The Hindu Business Line : RBI issues order on Basel II norms for banks

Mumbai April 28 Indian banks having foreign branches and foreign banks operating in India will have to migrate to Basel II norms from March 31, 2008, according to an RBI release.

All other commercial banks, excluding local area banks and regional rural banks, have to adopt Basel II norms not later than March 31, 2009, it added.

Adopt approaches

Under Basel II norms, banks would have to adopt Standardised Approach for credit risk and Basic Indicator Approach for operational risk for computing their capital requirements under the revised framework, according to the new Basel II guidelines issued today. Banks are required to obtain the prior approval of the RBI to migrate to the Internal Rating-Based Approach for credit risk and the Standardised Approach or the Advanced Measurement Approach for operational risk for computing regulatory capital requirements.

The Revised Framework consists of three-mutually reinforcing Pillars - minimum capital requirements, supervisory review of capital adequacy and market discipline.

Under Pillar 1, the Framework offers three distinct options for computing capital requirement for credit risk and three other options for computing capital requirement for operational risk.

These options for credit and operational risks are based on increasing risk sensitivity and allow banks to select an approach that is most appropriate to the stage of development of bank's operations.

The options available for computing capital for credit risk are Standardised Approach, Foundation Internal Rating-Based Approach and Advanced Internal Rating-Based Approach. The options available for computing capital for operational risk are Basic Indicator Approach, Standardised Approach and Advanced Measurement Approach.

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