The Hindu Business Line : RBI to hold talks with banks on Basel-II

The central bank would look at a variety of approaches to implement Basel-II framework in a manner suitable to banks in the Indian regulatory environment.

Mumbai , March 15

THE Reserve Bank of India will hold discussions with banks to help them assess the issues involved in Basel II accord, including the costs and benefits of the different approaches and the preparation needed for the transition to the new framework.

The RBI also plans to hold a seminar on Basel II shortly, to give bankers a better understanding of the new accord, said Ms Shyamala Gopinath, Executive Director of RBI, speaking at a seminar organised by the Indian Banks' Association and PricewaterhouseCoopers here.

The central bank would look at a variety of approaches to implement Basel-II framework in a manner suitable to banks in the Indian regulatory environment, she said.

The new framework was necessary due to the advancement in technology and innovations in the banking product and banks would have to develop improved management techniques to effectively deal with operational and credit risks, said Ms Gopinath.

Basel-II accord links the capital and risk management, she said adding banks with advanced risk management techniques may be required to allocate less capital to deal with operational risks.

"Operational risk is defined as the risk of losses resulting from inadequate or failed internal processes, people and systems or external events. There are two simple approaches to operational risk; the basic indicator and the standardised approach which are targeted to banks will less significant operational risk exposures," she said.

The implementation of such sophisticated processes will exert pressure on banks and supervisors to among other things provide supervisory data inputs wherever necessary, in order to ensure consistency in the output across the banks.

This would demand a high degree of sophistication in supervisory skills, which will take a while to achieve, she said.

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