RBI asks rating firms to scan companies’ bank details

MUMBAI: Corporates will soon come under pressure to disclose bank statements with credit rating agencies.
The Reserve Bank of India (RBI) has directed rating firms to scan bank account details — capturing the flow of fund in and out of a company — in assessing its ability to repay loans.

Many companies, it is widely believed, would be reluctant to part with such information which are shared with an external agency only when banks or regulators order a forensic audit of a borrower’s books. A rating agency tracking such data on money flows could be in a position to red flag possible diversion of fund through subsidiaries, shell companies or other parties.

Understandably, any evidence of suspicious fund movements could put a company under rating watch and raise its cost of borrowing from banks and financial institutions, said a person familiar with the decision. About 25,000 companies are rated in the country, of which half are estimated to be below investment grade.

The rating agencies are, however, overwhelmed by the task which would involve scrutinising thousands of bank statements in judging a company’s debt servicing capability. “Agencies have told the banking regulator about the enormity of the exercise – the sheer logistics and time it would involve, that credit rating firms are not auditors. But, RBI is insistent,” said a banker.



The rating companies may have to use special software for analysing bank statements.

While the RBI directive pertains to rating of bank loans, any adverse action on a bank debt rating immediately influences ratings of other tradable securities like bonds and debentures floated by the company to raise funds.

RBI gives rating agencies the accreditation to rate loans (of Rs 10 crore and above), money market instruments like commercial papers, and non-fund based banking facilities such letters of credit. Loan ratings are crucial for banks because unrated loans attract higher risk weightage (as per accounting and regulatory norms) and impairs banks’ capital.

Rating agencies have to often function with inadequate information – particularly on bank loan default when they often come to know about a missed interest payment months after the due date.

This is unlike the defaults in bonds and debentures which traders come to know about immediately, thanks to the information sharing arrangement for listed securities. Till now, banks and RBI have refused to give rating agencies the access to real-time default data.

“Corporates are not under RBI’s jurisdiction. So making them share bank statements could call for a government intervention,” said a source. The recent move follows RBI’s decision to give rating agencies the mandate to rate debt instruments based on the resolution plan prepared with the consent of lenders and bankruptcy court for reviving a company.