To enhance banks’ capacity to adopt Basel-II norms, the Reserve Bank of India on Wednesday issued draft norms to calculate the credit risk capital charge, using internal rating models. In July 2009, the banking regulator had advised banks to apply for migration to the internal rating-based approach for credit risks from April 1, 2012.
Currently, banks calculate the credit risk capital charge under a standardised approach. Under the Basel-II framework, banks can employ two broad methods to calculate capital requirements for credit risks, a standardised approach and an internal rating-based approach. The internal rating based approach is further classified into a foundation internal rating-based approach and an advanced internal rating-based approach.
