A bank loan rating (BLR) indicates the degree of risk regarding timely servicing of the bank facility being rated; the facility includes principal and interest, if any, on the principal in case of fund based facilities. For the non-fund based facilities like Letter of Credit, Bank Guarantee, etc., the rating indicates the degree of risk regarding timely meeting the funding obligations arising out of devolvement of Letter of Credit and/or invocation of Bank Guarantee.
BLR is used by banks to determine risk weights for their loan exposures, in line with the Reserve Bank of India's (RBI's) Guidelines for implementation of the New Capital Adequacy Framework under Basel II framework. The Basel II guidelines, as they are called, require banks to provide capital on the credit exposure as per credit ratings assigned by approved external credit assessment institutions (ECAIs).
Basel II is a recommendatory framework for banking supervision, issued by the Basel Committee on Banking Supervision in June 2004. The objective of Basel II is to bring about international convergence of capital measurement and standards in the banking system. The revised framework for capital adequacy has been effective from March 31, 2008, for all Indian banks with an operational presence outside India (12 public sector banks and five private sector banks) and for all foreign banks operating in India. It has been applicable to all other commercial banks (except local area banks and regional rural banks) from March 31, 2009.
INFOMERICS, on formal request backed by appropriate signed Mandate Agreement, rates all types of fund-based and non-fund based facilities sanctioned / to be sanctioned by Banks. This would include cash credit, working capital demand loans, Letter of Credit, Bank guarantees, Bill discounting, Terms Loans covering Project Loans, Loans for general corporate purposes, etc. INFOMERICS may also rate Term Loans sanctioned / to be sanctioned by any financial institution and/or Non-Banking Finance Companies.