A survey conducted by Oracle India, i-flex solutions and the Indian Banks’ Association (IBA) has revealed that a majority of Indian banks plan to build comprehensive risk management systems while progressing on their Basel II compliance initiatives.
The survey sought to understand the challenges that Indian banks faced on the road to Basel II compliance, and was conducted among Indian bankers as part of a larger Basel II seminar called "Basel: Uncover the Code", that was recently hosted in Mumbai by Oracle, i-flex solutions and IBA. The seminar aimed at understanding the nuances of Basel II compliance and assessing the preparedness of Indian Banks for Basel II compliance.
The Basel II Accord aims at reducing risk in the financial system worldwide by aligning each bank's capital requirements to more accurately reflect its own Credit, Market and Operational Risks. The Reserve Bank of India (RBI) recently extended the Basel II compliance deadline from March 31, 2007 to March 31, 2008, to provide banks with more time to put in place appropriate systems, so as to ensure full compliance of the Basel II guidelines.
A notable finding of the survey was that all surveyed banks viewed this postponement as an opportunity to adopt a holistic approach to Basel II compliance, rather than slackening the pace of adoption. Indian banks are now planning for Basel II implementation under all the three Pillars of Basel II, while addressing gaps in the implementation of Pillar I, such as the Credit Risk Mitigation process, Portfolio Segmentation process for retail exposures and more.
"Implementation of Basel II will improve the risk management system in banks and will result in improved processes," says Mr. H. N. Sinor, chief executive, IBA.
94% of the bankers surveyed cited process standardization, cost control, standardising and storing data, and acquiring the necessary skill sets, as the primary challenges to Basel II compliance. Of these, public sector banks and private banks rated process standardisation as their primary concern, while foreign banks and co-operative banks rated cost control as their primary concern.
The survey found that one of the key challenges for Indian banks in adopting the Standardized Approach was data management. Most public sector banks are still in the process of rolling-out core banking solutions across their branches, and the standardization of data residing in myriad systems across various branches is proving to be challenging. Responses from private sector banks indicate an advantage of "up-and-running" core banking solutions, but these banks have to grapple with issues of process standardization.
Commenting on the survey findings, Mr. Deepak Ghaisas, CEO-India Operations and CFO, i-flex solutions, said, "The survey findings demonstrate the maturity of the Indian banking sector, in their approach to Basel II compliance. Banks should view the Basel II regulations as a means to strengthen their risk management systems rather than merely as a compliance issue. Charting out a clear roadmap, identifying a dedicated internal team for the project, and setting timelines for Basel II compliance will maximizs the benefits, as we have seen among banks in the advanced European and US markets."
Mr. Suraj Pai, senior director, Service Industries, Oracle India, said, "Most Indian Banks are looking at comprehensive corporate performance management systems apart from just compliance to Basel II. The extension in adhering to Basel II, granted by the Reserve Bank of India, provides a significant opportunity for banks to adopt a Risk Adjusted Performance Management (RAPM) framework. Basel II is an opportunity for Indian banks to modernize performance measurement frameworks."