RBI Eases Restrictions on Use of Brickwork Ratings Under Basel III Capital Regulations
The Reserve Bank of India (RBI) has issued a key update regarding the use of external credit ratings for capital adequacy purposes under the Basel III framework. This change is expected to enhance flexibility for banks in managing credit risk and regulatory capital requirements.
Background on Basel III Capital Regulations and ECAIs
Under Basel III Capital Regulations, banks are required to maintain adequate capital buffers relative to their risk-weighted assets. The determination of risk weights on banks’ credit exposures is influenced by the credit ratings assigned to counterparties and exposures. For this purpose, banks rely on ratings provided by External Credit Assessment Institutions (ECAIs) accredited by the RBI.
Paragraph 6.1.2 of the Master Circular No. DOR.CAP.REC.2/21.06.201/2025-26 dated April 1, 2025, prescribes the list of domestic credit rating agencies (CRAs) that banks can use for assigning risk weights to their claims under the Basel III framework. This ensures a consistent and transparent approach to credit risk assessment and promotes financial stability.
Previous Restrictions on Use of Brickwork Ratings
Previously, via circular DOR.STR.REC.26/21.06.008/2024-25 dated July 10, 2024, the RBI had allowed banks to use the ratings of Brickwork Ratings India Private Limited (BRIPL) for capital adequacy purposes. However, this permission came with certain restrictions and limits, reflecting regulatory caution regarding the reliability and robustness of these ratings at the time.
These restrictions were intended to ensure that the use of BRIPL ratings did not unduly affect the soundness of banks’ risk assessments and capital adequacy calculations.
Removal of Restrictions
Following a comprehensive review, the RBI has now decided to remove the restrictions and limits previously placed on the use of BRIPL ratings. Banks are now permitted to fully use Brickwork Ratings for risk-weighting their claims under the Basel III framework, on par with other accredited domestic ECAIs.
This move is expected to provide greater flexibility and choice to banks in credit risk assessment and portfolio management. It also reflects the regulator’s confidence in the improvements made to the rating processes and governance at BRIPL.
Continuity of Other Provisions
The RBI has clarified that all other provisions related to external credit ratings as stipulated in the Master Circular remain unchanged.
Conclusion
This regulatory update marks a positive development for the Indian banking sector, enabling a more diversified use of credit ratings while maintaining the integrity of the capital adequacy framework under Basel III.
