Indian Basel II brings mixed blessings for banks

SINGAPORE – Indian banks that have migrated to Basel II for the 2008 financial year face increased capital ratios owing to the new operational risk requirements of the capital accord, says a new report released by Fitch Ratings, Indian Banks: Impact of Basel II Implementation. However, the report goes on to highlight a few cases of banks reporting benefits from increased exposure to better-rated corporates, or savings on regulatory retail portfolios.

The report also underlines some of the peculiarities exercised by the Indian regulator that prevent direct comparison of capital adequacy ratios with non-Indian institutions. These include a zero-risk weighting for direct exposures to national and state governments, and higher risk weights on residential mortgage loans.

The Indian Basel II was postponed by a year to allow more time for preparation. The standardised approach to credit risk and the basic indicator approach for operational risk were implemented by Indian banks with international operations on March 31, 2008.