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The implementation schedule of the new Accord and the choice of the different approaches to compute risk is decided by each country. The Reserve Bank of India (RBI) has decided that all foreign banks operating in India and Indian banks having presence outside India have to implement Basel II with effect from March 31, 2008. All other Commercial Banks (excluding Local Area Banks and Regional Rural Banks) are encouraged to migrate to Basel II Accord not later than March 31, 2009. Banks adopting Basel II as per the timeline prescribed have to implement Standardized Approach for credit risk and Basic Indicator Approach for operational risk, while continuing to apply Standardized Duration Approach for capital requirements under market risk. RBI does not permit any of the banks to implement advanced approaches now. As and when banks put in place robust risk management systems and develop the necessary skills to implement advanced approaches and the supervisor also puts in methods to effectively oversee the implementation of advanced approaches, permission may be given by RBI to banks to migrate to advanced approaches.
Though every bank has to invest lot of time, manpower and energy in the implementation of Basel II, it is worth doing so. It helps the banks to assess the risks associated with the business effectively; more so, it facilitates the banks to produce quantified and more realistic measure of the risks. Thus, Basel II enables the banks to handle business with more confidence and make better business decisions.
Banks in the process of implementation of the new Accord can enhance their risk management systems and methods, which in turn will reduce the losses associated with the risks taken by the banks. |
