Independent Credit Evaluation

The Reserve Bank of India, through its February 2018 circular, ‘Resolution of Stressed Assets – Revised Framework’, came up with guidelines , for the Independent Credit Evaluation (ICE) of the residual debt for resolution plans involving restructuring/changes in ownership of large accounts (accounts where the aggregate exposure of lenders is Rs. 1 billion and above), to be done by CRAs. These guidelines were to supplant the several resolution mechanisms existing hitherto, which were de-facto subsumed by the introduction of the Insolvency and Bankruptcy Code (IBC). It has also prescribed a new scale for such ICEs – ranging from RP1 to RP7. For a resolution plan to be considered for implementation without reference to the NCLT, the RBI guidelines require a credit evaluation of RP4 or better on the residual debt from credit rating agencies (CRAs) specifically authorised to do so by it- CRISIL is one such CRA.

 

CRISIL’s standard criteria for manufacturing and services sector entities, as well as relevant sector-specific criteria, (used to assign credit rating on the existing scale of AAA to D) are also applicable in the case of the ICE of resolution plans on the new scale proposed by the RBI. Apart from this, ICE factors in the feasibility of the resolution plan, adequacy of cash flows vis-à-vis repayment obligations on residual debt, and management capability to effectively implement the same. It factors in the likely impact of the proposed resolution plan and is based on the assumption of materialisation of the resolution plan. Further, each stressed asset could have multiple resolution plans and each individual resolution plan would have its own credit evaluation. Each evaluation is a one-time exercise. The ICE is
carried out at the request of the lender.

 

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