The Hindu Business Line : `Execution cost of Basel II norms to trigger merger among banks'

AS the deadline for implementing the Basel II norms draws near, the capital requirement by smaller banks would trigger a consolidation in the Indian banking system with increased mergers and acquisition, according to a survey by the Federation of Indian Chambers of Commerce and Industry.

Banks are still preparing to solve the risk puzzle for a more transparent and risk-free financial base, the survey says.

The survey on the state of preparedness of public sector, private and foreign commercial banks on the implementation of Basel II norms reveals that 87 per cent of the respondent banks stated that while increased capital requirements imposed by the Basel accord will not make their banks more risk averse towards credit dispensation, there is every likelihood of small and medium enterprises and the farm and rural sectors being left out of the loop.

The study focussed on the issue of capital requirement, impact on credit flow, and the industry's expectations from the regulators.

The survey further finds that 87 per cent of the respondents were confident of meeting the March 31, 2007 deadline.

Eighty per cent of banks faced data collection as the biggest challenge in preparing to the Basel II roadmap.

They also expressed that they require an ongoing support from the regulatory authorities in this regard.

Seventy seven per cent of respondent banks are still in the process of putting in place a robust Management Information System in order to comply with the requirements of Pillar III - Market Discipline of the new norms.

The survey also finds that 54 per cent of the banks are technologically equipped to face the challenges being posed by the Basel II norms.

These banks have already put in place the core-banking solutions.

Also, enough attention has been focused upon networking the banks.

All the respondents believe that there are sufficient resources available for raising the higher amount of capital needed for this purpose.

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`Execution cost of Basel II norms to trigger merger among banks'