Federal Reserve, which kicked off the process for Basle II compliance five years ago, has stressed the need for improving interaction with academia, banks and the regulator to ensure they become Basle-II compliant within the stipulated time frame. In an exclusive interview with FE, John Heinz, senior bank supervisor at Fed, ”Indian banks must learn from our experience so that they don’t repeat the mistakes as committed by us.”As per the guidelines issued by the Reserve Bank of India (RBI), those banks having their presence overseas must become Basle-II compliant by March this year, while the deadline for the remaining banks will be by March, 2009.Heinz, who was recently in Mumbai to attend a seminar on Basle II which was held by the RBI-owned and Pune-based National Institute of Bank Management (NIBM), expressed his satisfaction over the efforts being made by the banks in the country.
India has already started moving towards best international practices to achieve globalised economic order on the issue, he said. Talking about the steps initiated by the Fed in this direction, Heinz said: “We are moving forward from operational risk measures as basic indicator approach to advanced management approach”. Heinz maintained that by adopting advanced approaches, the banks will be able to safeguard their capital base. Another significant advice as given by Heinz for the Indian banks is to go for rating of accounts they have. For this, the domestic banks have been advised to do it on their own instead of depending upon the exisitng four credit rating agencies like Icra, Care, Fitch and Crisil. Basle-II requires banks to establish an internal capital adequacy assessment process (ICAAP), which was subject to a supervisory review by the RBI.
