9 Consultants In Race For BoI Mandate To Develop Risk Model

Mumbai, November 26: | Updated: Nov 27 2002, 05:30am hrs
Nine large firms are in the race to bag Bank of Indias (BoI) consultancy mandate to develop a credit and market-risk management model. These firms include KPMG, Tata Consultancy Services, National Institute of Bank Management, Boston Consulting Group, PricewaterhouseCoopers, Credit Rating and Investment Services of India Ltd and Investment Information and Credit Rating Agency.

BoI is likely to appoint one of them with reasonable exposure to the global arena. We would like to appoint a consultant of international repute because risk-modelling is a highly specialised job and needs good understanding of the subject. Clearly, banks do not have the expertise in this and that is why the Reserve Bank is in favour of appointing consultants for this, a senior BoI official told FE.

As per the RBI guidelines, banks have to formulate default probability model and loss given default model. This follows the New Basel Accord. It is a highly specialised job, the official emphasised. RBI had recently circulated its final guidelines on credit and market-risk management. It had urged banks to develop their own credit-risk strategies or to enunciate a plan that defines the objectives for credit-granting function as a step towards implementation of the New Basel Accord.

The central bank asked banks to evaluate industry, business, financial, management, and project-risks while formulating a risk-rating model.

India, Bank of Baroda and Union Bank of India to implement credit and market-risk guidelines in totality to guage its impact and identify hurdles in the process of implementation.

Risk-modelling is required as per the New Basel Accord. The Basel Committee had in January 2001 released a second consultative document which contained refined proposals for the three pillars of the new accord - minimum capital requirements, supervisory review and market discipline.