Banks are staring at the need to provide additional capital on account of higher provisioning for loans above Rs 50 crore extended by them from the current financial year owing to the inability of borrowing companies to get rated.
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 (Rs 15 million) for a loan of Rs 100 crore (Rs 1 billion) 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.
"There are product-related ratings that are available, but not for companies as a whole. They should have done this by now since they knew Basel-II was coming," said a banker.
On their part, executives of rating agencies said they had stepped up their efforts. A part of the problem was due to the reluctance from companies, an executive said.
"This is a challenge. It is quite a task to deal with a sharp rise in demand due to the regulatory prescription. Though we have been growing our system, capacity and talent base, it will take time to expand," added the head of a rating agency, who did not wish to be identified.
"We are not surprised if they make such statements. We have been talking to companies, but there is scramble at the last minute," he added.
