Basel II pose challenge for banking community: KPMG

Kolkata,Nov 24: Implementation of the Basel II Accord in India, being carried out under Reserve Bank of India's (RBI) guidance, is likely to trigger a wide range of business implications and management challenges for the banking community, according to a KPMG report.

The report titled 'India: Ready for Basel II?' said Indian banks are looking at Basel II beyond just compliance.

While RBI is encouraging banks to achieve the basic approaches, at a minimum, a number of banks seem to be setting their sights on moving to the more advanced approaches, the report said.

Every bank surveyed claimed to have either already begun or is about to begin its Basel II programme.

Compliance with regulation is driving the Basel II implementation programme in 46 percent of the banks surveyed.

However, nearly 32 percent of the respondents ranked Enterprise Risk Management as their key driver Approximately 90 percent of the banks, across categories,believed that successful implementation would not just result in better compliance but also improve efficiency of capital,enhance shareholder value and lead to improved management of their operational risks.

Over 95 per cent of the private sector banks surveyed view 'regulatory validation of their risk management systems and models' as their biggest Basel II challenge, which would be addressed gradually as more detailed guidance is provided by the Regulator. About 15 percent of the banks surveyed have yet not started planning for advanced elements of Basel II project plan, including collection of loss data, risk mitigation techniques and capital modeling, the report said.

Commenting on the report's findings, Amreshwar Seth, Senior Advisor, KPMG in India, said, "Whilst banks may have the impression that they manage operational risks adequately, this perception may prove only partially accurate," he added.

UNI