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Bank Loan Ratings

Brickwork Ratings was accredited by the Reserve Bank of India as an External Credit Assessment Institution (ECAI) whose ratings of bank loans can be used by banks for risk weighting purposes while arriving at the total capital requirement of the bank under the Basel II norms on April 13, 2012.

Brickwork Ratings provides ratings for both short term and long term bank facilities availed by the borrower under the bank loan ratings services. Facilities that are rated can be fund based or non-fund based.

Frequently Asked Questions (FAQs)


What are bank loan ratings?

Bank loan ratings are ratings issued by credit rating agencies to facilities that are availed by borrowers in the form of fund based and non fund based facilities. As per the Basel II norms, banks calculate their capital requirement based on the ratings assigned by External Credit Assessment Institutions (ECAI) to these bank loans. According to the Reserve Bank of India (RBI) guidelines issued in 2007, banks have moved to the standardized methodology for credit risk capital calculation as stated in the Basel II norms from March 2008. Thus, companies that have borrowed from the banks are rated by the ECAIs that have been accredited by the Reserve Bank of India.

What does a bank loan rating convey?

A bank loan rating conveys the credit risk that the bank is undertaking by lending to the borrower. The probability of default (PD) refers to the risk that the bank faces in not receiving the payment in full on the due date from the borrower.

What are the rating grades that Brickwork Ratings assigns to bank loan ratings?

The rating grades assigned by Brickwork Ratings are for both long-term and short-term facilities and the rating scale is the same as the scale for NCDs/bonds that have been rated by Brickwork Ratings.

Bank loans that have an original maturity greater than one year are assigned long term ratings and facilities that have original maturity lesser than one year are assigned short-term ratings. In the case of credit lines such as cash credit and overdrafts, long term ratings are assigned due to their revolving nature. The following table lists the typical facilities that are rated by Brickwork Ratings for assigning bank loan ratings.

Sl.No Facility Type of Facility (Fund- Based – FB and Non-Fund Based – NFB) Type of Rating Assigned
(Short Term/Long Term)
1 Long Term Loan FB Long Term
2 Cash Credit/Overdraft/Other Working Capital Loans revolving in nature FB Long Term
3 ECBs FB Long Term
4 Loans against property/secured by commercial property/mortgage finance FB Long Term/Short Term based on original maturity
5 Short Term Working Capital Loans non-revolving in nature FB Short-Term
6 Packing Credit FB Short-Term
7 Bills discounted/re-discounted/Factoring/Bill Purchase FB Short-Term
8 Bank Guarantee NFB Short-Term
9 Letter of Credit NFB Short-Term

The long-term rating scale used by Brickwork Ratings is

BWR AAA
(BWR Triple A)
Instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry lowest credit risk.  
BWR AA
(BWR Double A)
Instruments with this rating are considered to have high degree of safety regarding timely servicing of financial obligations. Such instruments carry very low credit risk.
BWR A Instruments with this rating are considered to have adequate degree of safety regarding timely servicing of financial obligations. Such instruments carry low credit risk.
BWR BBB
(BWR Triple B)
Instruments with this rating are considered to have moderate degree of safety regarding timely servicing of financial obligations. Such instruments carry moderate credit risk.
BWR BB
(BWR Double B)
Instruments with this rating are considered to have moderate risk of default regarding timely servicing of financial obligations.
BWR B Instruments with this rating are considered to have high risk of default regarding timely servicing of financial obligations.
BWR C Instruments with this rating are considered to have very high risk of default regarding timely servicing of financial obligations.
BWR D Instruments with this rating are in default or are expected to be in default soon.
Note:
  • Modifier {"+" (plus) / "-"(minus)} can be used with the rating symbols for the categories BWR AA to BWR C to reflect the comparative standing within the category.
  • BWR assigns rating “outlook” for ratings from 'AAA' to 'B'. The Rating outlook indicates the direction a rating is likely to move over a period of time and may be classified as Positive, Stable or Negative.
  • NS (Not Significant) Rating
    BWR may assign NS (Not Significant) Rating when an existing rating ceases to have any significant relevance for reasons which such as the issuer undergoing any structural changes or temporary protection from the regulators/ courts/ bankruptcy laws.

The short-term rating scale used by Brickwork Ratings is

BWR A1 Instruments with this rating are considered to have very strong degree of safety regarding timely payment of financial obligations. Such instruments carry lowest credit risk.
BWR A2 Instruments with this rating are considered to have strong degree of safety regarding timely payment of financial obligations. Such instruments carry low credit risk.
BWR A3 Instruments with this rating are considered to have moderate degree of safety regarding timely payment of financial obligations. Such instruments carry higher credit risk as compared to instruments rated in the two higher categories.
BWR A4 Instruments with this rating are considered to have minimal degree of safety regarding timely payment of financial obligations. Such instruments carry very high credit risk and are susceptible to default.
BWR D Instruments with this rating are in default or expected to be in default on maturity.
Note:
  • Modifier {"+" (plus)} can be used with the rating symbols for the categories A1 to A4. The modifier reflects the comparative standing within the category. The mapping of long to short term ratings has been explained elsewhere in the criteria.
  • NS (Not Significant) Rating
    BWR may assign NS (Not Significant) Rating when an existing rating ceases to have any significant relevance for reasons which such as the issuer undergoing any structural changes or temporary protection from the regulators/ courts/bankruptcy laws.

What is the rating process followed by Brickwork Ratings in assigning bank loan ratings?

The rating process for assigning bank loan ratings followed by Brickwork Ratings is similar to that followed for rating of NCDs/bonds.
Please refer to Rating Process

What are the criteria used for bank loan ratings?

The criteria used for assigning bank loan ratings are similar to the criteria used for rating the bonds/NCDs for issuers in the segment that the borrower belongs to. Detailed rating criteria for individual segments can be obtained from Rating Criteria.

When does Brickwork Ratings assign a “Default” rating grade to bank loan ratings?

Brickwork Ratings considers non-payment of financial obligations on the due-date as default and accordingly downgrades the rating assigned to the instrument/issuer to “BWR D”. Financial obligations refer to both principal and interest payments due and non-payment refers to non-payment of even one rupee of financial obligations that have fallen due on the due date.

What types of facilities are rated and should the company get separate ratings for each facility from each bank that it has borrowed from?

Brickwork Ratings assigns ratings for all limits sanctioned by all banks while undertaking a bank loan rating exercise. The information collected from the borrower includes details of all banking facilities availed and as such one rating assignment should suffice to meet the requirements. In cases where the borrower avails new facilities or gets limits enhanced for existing facilities, the rating will need to be revalidated before it can be used by the borrower.

Are non-fund based limits also considered for bank loan ratings?

Non-fund based limits such as LCs and bank guarantees are also assigned bank loan ratings.

Can companies that have outstanding NCD ratings use the same as bank loan ratings?

The issue size, structure etc will determine the ratings that are assigned to a company’s NCDs. Bank loan ratings are specific to the facilities that are availed from different banks and should be rated separately.

What is the time taken by Brickwork Ratings in completing a bank loan rating assignment?

Brickwork Ratings usually takes around 3 to 4 weeks to assign bank loan ratings. The total time taken will depend on the availability of information with Brickwork, availability of public information, co-operation of the borrower in providing information required by Brickwork Ratings as well as in providing the time required for management discussions.