RBI guidelines on Basel-II soon

The Reserve Bank of India (RBI) will shortly come out with detailed guidelines on the Basel-'II norms that Indian banks have to comply with.

A major change that will be brought about by the new norms would be that banks would no longer need to assign 9 per cent risk weightage on all classes of assets.

Rather, they would have to provide capital based on the credit assessment of the rated asset. This could vary from as low as 20 per cent for AAA-rated assets to 150 per cent for assets rated BB and below.

This means that the capital requirement for risk prudent banks will decrease. Banking sources added that the central bank is expected to have decided on a standardised approach for credit risks. A set of Indian credit rating agencies will be empanelled by the RBI for this purpose.

Though banks will continue their own internal assessment of risks, these rating agencies will also map the risk assessment of assets. Assets will be rated AAA, AA, A, BBB, BB+ and below. In the case of assets which are no rated, the risk weightage will be 100 per cent.

Assets will be classified into four categories "" corporate loans, retail credit, sovereign debt and project finance. Assets rated AAA will be accorded 20 per cent risk weightage, it'll be 50 per cent in the case of AA-rated assets, 75 per cent for A-rated assets, and 100 per cent for assets rated BBB.

Should an asset be rated BB and below, banks would have to provide for 150 per cent risk weightage. Unrated assets, on the other hand, would attract a risk weightage of 100 per cent.

Banks will have to categorise their retail exposure based on their overall capital. For a bank with a Rs 300-crore capital base, exposure up to Rs 1 crore will be treated as retail lending.

The bank would then be required to attach a 75 per cent risk weightage to its retail asset portfolio. In the case of banks with a larger capital base of Rs 300-500 crore, exposure up to Rs 3 crore would fall under the retail category.

Where banks have a capital base in excess of Rs 500 crore, exposure up to Rs 5 crore will fall under this category. This means there will be monetary ceiling for retail classification, immaterial of the class of borrowers.

For operational risks arising from unseen circumstances, the central bank is understood to have prescribed banks to set aside 15 per cent of their gross income towards provisioning of these risks.

The gross income will be calculated as an average of the last three years.

The consultative paper put out by the RBI also suggests that ratings issued by external rating agencies empanelled, would be eligible for use when assigning preferential risk weightage.

It has also suggested that risk weightage by banks be delinked from the risk weightage of the sovereign.