Basel III Compliant Debt Instrument Rating

PACRA’s Basel III Compliant debt instrument credit rating is an assessment of a specific debt issue of a bank and provides, “an opinion on the issuing bank’s ability to meet on a timely basis its principal and interest obligations pertaining to the debt instrument being rated”. The ratings consider both, interest and principal repayment, as “contractual obligations”. Tier 1 debt instruments are perpetual and hence repayment of principal is not a consideration. Repayment of interest is considered contractual obligation. These instruments are issued by banks to enhance their Capital Adequacy. To arrive at the rating, for Basel III Compliant debt instruments, PACRA first forms an opinion on the issuing bank, as per its Rating Methodology for Banks which is used as a baseline. PACRA then goes on to incorporate the unique characteristics of the instrument being rated into its analysis. The rating methodology for this specific rating highlight the salient criteria of Tier I and Tier II debt instruments that are considered crucial while forming a view on the rating.