Basel II Advanced Approaches: Timeline for Indian Banks

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Other commercial banks have also migrated to these approaches from March 31, 2009. Thus, the Standardised Approach for credit risk, Basic Indicator Approach for operational risk and the Standardised Duration Approach for market risk (as slightly amended under Basel II framework) have been implemented for the banks in India. 2. Having regard to the necessary up-gradation of risk management framework as also capital efficiency likely to accrue to the banks by adoption of the advanced approaches envisaged under the Basel II Framework and the emerging international trend in this regard, it is considered desirable to lay down a timeframe for implementation of the advanced approaches in India. This would enable the banks to plan and prepare for their migration to the advanced approaches for credit risk and operational risk, as also for the Internal Models Approach (IMA) for market risk. 3. Keeping in view the likely lead time that may be needed by the banks for creating the requisite technological and the risk management infrastructure, including the required databases, the MIS and the skill up-gradation, etc., it is proposed to lay down the following time schedule for implementation of the advanced approaches for the regulatory capital measurement: S. No. Approach The earliest date of making application by banks to the RBI Likely date of approval by the RBI a. Internal Models Approach (IMA) for Market Risk April 1, 2010 March 31, 2011 b. The Standardised Approach (TSA) for Operational Risk April 1, 2010 September 30, 2010 c. Advanced Measurement Approach (AMA) for Operational Risk April 1, 2012 March 31, 2014 d. Internal Ratings-Based (IRB) Approaches for Credit Risk (Foundation- as well as Advanced IRB) April 1, 2012 March 31, 2014 4. The banks are advised to undertake an internal assessment of their preparedness for migration to advanced approaches, in the light of the criteria envisaged in the Basel II document, as per the aforesaid time schedule, and take a decision, with the approval of their Boards, whether they would like to migrate to any of the advanced approaches. The banks deciding to migrate to the advanced approaches may approach us for necessary approvals, in due course, as per the stipulated time schedule. If, the result of a bank’s internal assessment indicates that it is not in a position to apply for implementation of advanced approach by the above mentioned dates, it may choose a later date suitable to it based upon its preparation. 5. It may please be noted that the banks, at their discretion, would have the option of adopting the advanced approaches for one or more of the risk categories, as per their preparedness, while continuing with the simpler approaches for other risk categories, and it would not be necessary to adopt the advanced approaches for all the risk categories simultaneously. However, the banks should invariably obtain prior approval of the RBI for adopting any of the advanced approaches. Yours faithfully, (B. 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Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2009-10/99 · issued 07 Jul 2009. The plain-English explanation above is BankPulse’s own independent summary.

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