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| Explaining the significance of this likely development, he said that capital to risk weighted assets ratio (CRAR) of banks may be halved to 4 per cent under the Basel II as against the current Accord's requirement of 8 per cent.
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| That is a Rs 100 crore asset created has to be backed up by a capital of only Rs four crore under Basel II as against Rs 8 crore under the existing Accord.
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| "Of course, this can change over time, but I am confident that India's sovereign rating will not deteriorate," said Knight, at the Federation of Indian Chambers of Commerce and Industry (FICCI) organized conference on "Indian Banking : Global Benchmarks 2003".
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| BIS and the Basel Committee fully recognize that Basel II presents a considerable challenge to banks not only in emerging market countries like India but also in industrial countries. "The proposals specifically acknowledge that an extended implementation period will be required in many cases," he said.
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| Many international investors are refocusing their India strategy and are valuing India risk more favorably than that of many other emerging market economies in Asia and elsewhere.
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| Basel II, according to Knight, is trying to move away from the rigour of a single quantitative number, which is creating undesirable side effects, and will introduce specific incentives for better risk management.
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| While stressing the importance of controlling fiscal deficit, he pointed out that India has advantage over several countries as it has high private savings and virtually no foreign currency debt.
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| "The two key features of BIS' recent history - globalisation and the attention to issues of financial stability - are also characteristic of the recent economic and financial experience in India. Indeed, in many respects, India has been a leading role model for other emerging economies about how to make sustained, though cautious, progress in opening up and strengthening the domestic financial system," said Knight.
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| India's current involvement in the international capital market still has ample potential to grow, he felt and added that Indian firms will be the net beneficiary of the global financial restructuring, as a strong financial system increases their access to global capital markets at a lower cost. |
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