Changing business environment has forced the banking industry to put in place a new regulation which makes the banks stable and strong. BaselII seems to fulfill all the requirements of the present scenario.

A feature, which is unique to our Indian financial system, is the diversity of its composition. We have the dominance of government ownership coupled with significant private shareholding in the public sector banks, which in turn continue to have a dominant share in the total banking system. These public sector banks, especially the new ones are continuously trying to be at par with international standards and norms. We also have cooperative banks whose numbers are large. There are Regional Rural Banks with links to their parent commercial banks. The foreign banks operate profitably and have uniform regulatory standards. Now banking has become a one-stop shop of varied financial services.

In this scenario, Reserve Bank of India has been setting prudential norms in convergence to international standards. India has to aim for global standards across the banking sector in order to manage risk. This is the guiding principle in Basel-II Accord.In the annual policy statement in May this year, the RBI announced that Indian banks should come out with a framework by the end of December 2006 for migrating their standards of supervision, accountability and best practice guidelines in line with the provisions of the Basel-II Accord. Moreover, the framework adopted by the banks must be adaptable to changes in business size, market dynamics, and introduction of newer products in future.

The central bank has formed a steering committee comprising members from its own board, as well as from Indian Banking Association and other banks for consultation on various matters concerning the Basel-II norms. Once the RBI receives inputs from the committee, it will prepare draft guidelines to put in place the stringent norms, and place it in public domain. However, Kishori J Udeshi, Deputy Governor, Reserve Bank of India, in her speech at the World Bank - IMF - US Federal Reserve Board's `fourth annual international seminar', said that though cross-border issues have been dealt with by the Basel Committee, in India foreign banks are statutorily required to maintain local capital.

Professional Banker Magazine, BaselII, Business Environment, Banking Industry, Indian Financial System, Public Sector Banks, Regional Rural Banks, Global Standards, Reserve Bank of India, RBI, Market Dynamics, Quantitative Impact Studies, Banking System, Risk Management Structure, Internal Rating Systems, Real Time Gross Settlement, RTGS) System.