The Reserve Bank made changes to the partial credit enhancement (PCE) framework for corporate bonds, making it mandatory for companies to get the paper rated by two agencies throughout its lifetime, reported PTI.
"To be eligible for PCE from banks, corporate bonds shall be rated by a minimum of two external credit rating agencies at all times," the apex bank said in a notification. The rating reports, including the initial ones and subsequent, should disclose both standalone credit rating without taking into account the effect of PCE as well as the enhanced credit rating taking into account the effect of PCE.
A PCE enhances the credit rating of bonds and hence, enables corporates to raise more resources from the bond market at better terms. In its second quarter review of the monetary policy in October 2013, the RBI had first proposed to allow banks to offer PCE to corporate bonds with a view to enable long term investors like insurance and provident/pension funds to invest in bonds.
For purpose of capital computation in the books of PCE provider, lower of the two standalone credit ratings and the corresponding enhanced credit rating of the same rating agency shall be reckoned, the RBI said.
In cases where the reassessed standalone credit rating at any time during the life of the bond shows improvement over the corresponding rating at the time of bond issuance, the capital requirement may be recalculated on the basis of the reassessed standalone credit rating and the reassessed enhanced credit rating, it said.