RBI regulates use of Credit Ratings

Current Context: Reserve Bank of India provides new guidelines for existing credit ratings.

• The new credit ratings are assigned to loans where the name of the lending institution is not disclosed.
• When this information is not provided, it leads to banks applying derived risk weights for unrated exposures.
• The regulation of RBI refers to the External Credit Assessment Institutions which provide ratings to debt.
• Primarily, banks use the ratings assigned to debt in order to calculate risk weightage on urate loans that are provided to the companies.
• These ratings are then used to determine the extent of capital set aside.
• When any violation is committed, the lending situation will need to set aside more capital as RBI has prescribed a comparatively higher risk weightage for credit ratings.

Question:

Q.1 To which institutions does RBI regulation refer?
a. Internal Debit Assessment Institutions
b. External Debit Assessment Institutions
c. External Credit Assessment Institutions
d. Internal Credit Assessment Institutions