While the RBI has accredited four rating agencies operating in India, the rating penetration in India is rather low. Moreover, credit rating in India is confined to rating of the instruments and not of the issuing entities as a whole. Besides, the credit rating provides only a lagged indicator of the credit standing of an entity, and is not a lead indicator.
The banks would, therefore, need to actively reckon this aspect in their ICAAP exercise. BIS Review 102/2007  3  Third, the risk weighting scheme under Standardised Approach also creates some incentive for some of the bank clients to remain unrated since such entities receive a lower risk weight of 100 per cent vis-à-vis 150 per cent risk weight for a lowest rated client.