"Implementation of Basel II is no longer a possibility, it is a certainty. Thus, the Indian banking industry has to gear up towards it and ensure that it is implemented well in timeor else the cost of being left behind will be too large to bear."The draft Basel II Accord has finally been accepted and is applicable to all banks in member countries from January 1, 2007, and India is no exception. In fact, India's association with the Basel Committee on Banking Supervision dates back to 1997 when it was among the 16 nonmember countries that were consulted in the drafting of the Basel Core Principles. Reserve Bank of India (RBI) became a member of the Core Principles Liaison Group in 1998 and subsequently became a member of the Core Principles Working Group on capital. Within the CPWG, RBI had the privilege of leading a group of 6 major non G10 supervisors who presented a proposal on a simplified approach for Basel II to the Committee.

The main addition or improvement found in Basel II over Basel I is that it recognizes both credit and operational risks apart from market risk as the primary sources of risks and directs banks to allocate adequate amounts of capital for these types of risks. RBI's approach to implementing the prudential norms has been one of gradual convergence with international best practices with appropriate adaptations. RBI wants to achieve this in a phased manner through a consultative process evolved within the country.

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