With Basel-II coming into effect by March 2007; the credit risk model, hitherto based on intuition, is getting a complete transformation to deliver a quantified, factual approach of pricing risk.

Banks are at different stages of preparedness. Most of them are seriously evaluating Basel-II and have started or completed the relevant procedures. A few have moved a step ahead of the standard approach.

Over the past decade, banking and financial services have undergone a dramatic transformation. In the present era of globalization, where industries are keen in spreading beyond their domestic horizon by adapting to international standards, the Indian banking sector is nowhere behind. With RBI's deadline for migration to Basel-II drawing close, there's a sort of urgency for banks to speed up and adopt improved techniques before March 2007.

The word "risk" is closely related to the financial world. And, evaluation of risk has always played the central role of Internal Ratings. These risk quotients in retail, SME and corporate credit, as gauged on the basis of the parameterized models of credit risk bring about consistency in banking capital, which is the main aim of Basel-II. The New Accord, which is the revised version of Basel-I, will provide a comprehensive measure for attaining capital adequacy. Moreover, Basel-II regulations will bring in a scientific approach to capital supervision, with a complete makeover of a bank's existing IT systems and risk management framework.

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