Synopsis
RBI had earlier voiced its reservations about ‘credit enhancement’ mechanisms like ‘letter of comfort’ and ‘letter of undertaking’ given by promoters or parent firm to the borrowing entity as well as supports like pledge of shares. Corporates lower their cost of debt, often significantly, through these structures.
Mumbai: The Reserve Bank of India (RBI) has given credit rating companies six months to either downgrade or withdraw bank loans ratings that were propped up through arrangements that the regulator thinks are “diluted or non-prudent support structures.”
With this, hundreds of companies are likely to find their borrowing cost rise and ratings on their bank loans drop at least two notches by early 2023.
The central bank expressed its views in a
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