Basel-II roadmap: a survey of risk management in Indian banks and financial institutions

Abstract

Abstract 1) Introduction and context description. Basel 11 norms that are to be implemented from next year are a step towards safe banking system following the best international practices. With the introduction of Basel-II the parameters or categories of risks have been expanded to include operational risk are called “Pillar 1 ” risks. Modern risk management would mean higher capital adequacy requirements. But it would also bring its own benefits like grater transparency better product pricing competitive leverage ect. The initial implementation of basel II will be at a basic level to reduce compliance costs for the system. Through this project we have tried to gauge the preparedness of various financial institutions for Basel II and give a perspective on the IT enabled risk management in those organizations. 2) Research questions: Ranking of various kinds of risks by financial institutions Problems faced for risk based management Timeline for Basel II implementation and software management Benefits expected through implementation Approaches taken for credit and operational risk Effect on Capital adequacy requirements 3) Methodology: Administering a questionnaire to the concerned bank managers Interviewing the top level decision makers Secondary research from internet. 4) Findings: Most institutions are already gearing themselves up for Basel II regulatory requirements and are expected to be fully compliant by the end of 2007 or early 2008 itself . They realize the importance of this for their long term survival. In most cases they have not yet come up with estimates of implementation cost and foreses an increase in capital requirements. Some of the benefits of Basel II like greater transparency , better risk management and product pricing are acknowledged by all. 5) Limitations of the study: All of the responses have not been filled by the concerned person at the all India head office. Some of them which have been filled up at the local or regional level may have chances of partially correct information. All the concerned institutios could not be approached due to paucity of time. 6) Scope for further work: This can be extended to include the perspectives of more financial instituations 7) Key words (up to five ) Basel II, Preparedness, Risk Management, 2007, Capital Learning From the IP Process: Some knowledge of working of banking sector Risk parameters in financial sector and their management Knowledge about Basel II norms.