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The Chartered Accountant

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DECEMBER 2008 978 THE CHARTERED ACCOUNTANT<br />

AUDITING<br />

OverhAuling the indiAn<br />

BAnking – BASel ii ACCOrd<br />

Indian banks banks got got exposed to Basel II II norms long time ago ago but these norms norms<br />

are impinging on their balance sheets sheets only now, particularly amid a a mad rush rush<br />

to rope rope in more capital to meet the RBI deadlines. In this phase of harsh<br />

realisation, banks have have been forced forced not only to challenge challenge and change their<br />

own systems systems but but also of of their related parties. This This article highlights highlights some of of<br />

the the crude realities of of Basel II II which Indian banks are realizing in in the process<br />

of overhauling their systems to become become Basel II complaint. It It also discusses<br />

the the operational difficulties which banks banks are experiencing and the challenges<br />

that lie ahead for for them to become operationally expedient.<br />

In the good old days of Basel I, capital<br />

adequacy rules were homogeneous,<br />

non-discretionary and non-judgemental.<br />

In the brave new world<br />

of Basel II, the focus of<br />

capital adequacy determination<br />

has shifted from a<br />

thumb rule based process<br />

to one which is a combina-<br />

tion of a convention and<br />

opinion emanating from<br />

administrative reviews of<br />

the bank’s capital evaluation<br />

process.<br />

<strong>The</strong> Basel II by the Basel<br />

— CA . Jyoti Singh* and Ms. Pooja<br />

Mirchandani**<br />

(*<strong>The</strong> author is member of the Institute<br />

and can be reached at ca.jyoti@gmail.<br />

com. ** <strong>The</strong> author is Manager at<br />

Securities and Exchange Board of<br />

India and can be reached at pooja.<br />

mirchandani@gmail.com)<br />

Committee 1 accord is a flip over of the earlier<br />

Basel I norms which India had adopted<br />

in 1999. <strong>The</strong> very much same Basel I now<br />

has been revamped into Basel II<br />

by the Reserve Bank of India’s<br />

steering committee in 2005 as<br />

follows :<br />

l Basel I had a broad brush<br />

approach of non-differentiating<br />

between borrowers resulting in<br />

banks keeping 8 per cent of loan<br />

as capital, whether the borrower<br />

was a first class blue chip company<br />

with little or no risk, or a third<br />

rate company with poor track<br />

1 <strong>The</strong> Basel Committee on Banking Supervision provides a forum for regular co-operation on banking supervisory matters. Its objective<br />

is to enhance understanding of key supervisory issues and improve the quality of banking supervision worldwide. <strong>The</strong> Committee's<br />

Secretariat is located at the Bank for International Settlements (BIS) in Basel, Switzerland.

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