RBI/2010-11/348
DBOD.BP.BC.No.71 /21.06.001/2010-11
December 31, 2010
All Scheduled Commercial Banks
(excluding Local Area Banks and
Regional Rural Banks)
Dear Sir,
Prudential Guidelines on Capital Adequacy and Market Discipline -
New Capital Adequacy Framework (NCAF) - Parallel Run and Prudential Floor
Please refer to our circular DBOD.BP.BC.No.87/21.06.001/2009-10 dated April
7, 2010 on the captioned subject and paragraph 4.1.2 of Master Circular No.
DBOD.No.BP.BC.15 / 21.06.001 / 2010-11 dated July 1, 2010 on Prudential
Guidelines on Capital Adequacy and Market Discipline - New Capital Adequacy
Framework (NCAF), in terms of which foreign banks operating in India and Indian
banks having operational presence outside India are required to have parallel
run beyond the specified date (i.e., March 31, 2010) and ensure that their Basel
II minimum capital requirement continues to be higher than 80% of the minimum
capital requirement computed as per Basel I framework for credit and market
risks until further advice.
- In the Second Quarter Review of Monetary Policy 2010-11 announced on
November 2, 2010, banks were advised vide paragraph 102 on ‘Regulatory and
Supervisory Measures for Commercial Banks - Strengthening the Resilience of
the Banking Sector’ (copy of extract enclosed) to continue with the parallel
run for a period of three years, i.e. till March 31, 2013, subject to
review. Accordingly, all the banks in India would continue to have the
parallel run till March 31, 2013, subject to review, and ensure that their
Basel II minimum capital requirement continues to be higher than the
prudential floor of 80% of the minimum capital requirement computed as per
Basel I framework for credit and market risks.
- All other guidelines on ‘Parallel Run’ contained in paragraph 2.4 of the
aforesaid Master Circular should be adhered to by all the banks.
Yours faithfully,
(B. Mahapatra)
Chief General Manager-in-Charge
Extract from Second Quarter Review of Monetary Policy 2010-11
announced on November 2, 2010.
V. Regulatory and Supervisory Measures for Commercial Banks
Strengthening the Resilience of the Banking Sector
- The Basel Committee on Banking Supervision (BCBS), in response to
the financial crisis, submitted a report to the G-20 in October 2010. The
report contained the measures taken by the BCBS and its governing body - the
Group of Central Bank Governors and Heads of Supervision (GHOS) - to
strengthen the resilience of banks and the global banking system. The new
global standards to address both bank-specific and broader systemic risks
have been referred to as Basel III. Measures suggested under Basel III,
among others, include revisions to the definition of regulatory capital,
capital conservation buffer, counter-cyclical buffer, the treatment of
counterparty credit risk, the leverage ratio, and the global liquidity
standards.
- It may be recalled that the BCBS had issued in December 2009 two
consultative documents for public comments. It also undertook a
comprehensive quantitative impact study (QIS) and top-down calibration of
minimum capital requirement. At its July and September 2010 meetings, the
GHOS broadly agreed on the overall design of the capital and liquidity
reform package, based on the comments received, the QIS and top-down
calibration. The fully calibrated Basel III rules will be published by the
BCBS by end-December 2010.
- The Reserve Bank has been adopting the international best
regulatory practices as appropriate to banks in India. Banks are, therefore,
advised :
* to study the new developments and be in preparedness to meet the
requirements; and
* to continue with the parallel run beyond March 31, 2010, as advised to them in
April 2010, to ensure that their Basel II minimum capital requirement continues
to be higher than the prudential floor of 80 per cent of the minimum capital
requirement as per Basel I framework for credit and market risks. The parallel
run should continue for a period of three years, i.e., till March 31, 2013,
subject to review.