Banks may get time to meet Basel II norms

RUN UP TO THE CREDIT POLICY

Commercial banks may get to heave a sigh of relief with the Reserve Bank of India (RBI) planning to extend the deadline for meeting the Basel II norms.

The RBI is expected to announce the relaxation in its credit policy to be unveiled next week.

The draft guidelines on Basel II has set March 31, 2007 as the date for implementing the revised capital adequacy norms, which seeks capital allocation for operational risk apart from credit and market risks.

Banking sources said the central bank may prefer a phased implementation, starting with internationally active banks and gradually moving to other banks with a domestic focus.

"Those banks which do not have global exposure in terms of branch presence are expected to get more time to conform to Basel II norms. The regulator is not expected to hurry things. Some other central banks too have adopted this approach," said a banking source.

In a related development, the RBI is planning to direct banks to move away from the benchmark prime lending rate (BPLR) and instead declare their PLR to customers.

Bulk of bank lending is done at below PLR and BPLR does not reflect the proper cost structure of banks. There is a perception that while there is underpricing of corporate credit, there could be overpricing of loans to agriculture and small and medium enterprises (SMEs).

A committee has been set up by the Indian Banks' Association (IBA) in consultation with member banks for reviewing the BPLR system.

The objective of the review is to assess the processes involved in pricing of credit through a well structured and segment-wise analysis of costs at various states of intermediation in the whole credit cycle.