The Hindu Business Line : `Size, risk management vital for banks in future'

OUTLINING the future scenario of the Indian banking industry, Mr V. Leeladhar, Deputy Governor of the Reserve Bank of India, said that the future belonged to a small number of large banks and not to a large number of small banks.

Addressing the Platinum jubilee celebrations of the South Indian Bank here, he gave the smaller banks four more years of protection to grow both organically and inorganically in size and capital as well as to ensure better risk management practices.

Regarding post-Basel II norms, he said: "Although capital serves the purpose of meeting unexpected losses, capital is not a substitute for inadequate decontrol or risk management systems.

Banks should strive to create sound internal control or risk management processes."

With the focus on regulation and risk management in the Basel II framework gaining prominence, the post-Basel II era will belong to the banks that manage their risks effectively.

The banks with proper risk management systems would not only gain competitive advantage by way of lower regulatory capital charge, but would also add value to the shareholders and other stakeholders by properly pricing their services, adequate provisioning and maintaining a robust financial structure.

The future belongs to bigger banks alone, as well as to those which have minimised their risks considerably, Mr Leeladhar said.

The regulator might soon look at a scenario where the `AAA' rated loans might be removed from the need of maintaining risk weighted capital, `AA' rated credit with 50 per cent capital and lower rated credit with 100 per cent risk weighted capital.

India has currently implemented the Risk Based Supervision (RBS) framework which evaluates the risk profile of banks through an analysis of 12 risk factors, encompassing eight business risks and four control risks.

The RBS framework is undergoing further refinement, Mr Leeladhar said.

The Basel norms have itself spun two different practices, with the US enforcing it only for select banks which have attained certain stature and capital base, while the EU has enforced it for all banks.

Similar to the EU, India too has been enforcing the same yardstick for the banking industry as a whole.

The banks that might be exempted in the Indian context could be the regional rural banks, Mr Leeladhar said.

Mr Vinod Rai, Additional Secretary in the Department of Economic Affairs (Banking Division), spoke of the future challenges of the banking industry in the context of the financial sector reforms under way.

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

Stories in this Section
Bond market in India — Shaken, but not stirred

HDFC bets on higher disbursals in TN

LIC adjudged most preferred insurance co

Micro insurance system soon

Insurers go for longs at current yields

Pay hike on cards for PSU banks' top brass — Performance-based incentives also likely

Andhra Bank hikes NRE deposit rates

Bank of Baroda shifts Rs 6,174 cr G-Secs to HTM category

Karnataka Bank plans to open 10 branches in North

Officials recount Thrissur stories

Co-op conference on July 16, 17 in Hyderabad

Karnataka State Apex Co-op to revive 4 sick banks

`Size, risk management vital for banks in future'