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RBI moves to distance self from bank deposit ratings

By Sohail Khan 17 August 2026, 12:46 am

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Business News›Industry›Banking/Finance›Banking›RBI moves to distance self from bank deposit ratings

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Synopsis

The Reserve Bank of India has instructed rating agencies to refrain from categorizing it as the regulator overseeing bank deposits. This recent directive raises the possibility that these credit assessment organizations may halt the evaluation of bank deposits entirely. With threats of deposit outflows and potential bank instability stemming from any downgraded ratings, the landscape of retail deposit reactions remains mixed.

RBI moves to distance self from bank deposit ratings — Reserve Bank of India (RBI)

Mumbai: The Reserve Bank of India (RBI) is distancing itself from bank deposit 'ratings'.

About ten days ago, the central bank told the credit rating industry to refrain from mentioning RBI as the regulator of the rated instrument in their communiques on ratings of bank deposits, two persons aware of the development told ET.

According to rules laid down by Securities & Exchange Board of India (SEBI) — the primary regulator for credit rating agencies (CRAs) – rating firms must explicitly identify and disclose the financial sector regulator of the specific rated instrument in their press releases and rating action reports. The rule was introduced in February 2026.

Under the circumstances, if RBI cannot be named as the regulator for bank deposits, then the central bank directive could force credit rating companies to stop putting out ratings on bank deposits.

This is the first time RBI has issued such a directive. What triggered this is unclear with RBI not spelling out the reasons.

"RBI is not saying that it does not regulate bank deposits. Also, it's not directly telling CRAs to stop rating deposits. However, the directive is a hint that RBI probably doesn't want bank deposits to be rated," said a source.

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The rating companies have approached SEBI for guidance.

According to regulatory circles, the RBI direction may stem from concerns over a possible flight of deposits and the resulting instability following a sudden ratings downgrade of a bank.

Parameters like capital adequacy, asset quality, management strength, earnings performance, liquidity position and sensitivity to movements in interest and foreign exchange rates go into finalising the rating of a bank's deposits.

"A drop in capital or surge in NPA, or CEO's exit post financial irregularities can cause downgrade. If this drives depositors to pull out money, it can unsettle a bank. While this has happened with some private sector banks, cooperative and smaller banks may be more vulnerable," said a senior banker.

Retail depositors are unconcerned about ratings and rarely differentiate among state-owned banks, but PSUs, state-run organisations, and many corporates check ratings before depositing surplus funds. "Internal guidelines require many PSUs to place deposits with banks above a certain rating," he said. "Rating of deposits is a guidance based on ordinal assessment of risks, not an investment instruction. Perhaps, RBI doesn't want depositors' decision to be governed by the fact that deposits are under its regulation. Also, the protector of deposits is DICGC which is technically an independent corporation," said a regulatory official.

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DICGC, or the Deposit Insurance and Credit Guarantee Corporation, guarantees bank deposits up to ₹5 lakh per depositor per bank for combined principal and interest. The proposal to raise the limit to ₹7.5 lakh is awaiting approval.

"The rule to identify the regulator in rating releases is meant to clarify which authority oversees the underlying instrument. It helps investors and market participants know which regulatory framework and redressal mechanism apply to an instrument," said a rating firm official.

CRAs, however, would continue to rate other instruments linked to banks- such as loans, certificate of deposits, additional tier-I bonds, and subordinated debt instruments like tier-2 bonds.

The RBI spokesperson could not be reached immediately for obtaining the regulator's views on the matter.

Two years ago, CRAs had faced a dilemma when SEBI told them to obtain NOCs from RBI or a central authority before rating unlisted bonds, corporate deposits and securitised papers – instruments that are not under the domain of the two financial services regulators. The issue, however, has been sorted out since then.

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