The new Basel Capital Accord—popularly known as Basel II—has captured the attention of the international banking community since 1999, ever since the first consultative document was released by the Basel Committee on Banking Supervision (BCBS). As per the schedule prescribed by the Reserve Bank of India (RBI) for its implementation, those banks with international presence and foreign banks were required to implement the new Accord with effect from March 31, 2008, while the other banks were given a year more to comply with, i.e., from March 31, 2009.

Two of the objectives for bringing in far-reaching changes in the existing Accord (Basel I) were to make the capital requirement more risk-sensitive and give more recognition to the risk mitigation tools and techniques. A significant difference is that, while Basel II Accord took into account and prescribed the capital charge exclusively for the credit risk (1988) and the market risk (with amendment in 1996), Basel II adds a new dimension to it, by prescribing capital charge for operational risk.

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