Reserve Bank of India has issued a notification laying down a time schedule for all scheduled commercial banks operating in the country for implementation of the advanced approaches for the regulatory capital measurement under Basel II framework.
The deadline set by the regulator for accomplishing the same would thus facilitate the banks in India to create requisite technological and risk management infrastructure, required databases, the MIS and complete skill upgradation.
The notification states that the earliest dates of making application by banks and likely approval by the regulator for implementing internal models approach for market risk are April 1, 2010 and March 31, 2011 respectively. The earliest dates of making application by banks and likely approval by the regulator for implementing the standardized approach for operational risk are April 1, 2010 and September 30, 2010 respectively. The earliest dates of making application by banks and likely approval by the regulator for implementing advanced measurement approach for operational risk are April 1, 2012 and March 31, 2014 respectively.
The earliest dates of making application by banks and likely approval by the regulator for implementing internal ratings-based approaches for credit risk (foundation- as well as advanced IRB) are April 1, 2012 and March 31, 2014 respectively.
As per the circular released by the Indian regulator on April 27, 2007 on the new capital adequacy framework, foreign banks operating in India and Indian banks having operational presence outside India have migrated to the simpler approaches available under the Basel II framework since March 31, 2008. Other commercial banks have also migrated to these approaches from March 31, 2009. Thus, the standardized approach for credit risk, basic indicator approach for operational risk and the standardized duration approach for market risk (as slightly amended under Basel II framework) have been implemented for the banks in India.
The latest notification issued by the regulator states that the banks, at their discretion, would have the option of adopting the advanced approaches for one or more of the risk categories, as per their preparedness, while continuing with the simpler approaches for other risk categories, and it would not be necessary to adopt the advanced approaches for all the risk categories simultaneously. However, the banks should invariably obtain prior approval of the Reserve Bank of India for adoption of any of the advanced approaches.
Also, if the result of a bank?s internal assessment indicates that it is not in a position to apply for implementation of advanced approach by the dates as set by the regulator, it may choose a later date suitable to it based upon its preparation.