The Telegraph
Since 1st March, 1999
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SBI ready for loan-linked capital norms

Mumbai, Sept. 26: State Bank of India (SBI) has begun preparing for the New Basel Accord — or Basel II norms — that will be implemented three years from now.

Chairman A. K. Purwar said he saw “no complications” in the bank completing the transition, and though officials were still analysing the precise position, attaining a higher capital adequacy ratio will not be a problem. “We are like a global bank. Therefore, we have to prepare ourselves for this change.”

The Reserve Bank has indicated that Indian banks may get time beyond 2006 to adapt to the new set of rules. Purwar did not say if a consultant would be hired to map the course towards implementing Basel II norms.

The new accord seeks to link banks’ minimum capital requirement to the risk profile assets — loans in the case of banks. Under its rules, capital requirement on a particular portfolio would change depending on alterations in the measured risk of the portfolio.

Banks that have sound loan books — borrowers repay on time — would see their capital requirements come down, while those with bad debtors would need more capital.

There have been concerns expressed that the implementation of the new norms could affect the capital adequacy ratio. However, under Basel II, banks will have to set aside more capital for operational risk — something that is not done now. Operational risk includes snags in processes, systems and even human failure.

Talking about the business plans, the SBI chief said year-on-year retail lending has jumped 40 per cent, though growth in corporate credit had not been satisfactory. Deposits continued to swell, recording a healthy rise of more than 14 per cent during this period. Purwar said he expects a pick-up later this year. He cited the strong demand from infrastructure as a sign of revival.

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