Commercial banks should conform to Basel II norms: RBI Dy Governor

Mumbai, May 12 (UNI) The policy approach to Basel II in India is to conform to best international standards and in the process, the emphasis is on harmonisation with the international best practices, said RBI Deputy Governor Ms Shyamala Gopinath at the IBA briefing session on ''Emerging Paradigms in Risk Management'' at Bangalore today.

Commercial banks in India will start implementing Basel II with effect from March 31, 2007, ''though, a marginal stretching beyond this date can not be ruled out in view of latest indications of the state of preparedness,'' Ms Gopinath said.

It has also been decided that banks in India will initially adopt the Standardised Approach (SA) for credit risk and the Basic Indicator Approach (BIA) for operational risk, the deputy governor informed, pointing out, ''the prime considerations while deciding on the likely approach included the cost of implementation and the cost of compliance.'' Pointing out RBI has tried to ensure that the banks have suitable risk management framework oriented towards their requirements dictated by the size and complexity of business, risk philosophy, market perceptions and the expected level of capital, Ms Gopinath said, ''Risk Based Supervision (RBS) in 23 banks has been introduced on a pilot basis.'' The underlying philosophy of the apex bank was that while prescribing the Basel II principles for the Indian banking sector, this should not result in further segmentation of the sector, she observed, adding that ''accordingly, it was decided that all scheduled commercial banks in India, both big and small, shall implement the standardised approach for credit risk and the basic indicator approach for operational risk with effect from March 31, 2007.'' ''By opting to migrate to Basel II at the basic level, the Reserve Bank has considerably reduced the Basel II compliance costs for the system,'' she said, adding that ''in a way, the elementary approaches which have been identified for the Indian banking system are very similar to the Basel I methodology.'' More UNI JJ KU AW2139