RBI asks banks to assess Basel-II readiness

MUMBAI: The Reserve Bank of India (RBI) on Wednesday asked banks intending to migrate to advanced approach for computing capital charge for operational risk under Basel-II to assess their preparedness to shift to the new approach.

The RBI reiterated that banks can apply for migrating to the advanced approach from April 1, 2012, onwards. "RBI will then perform a detailed analysis of the bank's risk management system and proposed model prior to according approval," the RBI said.

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events, the RBI said. There are three kinds of methods to calculate operational risk capital charge under Basel II, basic indicator approach, standardised approach and advanced measurement approach.

Banks can continue with simpler approaches for computing their capital charge for credit and market risk even if they adopt the advanced approach, the central bank said.

Source: EconomicTimes