The Hindu : Business : `Basel II norms to improve banks' risk management system'

Online edition of India's National Newspaper
Saturday, Nov 13, 2004

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`Basel II norms to improve banks' risk management system'

NEW DELHI, NOV. 12. India's decision to implement Basel-II norms from December 2006 will improve banks' risk management system and provide them incentives for meeting the prudential norms, said the Basel Committee on Banking Supervision Chairman, Jamie Caruna.

Mr Caruna lauded the efforts of the Reserve Bank of India, which has set up a steering committee for the purpose, for sharing its views and data for the implementation of the norms with the Bank for International Settlements.

He said the framework was developed by the Basel Committee on Banking Supervision and outlines various methods for banks to calculate the minimum regulatory capital for different types of risk.

The committee recommended the less sophisticated approaches for credit and operational risk to be implemented by the end of 2006, with the most sophisticated techniques to be in place by year-end 2007. It allowed individual countries to determine their own commencement dates. "When to implement the Basel II norms is the national decision,'' said Mr. Caruna at the bankers' conference here yesterday. The three-part accord lays out guidelines for the minimum regulatory capital requirements, bank supervision and improved disclosure.

Under Basel-II, mortgage lending to creditworthy borrowers will require less capital to be set aside, while riskier loans, such as those made to companies, will need more backing. He hoped that more than 100 countries would comply with the prudential norms.

Mr. Caruna said Basel-II would help in ensuring competition among the banks on the basis of their strengths and not countries. The focus of the new prudential norms was to have cooperation among supervisors to ensure stability and risk mitigation.

The Dena Bank Chairman and Managing Director, Anil K. Khandelwal, said the Basel-II norms sought genetic change in the Indian banking sector. He said there would be a problem in their implementation as Indian banks were geographically dispersed. "There will also be problems associated with data management, management information science and technological changes that are need for the implementation of the new norms,'' he said. The Bank of India Chairman and Managing Director, M. Venugopal, said Indian banks needed to assign rating to corporates for reducing credit risk, require manpower for risk management and capital infusion to meet international standards. — UNI

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