 "Notification on Basel-III norms soon: Subbarao")
The Reserve Bank of India (RBI) will shortly issue a notification on implementation of Basel-III norms by banks. The new system will come into effect from April 1, RBI Governor D Subbarao said on Friday.
“Risk management is a big challenge for banks. Based on the lessons we learnt on the crisis, we moved from Basel-I to Basel-II and then to Basel-III. We believe, even though our banking system is safe and sound, we must adopt advanced risk management practices,” Subbarao told members of the Bankers’ Club.
“Just because we were protected from this crisis, it does not mean we are protected from every crisis in the future. As a financial system, we are vulnerable to pressures. So, we must adopt and implement new norms. We are going to issue the notification shortly implementing Basel-III norms from April 1,” he said.
In a structurally transforming economy, the credit to GDP ratio will go up. For every unit of GDP, there is a need to generate more credit,” he said.
Subbarao also stressed the need for implementing a more sophisticated risk management system in the banking system to avoid future crisis.
Basel-III is a set of guidelines agreed upon by the Basel Committee on Banking Supervision in 2010-11. The Basel Committee was formed in 1974 by a group of central bank governors from 10 countries, and has now expanded to include members from nearly 30 countries, including India. According to the guidelines, which will be effective from April 1, 2013, banks will have to maintain their total capital ratio at 9 per cent. Capital ratio is the percentage of a bank’s capital to its risk-weighted assets.
Commenting on the Cobrapost sting operation on some banks, the RBI governor said the central bank had instituted an inquiry, and action would be taken based on the inquiry report. “We are making inquiries at the head offices of those banks. We are doing mapping study on whether there is enough control in the system or not. The system is largely safe, but corrective measure will be taken after the report,” he said.
“Risk management is a big challenge for banks. Based on the lessons we learnt on the crisis, we moved from Basel-I to Basel-II and then to Basel-III. We believe, even though our banking system is safe and sound, we must adopt advanced risk management practices,” Subbarao told members of the Bankers’ Club.
“Just because we were protected from this crisis, it does not mean we are protected from every crisis in the future. As a financial system, we are vulnerable to pressures. So, we must adopt and implement new norms. We are going to issue the notification shortly implementing Basel-III norms from April 1,” he said.
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In his close to an hour-long address on ‘Indian Banking – Looking beyond the crisis’, Subbarao said one concern of Basel-III is that as it requires a higher level of capital; bank credit will be more expensive. “That is a problem for us because our economy is at the stage where requirement for credit will go up. The credit to GDP ratio will go up for several reasons. We are a structurally transforming economy.”
In a structurally transforming economy, the credit to GDP ratio will go up. For every unit of GDP, there is a need to generate more credit,” he said.
Subbarao also stressed the need for implementing a more sophisticated risk management system in the banking system to avoid future crisis.
Basel-III is a set of guidelines agreed upon by the Basel Committee on Banking Supervision in 2010-11. The Basel Committee was formed in 1974 by a group of central bank governors from 10 countries, and has now expanded to include members from nearly 30 countries, including India. According to the guidelines, which will be effective from April 1, 2013, banks will have to maintain their total capital ratio at 9 per cent. Capital ratio is the percentage of a bank’s capital to its risk-weighted assets.
Commenting on the Cobrapost sting operation on some banks, the RBI governor said the central bank had instituted an inquiry, and action would be taken based on the inquiry report. “We are making inquiries at the head offices of those banks. We are doing mapping study on whether there is enough control in the system or not. The system is largely safe, but corrective measure will be taken after the report,” he said.