Operational risk, as a concept, is fairly new. As a concept, this has been recently introduced in the Indian banking system. Therefore this stream needs specific attention, an official source said. The central bank has said banks must conform to the standardised approach of the Basel-II norms by March 2007.
Meanwhile, these norms would drive mergers and consolidation in the banking sector. Most banks would fall short of the stipulated capital requirement, primarily as industry took a hit in 2004-05 due to a steep decline in the profits with the drop in treasury income. The only other way is to go in for public issue, where the government holding has to be retained at 51%. Therefore the only other option left for weaker banks is to go in for mergers, sources added.
Banks with CAR of 11% or below are likely to go in for forced mergers. Though, as per the Basel-II norms, banks are required to have a minimum CAR of 9%, its implementation would bring down CAR by an average of 3%.