What changed
The parallel run period for Basel II implementation, originally set to end March 31, 2010, is now extended to March 31, 2013, subject to review. The prudential floor requiring Basel II capital to exceed 80% of Basel I capital for credit and market risks remains in force during this extended period.
What it means for you
Banks must continue running both Basel I and Basel II capital calculations in parallel for three more years, ensuring the new framework's capital requirement stays above the old floor. This gives banks more time to adjust to Basel II while maintaining a safety net, but also adds compliance burden. The extension aligns with global Basel III preparations, signaling RBI's cautious approach to capital reforms.
What you must do
- Continue parallel run of Basel I and Basel II capital computations until March 31, 2013
- Ensure Basel II minimum capital requirement remains above 80% of Basel I requirement for credit and market risks
- Adhere to all existing parallel run guidelines from the Master Circular on NCAF
- Prepare for Basel III requirements by studying new global standards and conducting impact assessments
Who it affects
All scheduled commercial banks (excluding Local Area Banks and Regional Rural Banks), Foreign banks operating in India, Indian banks with operational presence outside India
What is the prudential floor mentioned in this circular?
The prudential floor requires that the Basel II minimum capital requirement for credit and market risks must be higher than 80% of the minimum capital requirement computed under the Basel I framework. This ensures a safety margin during the transition.
Why is the parallel run being extended to March 2013?
The extension, announced in the Second Quarter Review of Monetary Policy 2010-11, gives banks more time to align with Basel II while the global banking system prepares for Basel III. It allows RBI to review progress and ensure smooth transition without disrupting capital adequacy.
Does this circular affect all banks in India?
No, it applies to all scheduled commercial banks except Local Area Banks and Regional Rural Banks. Foreign banks operating in India and Indian banks with overseas operations are specifically mentioned as required to continue the parallel run.