Flagging concern over the rise in banking frauds, the Reserve Bank of India on Friday said banks in India might be underestimating the capital requirement for operational risks, like loss from frauds. Losses incurred by banks in India due to frauds have been on the rise.
Besides, several high-profile cases of frauds in banks globally have focused attention on the importance of operational risk capital, RBI said in its Financial Stability Report.
There are formidable challenges in India in measuring the extent of operational risks due to lack of historical data on operational loss events.
The quantum of operational risk capital maintained is linked to its revenue rather than being calibrated to the magnitude of operational losses incurred by a firm.
Even under the advanced approaches, capital requirements for operational risk are likely to be underestimated, the RBI said.
