RBI Reverses Stance, Allows Banks Limited Use of Brickwork Ratings

In a surprising reversal, the Reserve Bank of India (RBI) has partially restored the usability of ratings provided by Brickwork Ratings India Private Limited (Brickwork). This comes after the RBI had restricted banks and other entities from seeking fresh ratings from Brickwork in October 2022, following the cancellation of its registration as a Credit Rating Agency (CRA) by market regulator SEBI.

Key Points

• Limited Use for New Loans: Banks can now obtain ratings from Brickwork for loans up to ₹250 crore. This allows for some continued use of Brickwork’s ratings for smaller loans but significantly restricts their overall applicability.
• Existing Ratings Remain Valid: Brickwork can continue to conduct surveillance on existing ratings, regardless of the loan amount, until the loan matures. This ensures continuity for existing loans with Brickwork ratings.
• RBI Tweaks IFSC Remittance Rules: In a separate move, the RBI has expanded the permissible purposes for remittances to International Financial Services Centres (IFSCs) under the Liberalised Remittance Scheme (LRS). This allows individuals to utilise LRS for a wider range of financial services and products offered by IFSCs.

Implications

This move by the RBI suggests a potential reevaluation of Brickwork’s situation. While fresh reliance on their ratings is limited, the ability to use existing ratings and conduct surveillance provides a lifeline for Brickwork and some level of continuity for loans with their ratings. The broader implications for Brickwork’s future as a CRA remain unclear.

For IFSC remittances, the revised regulations offer greater flexibility for individuals seeking financial services from these centres.

“On a review, banks are hereby permitted to use the ratings of the CRA (Brickwork Ratings) for risk weighting their claims for capital adequacy purposes,” the RBI said in a statement.

Listing out certain conditions, the RBI said that regarding fresh rating mandates, the rating may be obtained from Brickwork Ratings for bank loans not exceeding ₹250 crore. Regarding existing ratings, Brickwork may undertake rating surveillance irrespective of the rated amount for the residual tenure of such loans, the RBI said.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.