What changed
RBI released a revised Guidance Note on Management of Operational Risk, updating a draft from March 11, 2005, after incorporating feedback from banks. The revised note is now available on the RBI website.
What it means for you
Banks may use the note to upgrade risk management systems, which should be oriented to their own requirements and adaptable to changes. Capital for operational risk under the Basic Indicator Approach is required per the February 15, 2005 draft guidelines.
What you must do
- Review the revised Guidance Note on RBI's website and use it to upgrade your risk management systems.
- Ensure your risk management systems are adaptable to changes in business, size, market dynamics, and innovative products.
- Maintain capital for operational risk as per the Basic Indicator Approach as outlined in the draft guidelines on the New Capital Adequacy Framework issued on February 15, 2005.
Who it affects
All scheduled commercial banks in India, Risk management departments, Compliance and capital planning teams
Is the Guidance Note mandatory for banks?
The systems, procedures, and tools prescribed in the note may be treated as indicative. Banks should design risk management frameworks based on their own size, complexity, risk philosophy, market perception, and expected capital level, but must be adaptable to changes.
What is the capital requirement for operational risk under this note?
Banks must maintain capital for operational risk using the Basic Indicator Approach, as per the draft guidelines on the New Capital Adequacy Framework issued on February 15, 2005.