India's commercial banks have until March 31, 2007 to meet the provisions of the Basel II Accord. The head of the country’s main regulatory body has said, however, that with time the standard act will affect companies working in insurance and securities. According to the InfoWatch analytical centre, that will improve the competitiveness of the entire financial sector in India, as well as serving as a guide to each individual company.
The Reserve Bank of India (RBI), the country’s main financial body, has reported that not all commercial banks will be in a position to meet the deadline for compliance with Basel II.
According to the head of the RBI, commercial banks have to start working on meeting the provisions of Basel II immediately if they are to observe the March 31, 2007 deadline. India’s top financier admits that the country’s banks require significant capital investment to fully meet the Basel II provisions on managing operational risks, an area that was not addressed by Basel I.
The head of the RBI also stated that there would be an asymmetry in the regulation of the three main areas of financial activity (banking, insurance and securities), with the need for three supervisory bodies, which in turn would have to reach a compromise to ensure reliable and effective management.
Therefore, two other sectors – insurance and securities – need to be taken into consideration when addressing compliance with the provisions of Basel II. The head of the RBI stressed, however, that the provisions of Basel II will not apply to those two sectors just yet, because there still aren't enough organizations capable of complying fully with the accord.
“I’d like to point out that the Basel II Accord really does enable national banking sectors, as well as individual financial organizations, to increase their competitiveness. The results of a recent study by InfoWatch and the National Banking Journal testify to that. Therefore, banks and insurance companies ought to welcome Basel II with open arms. Although the accord requires additional investments in the initial stages, in the long term, those companies that comply will gain a competitive edge,” says Denis Zenkin, marketing director at InfoWatch.
Source: Financial Express
