The Reserve Bank of India (RBI) issued Circular No. RBI/2025-26/50 DOR.STR.REC.29/21.06.008/2025-26 on June 9, 2025, addressed to all Scheduled Commercial Banks (excluding Local Area Banks, Payment Banks, and Regional Rural Banks). This circular relates to the Basel III Capital Regulations and modifies the regulatory stance on the use of Brickwork Ratings India Private Limited (BRIPL) as an External Credit Assessment Institution (ECAI).
🔸 What is Basel III?
Basel III is an international regulatory framework designed to strengthen bank capital adequacy, liquidity, and leverage standards in the aftermath of the 2008 financial crisis. It requires banks to maintain sufficient capital to absorb losses and protect depositors. One key aspect is the Capital to Risk-Weighted Assets Ratio (CRAR), where banks assign risk weights to their assets based on their credit quality. The use of external credit ratings from RBI-approved agencies helps determine these risk weights.
In India, the RBI has implemented Basel III with stricter norms, including:
- A minimum capital adequacy ratio of 9%,
- A Capital Conservation Buffer,
- Liquidity requirements such as the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR).
Ratings from accredited ECAIs like CRISIL, ICRA, India Ratings, CARE, and BRIPL are used by banks to assign appropriate risk weights.
🔸 Background: Restrictions on BRIPL
While BRIPL is an accredited rating agency, RBI had earlier imposed restrictions on its usage through Circular DOR.STR.REC.26/21.06.008/2024-25 dated July 10, 2024, possibly due to regulatory concerns around governance, independence, or rating quality. These restrictions limited the extent to which banks could use BRIPL’s ratings when calculating capital adequacy.
Such limitations could affect the cost of credit or availability of capital for entities rated only by BRIPL, thereby indirectly impacting credit flow to certain sectors.
🔸 Change Introduced in June 2025 Circular
The June 9, 2025 circular marks a reversal of the previous restrictions:
“On a review, it has been decided to remove the restrictions/limits placed on the use of ratings of BRIPL by the banks.”
This implies that banks are now permitted to use BRIPL’s ratings without any regulatory limitations for the purpose of risk-weighting credit exposures under Basel III.
🔸 Implications
The recent regulatory update provides several benefits for stakeholders in the banking and financial ecosystem. For banks, it offers greater flexibility by allowing access to a broader set of credit rating sources, including BRIPL. This can lead to improved coverage of rated instruments, especially for borrowers who might not be assessed by larger credit rating agencies. As a result, banks may benefit from potential reductions in capital charges if BRIPL ratings support the application of lower risk weights under Basel III norms. For BRIPL, the move signifies a restoration of regulatory trust and credibility, opening up new business opportunities and boosting market confidence in its ratings. At a systemic level, this decision fosters diversity and healthy competition within the credit rating ecosystem, ensuring that the market does not overly depend on a few dominant agencies. It also highlights a balanced and responsive regulatory approach one that exercises caution while promoting market efficiency and inclusivity.
Conclusion
This RBI circular is a targeted yet significant regulatory update under the broader Basel III framework. It restores BRIPL’s full utility as an ECAI, enabling banks to optimise capital requirements while ensuring compliance with global prudential norms. This move not only reflects BRIPL’s improved standing but also demonstrates the RBI’s commitment to a balanced, robust financial system where both risk sensitivity and operational efficiency are maintained.
Disclaimer: The information published in the above newsletter is collected from various sources in electronic medium and analyzed by the firm. The reader is advised to consult the attorney qualified in their jurisdiction, before acting on any information contained in this newsletter. India Juris excepts no liability what so ever in this regard.
