Indian commercial banks are expected to start implementing Basel II international norms from March 31, 2007, Reserve Bank of India Governor Yaga Venugopal Reddy said on Wednesday.
Basel II, due to be phased in over the next few years, is a set of new rules to regulate banks' capital standards around the world and prevent financial crises from spreading.
"All commercial banks in India are expected to start implementing Basel II with effect from March 31, 2007, though a marginal stretching beyond this day should not be ruled out in view of the latest indications on the state of preparedness," Reddy told a meeting of the Asian Development Bank.
"In the post-March 2007 scenario we may witness Basel II, Basel I and non-Basel entities operating simultaneously in the Indian banking system."
The rules require banks to keep funds in reserve to cushion unforeseen risks.
Finance Minister Palaniappan Chidambaram said last year Indian banks needed to raise 600 billion rupees in the next five years as additional capital.
"On current indications, implementation of Basel II will require more capital for banks in India due to the fact that operational risk is not captured under Basel I and the capital charge for market risk was not prescribed until recently," Reddy said.
He noted India has 85 commercial banks accounting for about 78 per cent of the financial sector, more than 3,000 cooperative banks accounting for 9 per cent and 196 regional rural banks accounting for 3 per cent.
{{/usCountry}}He noted India has 85 commercial banks accounting for about 78 per cent of the financial sector, more than 3,000 cooperative banks accounting for 9 per cent and 196 regional rural banks accounting for 3 per cent.
{{/usCountry}}Given the complexity of operations, the need to ensure greater financial inclusion and an efficient delivery mechanism for directed credit, capital adequacy norms for different entities had been maintained at varying levels, Reddy said.