NOTE: SBINEWS DOES NOT PERMIT CIRCULATION OF ATTACHMENTS. ATTACHMENTS, IF ANY, CIRCULATED WILL BE ONLY BECAUSE OF VIRUSES. PLEASE,THEREFORE, IGNORE ATTACHMENTS IF ANY IN SBINEWS MESSAGES ************************************************************************ SBI moves towards Basle II (Business Standard) Anindita Dey & Freny Patel / Mumbai August 17, 2004 The State Bank of India (SBI) has appointed Deloitte & Touche as consultant to prepare a roadmap for prudent risk management. With this, India's largest bank has kickstarted the process to implement Basle II norms. Senior banking sources said the process will take time as operational risk is a new focus area for the Indian banking system. They added that the exercise is expected to take one and a half years given the need to collate adequate data before actually implementing the norms. Industry sources said the SBI already has a credit rating model and an inspection model in place, while other public sector banks trail much behind. SBI also has undertaken work on its market risk model. Under Basle II norms, banks have to move towards a graded system of assigning risk weights depending upon the quality of their assets. This move is aimed at making capital charges more responsive to the banks' actual credit exposure. Banks may also be required to move towards making capital requirements for operational risk. According to treasury heads of public sector banks, the capital adequacy of even sound public sector banks will come down by 1-2 per cent following the adoption of the norms. The capital will be hit mostly on account of operational risk, which is yet to be quantified in terms of risk weightage. Under the proposed norms, banks will have classify risk into three categories - credit risk, market risk and operational risk. Credit risk requires the banks to rate their credit portfolio either through external rating methodology or internal rating system. This is likely to bring down the pressure on capital provisioning. Credit risk is risk arising from default in an account. However, capital charge on market risk and operation risk is likely to substantially raise the capital requirement. The Basle Committee had in July has come out with guidelines to help banks and their supervisors to put in place a comprehensive credit risk management programme, emphasising five key areas: an appropriate credit risk environment; sound credit granting process; credit administration; measurement and monitoring process; and adequate controls over credit risk. Indian banks currently do not make capital charges with regard to operational risk. *************************************************************************** Mailing list (sbinews@xxxxxxxxxxxxx) related information: News/articles about SBI and Banking related matters published in the print media, Internet etc will be circulated through this Mailing List. The messages in this list will help in improving awareness of SBI and its activities vis-a-vis the happenings in the Banking industry. This should be of help to all staff members of SBI, particularly those who are preparing for promotional written tests/interviews/group discussions. Subscription to this Mailing List is simple and FREE. Please check the procedure below. Please share this information with other colleagues/branches that could be interested in subscribing to this Mailing List. The messages circulated here should not be deemed to have the official endorsement of the SBI or any of its employees. The correct factual position may be ascertained from official sources. To join this mailing list, just send an email to sbinews-request@xxxxxxxxxxxxx with the word 'subscribe' without the quotes in the subject of the email message. To leave this mailing list, just send an email to sbinews-request@xxxxxxxxxxxxx with the word 'unsubscribe' without the quotes in the subject of the email message. Archives (old messages) are available for viewing at: //www.freelists.org/archives/sbinews Click on the month-year at the lower left corner to view messages posted during that month. This is an announcements/newsletter type mailing list i.e. only the Moderator/s can post messages to the list. This mailing list is maintained and moderated by Sri. R.S.Pai, currently working as Chief Manager(IT-Internet Banking), SBI, Corporate Centre, Mumbai. Visit http://rspai.tripod.com for some useful Banking, Reference and Utilities Links