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RBI/2016-17/305
DBR.No.BP.BC.70/21.04.142/2016-17
May
18, 2017
All Scheduled Commercial Banks
(Excluding Regional Rural Banks)
Madam/Dear Sir,
Partial
Credit Enhancement to Corporate Bonds
Please refer to paragraph 21 (a)
of the Guidelines on Partial Credit Enhancement to Corporate Bonds by Banks
annexed to the circular DBR.BP.BC.No.40/21.04.142/2015-16 dated
September 24, 2015, on the capital requirements during the lifetime of the
bond in respect of which partial credit enhancement (PCE) is provided by
the banks.
2. On a review of the capital
requirement for PCE, it has been decided that:
a) To be eligible for PCE from
banks, corporate bonds shall be rated by a minimum of two external credit
rating agencies at all times;
b) The rating reports, both
initial and subsequent, shall disclose both standalone credit rating (i.e.,
rating without taking into account the effect of PCE) as well as the
enhanced credit rating (taking into account the effect of PCE).
c) For the purpose of capital
computation in the books of PCE provider, lower of the two standalone
credit ratings and the corresponding enhanced credit rating of the same
rating agency shall be reckoned.
d) Where the reassessed
standalone credit rating at any time during the life of the bond shows
improvement over the corresponding rating at the time of bond issuance, the
capital requirement may be recalculated on the basis of the reassessed
standalone credit rating and the reassessed enhanced credit rating, without
reference to the constraints of capital floor and difference in notches.
Yours faithfully,
(Rajinder Kumar)
Chief General Manager
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