RBI to unveil Basel II norms soon

The Reserve Bank of India (RBI) would issue final guidelines on implementation of the revised capital adequacy norms by banks in the next couple of weeks.

This was stated by RBI deputy governor V Leeladhar while speaking on the revised capital adequacy framework at a seminar jointly organised by FICCI and Indian Banks' Associaton.

RBI is also considering providing a little more time for banks to comply with Basel II. "Going by latest indications, a marginal extension of the date (deadline) cannot be ruled out," Leeladhar said.

In the draft guidelines on Basel II issued over two years ago, RBI had set March 31, 2007 as the deadline for implementing the revised capital adequacy norms.

Basel II norms require banks to provide capital for operational risk, market risk, in addition to 9 per cent minimum capital adequacy for credit risk.

RBI has decided that banks will adopt standardised approach for allocating capital for credit risk and move to advanced internal ratings based approach at a later stage.

RBI has rejected banks' demand that they be allowed to use their internal ratings for corporates which are not rated by rating agencies. Only 10 per cent banks' loan portfolio has ratings by rating agencies.

Leeladhar said banks will have to assign 100 per cent risk weight for unrated corporate exposure against lower risk weights based on the ratings. The other issue is rating agencies now provide issue specific ratings and not issuer specific.

Before moving to internal ratings based approach, banks will have to go through a rigorous process. "We have told banks internal ratings cannot supplement external ratings," Leeladhar said.

He said Basel II does not pose just challenges, it also offers considerable opportunities to banks to upgrade their risk management systems and thus become more efficient and competitive.