Banks Shouldn't Treat Credit Rating Score As Gospel Truth: Report

Chennai: mortgage creditors like banks have to look at credit score rating of a borrower as an opinionthrough a credit score company and not a gospel reality, states a file via Assocham and Pricewaterhouse Coopers (p.c).

“Banks ought to treat the credit score rating handiest as an ‘opinion’ and not as the gospel reality and thefacts generated by means of their scores should be utilized in conjunction of banks’ credit chanceframework to determine on suitability of loan publicity,” said a announcement issued with the aid ofAssocham on Monday.

enhancing efficacy of CRAs (credit score score groups) desires to be regarded from a holistic anglewhere all members within the ecosystem, the regulators, CRAs, corporate, investors (banks), debtorsand others need to paintings at the same time towards a higher system of credit score hazardevaluation and tracking,” noted the have a look at titled developing NPAs in Banks: Efficacy of creditrating agencies.

according to the look at, banks’ credit score hazard assessment, administration and tracking have an increasing number of come into focus because of widespread growth in levels of non-acting property(NPAs) and harassed property (SA) in past couple of years.

“The banks, aside from placing up a robust regulatory framework, ought to also improve theircapabilities for greater due diligence to correctly examine the ratings given by way of the CRAs,” itstated.

The have a look at also indicates that banks want to transport closer to risk primarily based pricingwhereby they are able to use score as extra than just a mandatory exercising through identifyinggreater incentives for them to adopt scores.

The study also shows that the banks should be recommended to expand their inner score models and validate those rankings with the aid of evaluating them with publicly available rankings and additionallyare seeking for greater records from the score corporations.

A forwardsearching and marketplace based totally credit score mechanism as part of a flow closer torisk based totally pricing also can help the system to take proactive corrective steps to reduce the weightof pressured assets and probably lessen NPAs systemically and keep away from panic and kneejerk reactions, the take a look at recommends.

besides, early caution structures along with dynamic score mechanism measuring all the dangers of themarket can help the banks and different lending institutions to correctly predict the credit chanceassociated with the borrower and take vital moves to mitigate such dangers.

considering that monetary education in India continues to be at a nascent stage, the ratings need to be displayed on a commonplace website for comparison, the look at endorsed.

(This tale has no longer been edited with the aid of NDTV staff and is vehicle-generated from a syndicated feed.)
tale first published on: June thirteen, 2016 17:03 (IST)

Tags: Banks, credit score score of a borrower, credit score score, credit score businesses, Assocham, non-acting assets, NPAs