Mumbai: Banks will increase dependence on their own internal risk assessment for loans in the light of questions being raised on rating agencies after investigations in the IL&FS case. Bankers said internal assessment, which was a crucial element for any loan , will now gain more prominence after the recent developments.The role of credit rating agencies is under the scanner after an audit report by Grant Thornton (GT) showed that IL&FS directors pushed rating officials to soften ratings, influenced them to change the language in rating rational and occasionally inflated numbers in fishing for better ratings. Bankers said the doubts on rating agencies make their own assessment more important and going forward more weightage would be given to the same. “In the light of this development, the importance of our own internal rating model will go up,” said Prashant Kumar, CFO at State Bank of India.“External rating agencies base their assessment on the financial position and past record but we have our system that includes financials and also a deep dive into other information that is unique to banks like cash flows of the companies, which will be useful.”To be sure, banks always did their own risk assessment for loans but the rating was an important element in making that decision. That importance is likely to diminish though it may not be totally discarded, bankers said.“We look at different parameters internally like Ebitda (earnings before interest, tax, depreciation and amortisation) to interest rate, fund flows and debt service ratio, which are all dynamic in nature,” said Pallav Mohapatra, CEO at Central Bank of India. “As a banker, I have always given more importance to internal assessments and that will not change.” However, debt mutual funds, which do not have as much information as banks, will continue to depend on ratings. They are hopeful that the change in regulations proposed for more disclosures like probability of default or liquidity position of the companies will be helpful in the long run.“The regulation changes are positive in the long run but may be disruptive in the short term,” said Dwijendra Srivastava, CIO-debt at Sundaram Mutual Fund. “However, it is up to funds to use whatever information they want to use. All funds also do their own assessment, which is why you will see that no ‘AAA’ companies are bought by everyone. What is rated ‘AAA’ by an agency may not be worth that risk for me.” However, mutual fund executives privately acknowledge that their internal systems are not as robust as banks because companies do not share the same kind of information with them that they share with banks. Multiple resources for credit assessment is the way forward, they said.