• Investment World
• eWorld
• Brand Line
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest
• The New Manager

Stocks

• Quotes
• SE Diary
• Scoreboard
• Open-End Mutual Fund

Cross Currency

• Rates
  
  

Shipping

• Ports
  
  

Archives

• Yesterday
• Datewise
• Resources
• In Focus
• In Depth

Group Sites

• The Hindu
• The Hindu ePaper
• Business Line
• Business Line ePaper
• Sportstar
• Frontline
• The Hindu eBooks
• The Hindu Images

Paul Noronha

Mr V. Leeladhar –

Our Bureau

Mumbai, Sept. 13

The Basel II norms might lead to an increase in the overall regulatory capital requirements for the banks, particularly under the simpler approaches adopted in India, if the additional capital required for the operational risk is not offset by the capital relief available for the credit risk, said Mr V. Leeladhar, Deputy Governor, Reserve Bank of India.

Mr Leeladhar was speaking on the implementation of Basel II. He felt that the Indian banks are adequately prepared for its implementation. “We have been scrutinising the progress of every bank for each quarter during the last two years and we are confident that banks are now in a position to meet the requirements,” he said.

Basel II is based on three pillars. The Pillar 1 stipulates minimum capital ratio and requires allocation of regulatory capital not only for credit and market risk but also operational risk, while Pillar 2 deals with supervisory review process and Pillar 3 with market discipline which focuses on the effective public disclosures to be made by the banks.

Of the three pillars the second one, which is the element that makes the revised framework very comprehensive in its sweep by addressing the entire domain of banks is not well understood, felt Mr Leeladhar. “It requires the banks to develop an Internal Capital Adequacy Assessment Process (ICAAP) which should be able to address all those risks which have either not been ‘fully captured’ or not ‘at all captured’ under the two pillars,” he said.

He, however, felt that implementing ICAAP would be the biggest challenge for the banks in India, as it requires a comprehensive risk-modelling infrastructure to capture all the risks that are not covered under the other two pillars of the framework.

The minimum capital adequacy ratio prescribed under the Basel II norms continues to be at nine per cent, at solo as well as consolidated levels. The banks are, however, expected to operate at a level well above the minimum capital requirement and should achieve the Tier I capital ratio of six per cent not later than March 31, 2010, both on solo and consolidated basis.

The Reserve Bank of India has not stipulated any timeframe for the adoption of advanced approaches under Basel II. “Migration to advanced approaches would certainly pose significant challenges to both the banks and the supervisors,” he said. In order to migrate into the advanced approaches, banks will need to demonstrate to the supervisors that they meet the minimum criteria stipulated in the Basel II framework.

The advanced approaches, being data-intensive, require high-quality, consistency and time-series data for various borrowers and facility categories for a period of five to seven years to enable computation of the required risk parameters. It also calls for robust risk management and technological architecture and the highest standards of corporate governance.

More Stories on : Banking | Standards & Benchmarks

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
‘Low’ in Bay may herald fresh monsoon surge

Copyright © 2007, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line