What changed
RBI issued a timeline for banks to migrate from simpler Basel II approaches (standardised credit risk, basic indicator operational risk, standardised duration market risk) to advanced approaches. The schedule sets earliest application and approval dates for IMA, TSA, AMA, and IRB approaches. Banks can choose to adopt advanced approaches for one or more risk categories separately.
What it means for you
Banks need to upgrade risk management frameworks, technology, databases, MIS, and skills to meet advanced approach requirements. This will improve capital efficiency but requires significant investment and planning. Banks must get board approval and prior RBI clearance before migrating.
What you must do
- Conduct internal assessment of preparedness for advanced approaches per Basel II criteria.
- Obtain board approval on whether to migrate to any advanced approach.
- Apply to RBI by the earliest dates: IMA/TSA by April 1, 2010; IRB/AMA by April 1, 2012.
- Ensure prior RBI approval before adopting any advanced approach.
- Plan for phased migration if not ready by set dates, choosing later suitable dates.
Who it affects
All scheduled commercial banks (excluding RRBs and LABs), Foreign banks operating in India, Indian banks with operational presence outside India
Can a bank adopt advanced approaches for only some risk categories?
Yes, banks can adopt advanced approaches for one or more risk categories while continuing simpler approaches for others, but must get prior RBI approval.
What if a bank is not ready by the earliest application date?
Banks can choose a later date suitable to them based on their preparation, as per internal assessment.
Which advanced approaches are covered in this timeline?
The timeline covers IMA for market risk, TSA and AMA for operational risk, and IRB (foundation and advanced) for credit risk.