'Basel-II norms to improve risk culture of banks'

The Basel-II norms to strengthen financial health of banks provide more opportunities for improving risk culture than they pose challenges, says Basel committee chairman Jamie Caruana, who is also the governor of Spain's central bank.

"Challenges can be seen in Basel-II norms, but it's an opportunity to improve risk culture... And encourage cross border cooperation in the banking sector," Caruana said at the bankers' conference.

All commercial banks world over have to mandatorily implement Basel-II norms by December 2006 for better management of their non performing assets.

He said other benefits of Basel-II implementation were that it would force banks to adhere to global standards and thus create a level playing field with common practices.

Caruana, who is the governor of Banco de Espana, said Basel-II can also make banks risk sensitive and improve skill measurement and risk management abilities of banks.

Besides, strict adherence of Basel-II norms could better corporate governance among banks, he said at a session on 'Basel-II: Emerging market perspectives'.

"If banks are to be disciplined, they will require more transparency and corporate governance for giving loans and thus force them to adopt best practices of business," he said.

Asked if China was willing to follow Basel-II norms, he said, "Chinese are also positive and they have declared to go for Basel-II only in the case of bigger bank."

Indian bankers said that they are gearing up to meet the December 2006 deadline on fulfilling the Basel-II guidelines, which requires banks to raise their capital bases.

"Preparedness is not enough and banks have a long journey to go... Almost all the banks need substantial investment, upgradation of HR and technology," Bank of India CMD M Venugopalan said.