RBI issues final norms on capital adequacy

Mumbai, Apr 28 | Updated: Apr 29 2007, 05:30am hrs
The Reserve Bank of India (RBI) has issued the final prudential guidelines on capital adequacy and market discipline for the implementation of new capital adequacy framework. The central bank has kept intact the effective date of implementation for different categories of banks i.e. foreign banks operating in India and Indian banks having operational presence outside India should adopt standardized approach (SA) for credit risk and basic indicator approach (BIA) for operational risk for computing their capital requirements under the revised framework with effect from

March 31, 2008.

All other commercial banks (excluding local area banks and regional rural banks) have to migrate to these approaches under the revised framework in alignment with them but in any case not later than March 31, 2009. These banks shall continue to apply the standardized duration approach (SDA) for computing capital requirement for market risks under the revised framework, RBI stated.

The RBI has advised banks to have a parallel run of the revised framework with the view to ensure smooth transition to the revised framework and providing opportunity to banks to streamline their systems and strategies.

The final guidelines have also outlined the path for migration to other approaches under the revised framework. Under the final guidelines, banks are required to obtain the prior approval of the RBI to migrate to the internal rating based approach (IRBA) for credit risk and the standardized approach (TSA) or the advanced measurement approach (AMA) for operational risk for computing regulatory capital requirements.