Breather on Basel II transition

MONETARY POLICY MID-TERM REVIEW 2006-07/ MICRO VIEW

Indian banks having branches abroad and foreign banks operating in India are expected to adopt the standardised approach for credit risk and the basic indicator approach for operational risk under Basel II with effect from March 31, 2008.

Reserve Bank of India has provided two more years (till March 31, 2009) for scheduled commercial banks to adopt Basel II norms. Earlier all banks were expected to adhere to Basel II norms by March 31, 2007.

Taking into account the level of preparedness of the banking system, RBI decided to provide banks some more time to put in place appropriate systems so as to ensure full compliance with Basel II.

All other scheduled commercial banks are encouraged to migrate to these approaches under Basel II in alignment with them but in any case not later than March 31, 2009. The steering committee of banks will continue to interact with banks and the Reserve Bank of India to ensure the smooth implementation of Basel II.

Under the standardised approach, banks have to use risk weights which are dependent on credit ratings. These credit ratings will be assigned by External Credit Assessment Institutions (ECAIs), which have been found eligible by the central bank.

RBI's internal working group to identifying eligible domestic ECAIs has submitted its report and its recommendations will be incorporated in the final guidelines.

All other scheduled commercial banks are encouraged to migrate to these approaches under Basel II in alignment with them but in any case not later than March 31, 2009