In ICRA's assessment, the Reserve Bank of India’s (RBI’s) final directions on capital charge for credit risk under the standardised approach would bring capital relief to banks. The key changes include lowering of risk weights for entities rated in AA, BBB, BB rating categories and rated A1 on the short-term scale, though the variations of risk weights between short-term and long-term mapped rating have widened. Risk weights for project finance exposures will now be differentiated by phase, pre-operational and operational, with high-quality operational projects attracting the lowest weights.

Exhibit: RBI introduces higher risk weights for CRAs with greater observed default rates

Note: *The RBI shall be separately providing a guidance note detailing the methodology to be followed for computing the one-year ODR