Prudential Measures

The Continuity Constant

 Preparing banks to adopt the New Basel Capital Accord is a major challenge in a series of such important steps.

 In this regard, seven banks participated in the Quantitative Impact Study (QIS 3) conducted by Basel Committee on Banking Supervision (BCBS) to assess the impact of the New Capital Accord.

 Taking into account the results of QIS 3, BCBS has released the third Consultative Paper (CP3) in April 2003.

 The Reserve Bank while forwarding its comments on CP3, has sought greater flexibility to national supervisors to implement the New Accord, keeping in view the different levels of preparedness of the banking system across the countries to adopt the New Accord. Further measures proposed in this area are as under:

 (a) Investment Fluctuation Reserve

 As indicated in the annual policy Statement of April 2002, with a view to building up adequate reserves to guard against possible reversal of the interest rate environment in future due to unexpected developments, banks were advised to build up an investment fluctuation reserve (IFR) of a minimum 5.0 per cent of their investments in the categories