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Indian banks would need additional capital to the extent of about Rs 11,900 crore to meet the capital charge requirement for operational risk under Basel II.
According to the study by Icra, most of this capital would be required by the public sector banks (about Rs 9,000 crore), followed by the new generation private sector banks (about Rs 1,100 crore) and old generation private sector banks (about Rs 750 crore). The study has further shown that given the asset growth in the past and the expected growth trends, the capital charge requirement for operational risk would grow 15-20% annually over the next three years which implies that the banks would need to raise Rs 180-200 billion over the medium term.
The study has pointed out that the regulatory capital allocation for credit risk for Indian banks may decline by 2.4 % due to lower risk weightage requirements for better-rated credit exposures. For the retail credit, the existing norms of the RBI are tighter and would not require additional regulatory allocation by Indian banks.
For evaluating the operational requirement, Icra's impact study has considered the Basic Indicator approach of Basel II. The Basic Indicator approach as suggested by Basel II, specifies that banks should hold capital charge for operational risk equal to the average of the 15% of annual positive gross income over the past three years, excluding any year when the gross income was negative.
Technology key to Basel II implementation
RBI draft paper on Basel II
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