IBA plans loss data collection company

The Indian Bank’s Association (IBA) plans to form a company to gather information on loss data from banks to help them assess operational risks and allocate capital under the Basel-II norms.

Initially 13 large banks, including State Bank of India (SBI) and Bank of India, will pick up stake in the proposed company. Each promoter bank will chip in Rs 2 crore as capital.

Data loss refers to an unforeseen loss of data or information due to external or internal frauds or system’s failure.

The company was expected to commence operations by the second half of the next financial year, said an IBA official. The association would rope in HCL Infosystems as vendor for the project.

Banks and supervisors can use this data to benchmark an institution’s loss experience relative to peers and gain a better understanding of the completeness of the institutions operational risk data. It will also help banks and financial sector players to assess and benchmark their practices against industry practices.

The assessment would be done for each of the eight lines of business reporting under the Basel-II norms. The industrywide data were expected to help banks starting new business to assess the prospects of loss and the capital to be set aside, official said.

One senior executive with a large public sector bank in Mumbai said banks did not have a information-sharing platform in areas such as operational risks. There is also a tendency to be secretive. The consortium arrangement will help to compare the losses.

According to the Bank of International settlement (BIS), which finalised the framework, the assessment is done for seven loss types—internal fraud, external fraud, employment practices and workplace safety, clients, products and business practices, damage to physical assets, business disruption and system failure, and execution delivery and process management.

The loss data assessment will be done across eight lines of business — corporate finance, trading and sales, retail banking, payment and settlement, agency services, commercial banking, asset management, and retail brokerage.