The Hindu Business Line : `Basel II implementation expense a worthwhile investment'

The RBI Chief General Manager, Mr Amarender Mohan (right), greets the Chief Operating Officer, i-flex Solutions, Mr N.R.K. Raman (left), at a seminar on `Basel II norms — Are we ready?' organised by the Confederation of Indian Industry, Andhra Pradesh wing, in Hyderabad on Saturday. The Chairman of APSFC, Mr M. Gopalakrishna, looks on. — Mohammed Yousuf

Hyderabad , Aug. 27

THE RBI has said that the expenditure commercial banks would incur on their way to implement Basel II norms should not be considered as cost to the banks.

"It should be considered investment," Mr Amarendra Mohan, Chief General Manager (Dept of Banking Operations and Development), RBI, said.

Delivering the keynote address at the seminar on `Basel II norms - Are we ready' on Saturday, he said, citing an estimate by Mr David Eldon of HSBC, that the banks in Asia would need $10 billion on implementation of Basel II norms.

The seminar was organised by the Confederation of Indian Industry's Andhra Pradesh chapter.

Nearly 60 per cent of this would go to information technology needs. This spending should not be considered as cost. It is a worthwhile investment that will help banks withstand competition in the future.

"It (Basel) is an evolving process though started six years ago. It is still new. It will continue to evolve," he said.

Stating that banking was becoming much more complex, Mr Mohan said if it was reflected in the new accord, one should welcome it.

On the criticism against the norms, he said over-dependence on rating agencies was one of the main criticisms. He said rating agencies were going to stay with or without these norms. Banks could make use of them.

He pointed out that Basel couldn't be of any help if accounting and other infrastructure was weak.

Mr N.R.K. Raman, Chief Operating Officer of i-flex, said banks in the West were putting pressure on IT companies to help them log on to Basel as risk of default was very high.

There is no packaged software solutions that can make banks Basel-compliant at one go. It depends on several aspects of a bank.

Mr Raman cautioned the banks against complacency. "You can't wake up after five years and declare you are ready. You need to gather crucial data now," he said.

Mr M. Gopalakrishna, Chairman of AP State Financial Corporation and Convener of CII-AP's Economic Affairs Panel, said conformity to Basel II norms would result in increased risk sensitivity, a self-correcting mechanism and better supervision by the RBI.

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`Basel II implementation expense a worthwhile investment'