NEWS & ADVICE : CAR LOANS
Rated corporates will avail a cheaper loan
By Vaibhav Aggarwal
Nov 4, 2008
Print    Email    RSS   

If your company is not rated under any credit rating agency, then your borrowings will be costlier by 200 basis points.

According to the Basel II accord, it is mandatory for a corporate or a bank to be rated under a rating agency. Any borrower without a rating is likely to avail a loan at higher interest rates. Banks are charging more to such borrowers as they fail to provide a credit rating to prove their creditworthiness.

The capital adequacy ratio (CAR) of the bank comes down if the borrower firm's accounts are not rated because an average risk has to be assigned to the credit extended to such borrowers. On the other hand if the accounts are rated and the firm has a good rating, CAR is high as the risk assigned tends to be lower.

Most banks are demanding for a rating from their borrowers before extending loans of Rs 5 crore and above.

A senior official form a bank said, "We are charging higher interest rates from unrated borrowers, though there is no fixed interest rate for such borrowers. We use our discretion for fixing interest rates for un-rated borrower." Nevertheless, the extra charge from such borrowers does not exceed 2%, he added.

There are only four authorized rating agencies in India namely Fitch, Icra, Crisil and CARE Ratings and Basel II norms makes it mandatory for banks to get a rating from any one of them. The country's largest lender, SBI recently faced problems in getting their accounts rated due to the scarcity of rating agencies in the country. The Bank's Chairman, OP Bhatt said that its CAR is likely to rise by 259 basis points once all the credit accounts are rated. Presently the bank's CAR is below 12%.

The second quarter report clocked a fall in the CAR of most commercial banks. Almost all commercial banks are taking steps to get their corporate accounts rated under a rating agency in order to fulfill the Basel II norms by March 2009. This is likely to reduce their credit risk and ease difficulties faced at the time of borrowing.

 


(Comments Posted : 0) Post Your Comments
Show All Comments
COMPARE QUICKLY
 Select a product:
 

CALCULATE QUICKLY
 Select a product:
 

EDITORS' PICKS
A chronicle of excesses by loan recovery...
This is how a bank lends money
Carnival of Indian Personal Finance Blogs #4
A Complete Guide on Car Loans for NRIs
Manage your loans, avoid recovery agents


Hello I am looking to renew my car insurance and I...
my loan no
Lonavala Caℓℓ Girℓs 9765946980 / 9970712349...

NEWS THIS WEEK
SBH bank extended its Car and gold loan campaign till 31st March, 2015. Feb 11, 2015
KVGB bank signed MOU with TATA Motors Feb 10, 2015
SBH bank extended its scheme offering concession to loan defaulters Feb 2, 2015
Karnataka Bank tied up with TVS motors to Assist Auto rickshaw buyers Jan 27, 2015
RBI extended the Directions issued to Amanath Co-operative Bank for a period of six months Jan 22, 2015
News Archive