 | « Back to article | Print this article |
According to a new study by the global consultancy firm KPMG released on Wednesday, Indian banks are confident in their ability to implement the Basel II norms and meet the RBI guidelines for achieving a standard approach for credit risk and the basic approach in respect of the operational risk.
However, approximately 75 per cent of the banks surveyed have not specifically budgeted funds for their Basel II programme, KPMG said. Basel II is a round of deliberation by central bankers from across the globe, under the auspices of the Basel Committee on Banking Supervision.
It is aimed at producing uniformity in the way banks and banking regulators approach risk management across national borders. Given the impending timelines for implementation of the Basel II norms, banks lagging behind need to devote considerable resources in this area so that they can address the necessary requirements of the RBI, it said in a report titled 'India: Ready for Basel II?'.
About 89 per cent of the banks surveyed indicated that they have a 'dedicated team' responsible for Basel II implementation. However, very few banks have established the position of chief risk officer with a reporting line to the CEO/Board and whose role has been defined with clarity.
Although the regulator is yet to issue more specific guidelines, only 16 per cent of the banks surveyed have commenced the process of planning for the more advanced approaches of Basel II.
The banks also indicated that some progress has been made in credit and market risk management. However, the same level of preparedness was not evident in the case of operational risks, KPMG survey found.
KPMG India's Senior Advisor Amreshwar Seth said: "Basel II substantially changes the treatment of credit and market risks and also requires banks to hold sufficient capital to cover their operational risks."
"Whilst banks may have the impression that they manage operational risks adequately, this perception may prove only partially accurate," he added.
Under the new norms, a banks regulatory capital will be tied directly to its internal and external risks and its choices in managing them. Basel II introduces an array of advanced risk-sensitive approaches to measure credit and operational risk that enables it to adopt methodologies that best suit its organisational and risk profile. All this is expected to impose new requirements on banks, not just for their risk management but also in respect of disclosures.
KPMG said the complexities of the Basel II Accord, as well as its interdependencies with local regulations worldwide, can make implementation of Basel II a highly complex project.
As Indian banks look at expanding outside the country, it will become imperative for them to graduate to the advanced approaches, since most of the developed countries are well into the implementation of these approaches.
The concerned regulators in other countries would require the same from Indian banks aspiring to set up operations there, KPMG said.