External Credit Assessment Institution — the term the RBI uses, following Basel usage, for a credit rating agency whose ratings banks may rely on when assigning risk weights to exposures for capital computation.
The term appears throughout the RBI’s Basel-based capital regulations and in rating press releases themselves, usually in the boilerplate around bank facilities.
What accreditation means
Under the Basel standardised approach, a bank assigns a risk weight to a corporate exposure by reference to a rating from an ECAI accredited by the RBI. Accreditation is the RBI’s own list, maintained through its notifications: in January 2023 the RBI’s eligible-ECAI notification named six agencies, and the position of one agency has been varied since. The RBI’s notifications are the authority on who is currently eligible. (RBI, Basel III Capital Regulations — Eligible Credit Rating Agencies, 9 January 2023)
ECAI accreditation versus SEBI registration
Two separate lists, from two regulators, for two purposes — and they do not coincide.
- SEBI registration is what makes an entity a credit rating agency at all: the licence to assign and publish credit ratings, under SEBI’s framework for CRAs.
- RBI ECAI accreditation is what makes that agency’s ratings usable by banks for capital computation.
A SEBI registration does not by itself put an agency on the RBI’s list. When reading a bank loan rating, the agency’s ECAI status is what determines whether the rating serves the purpose it was commissioned for.
Why the term explains a whole market
The bank-loan-rating market exists because of the ECAI mechanism. Capital relief on a corporate exposure requires a rating from an accredited agency, so banks require ratings from borrowers who would otherwise never seek one — which is why the rated universe in India skews far beyond bond issuers, into mid-corporates and SMEs with no market debt at all. And because the rating must be attributable to a specific facility of a specific lender for capital purposes, the ECAI’s press release carries a facilities table and, where the borrower consents, the lender-wise annexure naming the bank behind each line. The RBI reinforced that link in October 2022, ruling that a bank loan rating published without lender details shall not be eligible for capital computation, with effect from 31 March 2023. (RBI/2022-23/125, 10 October 2022)
Related
- Bank loan rating — the rating type the ECAI mechanism gives rise to
- Lender-wise annexure — the disclosure the capital rules require
- Credit rating agencies in India — the SEBI-registered agencies, compared
- Glossary index