Commercial banks to adopt Basel II framework by March 2007

Hyderabad, May 3 (UNI) Reserve Bank of India Governor Dr Y V Reddy today said all commercial banks in the country were likely to implement the Basel II framework from March 31 2007.

He, however, did not rule out a marginal stretching beyond the date, in view of the latest indications on the state of preparedness.

Addressing a seminar on 'The Challenges and Implications of Basil II for Asia,' at the 39th annual meeting of the Board of Governors of the Asian Development Bank (ADB) here, Dr Reddy cautioned that given the complexities of financial regulations and the added complexities of the Basel II framework, the regulators were right in insisting on the freedom and flexibility for adopting and implementing an appropriate roadmap without being constrained by any external or internal pressures, direct or indirect.

Dr Reddy said Basel I framework for capital adequacy which was introduced in 1988, was adopted by over 100 countries across the world as it was simple. However, the Basil II framework was highly complex, making its understanding and implementation a challenge to both the regulatory and the regulated community, he maintained.

Dr Reddy reminded that the Executive Board of the International Monetary Fund also expressed the view that premature adoption of Basel II in countries with limited capacity could inappropriately divert resources from the more urgent priorities, ultimately weakening rather than strengthening supervision.

''They agreed that countries should give priority first to strengthening their financial systems comprising institutions, markets and infrastructure and focus on achieving greater level of compliance with the Basel Core Principles,''he added.

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