Resources for Basel II Capital Accord (Basel II)

Deadline: Banks have to adopt Basel-II norms by March '08

economictimes.indiatimes.com

Basel II may sprout a new trend — corporate borrowers opting to remain unrated. The new capital norms that kick in from March attach a lower capital charge or risk weight (100%) to unrated companies than those rated BB (150%). Bankers fear this may encourage corporates to refrain from getting rated than acquire a rating lower than BBB.

Basel II may also intensify the race among banks to woo AAA-rated companies. The norms require banks to set aside lower capital for loans to corporates with high credit ratings. The best-rated corporates will attract a risk weight of just 20%. For every Rs 100 lent, a AAA-rated loan carries a risk weight of 20%, which means Re 1.8 will have to be set aside. In contrast, Rs 13.5 will have to be set aside for a BB-rated loan.

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