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Mr V. Leeladhar, Deputy Governor, RBI, and Dr.Shamshad Akhtar, Governor, State Bank of Pakistan, at a conference on global banking in Mumbai on Tuesday. - Paul Noronha

Mumbai , Sept. 26

The Reserve Bank of India could relax the deadline for banks to comply with Basel II norms, expected to be finalised in a couple of weeks, according to Mr V. Leeladhar, Deputy Governor, RBI.

Speaking at the sidelines of a seminar organised by the Federation of Indian Chambers of Commerce and Industry, Mr Leeladhar said: "We are monitoring the preparedness of banks. There may be a marginal extension of the date for complying with the guidelines. The RBI has set March 31, 2007, as the cut-off date to fall in line with Basel II norms."

The RBI has set up a `Steering Committee' comprising representatives from 14 private, public sector, foreign banks and the Indian Banks' Association. The committee has examined the Basel II framework and passed its recommendations to the RBI. "Banks and the RBI have worked together to address the challenges," he said.

The central bank has decided to apply the Standardised Approach and Basic Indicator Approach to all banks as a first move towards Basel II norms. In India, only about 10 per cent of banks' corporate exposures are rated by external rating agencies, Mr Leeladhar said.

"Our approach to reforms has been to align with international best practices while adopting them in a manner and pace suitable to our economy and environment," he said.

As ratings in India are issue-specific and not issuer-specific, rating agencies should start rating issuers, Mr Leeladhar said. "Rating agencies are also putting in place methodologies for undertaking issuer ratings, if required by the market," he added. The current practice of assigning a lower risk-weight of 100 per cent for unrated entities and higher risk-weight of 150 per cent for entities rated below `BB (-)' is providing corporates a perverse incentive to remain unrated," he said. "Since it might not be fair to assume upfront that all unrated entities are high-risk entities, we have decided to adopt the 100 per cent risk weight for unrated exposures — as prescribed in the Basel II framework," Mr Leeladhar said. The RBI may review bank exposures to unrated corporates and may revise their risk-weights, if needed, he added.

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