RBI for minimum NBFC rating

CALCUTTA, NOV 25: THE Reserve Bank of India has specified a minimum credit rating for non-banking finance companies without which they will...

CALCUTTA, NOV 25: THE Reserve Bank of India has specified a minimum credit rating for non-banking finance companies without which they will not be allowed to collect deposits from the public. The ratings are laid down in the manual for on-site inspection of NBFCs drawn up by the RBI.

They are: FA- of Credit Rating Information Services of India Ltd Crisil; MA- of Investment Information amp; Credit Rating Agency of India Ltd ICRA; BBB of Credit Analysis amp; Research Ltd CARE; BBB- of Duff amp; Phelps Credit Rating India Pvt Ltd DCR India.

Each of these ratings denote adequate safety or sufficient for investment. NBFCs with ratings below the ones specified will not be allowed to accept fixed deposits.

This rating will also be used by the RBI in grading the companies into four categories. Each rating will be assigned a weightage: the highest getting a weightage of 15 points, adequate safety will get a weightage of nine points and so on.

The other parameters which go into the grading system are:

Compliance with all the provisions of the manual getting 10 points for total compliance and -2 for non-compliance.

Submission of data/returns/statements prescribed under the supervisory system the weightage ranging from 10 to -2.

Adherence to prudential guidelines weightage ranging from 15 to -5.

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The points so accumulated will be lineated and spread over a five point scale. Those getting between 45 and 50 points will be rated A8217;, between 35 and 44 B8217;, between 25 and 34 C8217;, and a D8217; rating will be assigned to those getting between -14 and 24 points. Those rated A are considered low-risk and will be put on a minimum watch list. Those graded B amp; C are considered medium risk and they will be monitored accordingly, while those rated D are the high risk companies and will be put on RBI8217;s quot;most sensitivequot; watch list. Those with assets of over Rs 50 crore will be inspected once every year while those with assets upto Rs 50 crore will be inspected once in two years. For those with assets of over Rs 500 crore, the inspection will be undertaken on the same lines as banking supervision.

The RBI has already ordered that the inspection manual be kept confidential, and external auditors who undertake inspection of NBFCs on a one-time basis have had to take an oath of secrecy regarding its contents.

The manual of inspection is a voluminous document of over 290 pages, with 12 chapters and 17 annexures. Each chapter deals with each facet of the balancesheet and profit/loss account such as capital amp; liabilities, asset quality, liquidity, earnings amp; profitability. It contains directions as to how inspection should be done at each stage. Inspection of other categories of finance companies such as residuary non-banking companies, mutual benefit finance companies nidhis and miscellaneous non-banking companies chit funds are also given in the manual.