks for calculating risk weights, he said.

R.Ramachandra Warrier, president of the club, and K.Balakrishnan, secretary, spoke.

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