The Hindu Business Line : Banks get more time for Basel II

Banks have got a breather on Basel II norms with the Reserve Bank of India extending the original deadline of March 31, 2007 to March 31, 2008 for foreign banks operating in India and Indian banks with overseas branches. Other commercial banks have another year till March 31, 2009.

"Taking into account the state of preparedness of the banking system, it has been decided to provide banks some more time to put in place appropriate systems so as to ensure full compliance with Basel II," the RBI said in its report.

Banks will have to migrate to the standardised approach for credit risk and the basic indicator approach for operational risk under Basel II norms.

Speaking to newspersons, Dr Y.V. Reddy, RBI Governor, said: "We should be in alignment with global standards, but we find the pace of implementation in other countries unclear. It is stretched between 2007 and 2009."

On Indian banks, he said that the system as a whole was reasonably confident.

"We want to make sure that credit rating agencies can do the job and the banks put their systems in place."

Most bankers have welcomed the Central bank's decision. Mr B. Sambamurthy, CMD, Corporation Bank, said while most banks are on par on market risk compliance, they might need some more time when it comes to operational risk.

"Preparedness of infrastructure is required. Basic requirement such as credit agencies are required. In the case of most banks, the volume of credit portfolio in the SME sectors is high."

Mr V.P. Shetty, Chairman and Managing Director, IDBI, said: "This is a very measured and calculated action on the part of the RBI. Other than a few European countries, the implementation of Basel II has been delayed everywhere else. The delay of Basel II will not affect the credibility of our system and will ensure that banks are better prepared."