What changed
RBI withdrew the parallel run and prudential floor for Basel II implementation, effective immediately. Banks are no longer required to ensure Basel II minimum capital exceeds 80% of Basel I capital for credit and market risks. The requirement to submit parallel run reports to RBI has also been removed.
What it means for you
Banks can now fully transition to Basel II capital adequacy without the earlier floor constraint, simplifying capital planning. This reduces compliance burden as parallel run reporting is no longer needed. Lenders gain more flexibility in managing capital ratios under Basel II.
What you must do
- Stop maintaining the prudential floor of 80% of Basel I capital for credit and market risks.
- Cease submission of parallel run reports to RBI in the prescribed format.
- Update internal capital adequacy policies to reflect withdrawal of parallel run requirements.
- Ensure Basel II capital adequacy framework is fully implemented without the floor.
Who it affects
All scheduled commercial banks (excluding LABs and RRBs), Bank compliance and risk management teams, Bank capital planning departments
What was the prudential floor that has been withdrawn?
The prudential floor required banks to keep their Basel II minimum capital requirement above 80% of the minimum capital computed under Basel I for credit and market risks. This floor has now been removed.
Do banks still need to submit parallel run reports to RBI?
No, the requirement to submit parallel run reports has been withdrawn. Banks are no longer required to furnish these reports in the earlier prescribed format.
When did this change take effect?
The withdrawal was effective from May 27, 2013, the date of the circular. The parallel run and prudential floor were in place until March 31, 2013, subject to review, and have now been withdrawn.