BUSINESS

RBI to evaluate new framework

MUMBAI SEPT. 26. The Reserve Bank of India will meet bankers before the year end to discuss issues relating to the Basel Capital Accord II that comes into force from 2006-07.

"We will be calling a meeting with the bankers before the year end to discuss the Basel II norms and its implementation in the Indian banking entities,'' the RBI Executive Director, Shyamala Gopinath, said at the banking conference organised by the Federation of Indian Chambers of Commerce and Industry (FICCI) here today.

As is well known in the development of the 1998 Accord and the proposed new accord, the committee had focussed on internationally active banks being regulated in member countries, However, almost all countries across both G-10 and non-G-10 had adopted the 1998 Accord as an international best practice, she said.

"Although the document is still not final, the basic architecture is now set and the RBI in consultation with banks will evaluate the new framework and plan for transition of Indian banks to Basel II. However, the timing, approach and sequencing will have to be closely tailored to our circumstances,'' she added.

Ms. Gopinath said if necessary, a quantitative impact study would also be undertaken.

The complexity and sophistication essential for banks for implementing the New Capital Accord restricts its universal application in emerging markets. Besides banks, supervisors would be required to invest considerable resources in upgrading technology systems and human resources to meet the minimum standards, she said.

Ms. Gopinath said the RBI was of the view that the Basel Committee should consider emphasising in the Accord the flexible approach that would be necessary for its successful implementation in particular during the early state of the process.

The minimum capital requirements would be broadly unchanged for large internationally active banks as they were likely to use the IRB (internal rating based) approach. However, for banks domiciled in emerging markets and in India, the capital requirements would increase, she said.

Extensive and prescriptive data history requirements as well as the complexity of the data components required to carry out the capital calculation itself increases the cost and estimates range from $50 million to $100 million depending on the banks' existing level of sophistication, she added.

Implementation of the New Accord would pose a huge challenge requiring supervisors to substantially upgrade their existing MIS, risk management systems and technical skills of staff, she said. — PTI

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