RBI Calls For Tightening Internal Ratings Of FIs

Mumbai, November 4 | Updated: Nov 5 2003, 05:30am hrs
The Reserve Bank of India (RBI) has underscored the need for strengthening the internal rating systems of the financial institutions (FIs) before investment in non-government debt securities, particularly through private placement.

The Reserve Bank, in a circular issued on Tuesday, said that financial institutions should disclose the details of the issuer composition of investments made through private placement and the non-performing investments in the notes on accounts of the balance sheet, with effect from the year ending March 31, 2004 (June 30, 2004 in case of National Housing Bank).

The RBI has barred financial institutions from investing in unrated debt securities.

Financial institutions are allowed only to invest in parers carrying a minimum investment grade rating from a credit rating agency registered with the Securities and Exchange Board of India (Sebi).

The apex bank has issued draft guidelines for FIs on acquiring debt instruments issued by corporate entities and urged comments on the guidelines from the financial institutions.

The guidelines are valid for both the primary and secondary non-government debt market.

The guidelines seek to address the risks arising out of the non-SLR bonds and cover the aspects of prudential limits on the exposure through debt securities; review by the financial institutions boards; and public disclosures in the notes on accounts to the balance sheet.