The Reserve Bank of India has adviced banks to gear up to face the risks of a fuller capital account regime that is expected to be in place by 2011.
In its report on Currency and Finance (2006-0
released on Thursday the RBI said that the banking system would be exposed to enhanced risks in terms of currency risk, counter party credit risk, legal risk, risk of regulatory arbitrage, risk in derivatives transactions and reputation risk.
With fuller capital account convertibility, the banks are expected to undertake transactions in multiple currencies acting as the channels for the flow of funds in and out of the country. A fuller capital account regime may allow banks to receive deposits and raise borrowings from both residents and non-residents. Then, banks can also lend and invest in both domestic and foreign jurisdictions.
The RBI has mentioned that implementation of Basel II would also pose several challenges. India has followed a three track mode, whereby commercial banks, co-operative banks and re-gional rural banks are placed at different levels so far as capital adequacy norms are concerned. The RBI has warned that though it does not raise any concern from the systematic viewpoint, it does give rise to re-gulatory arbitrage. It has adviced banks to derive ma-ximum advantage out of their investments in the technology and avoid wasteful expenditure.
The RBI may not soften its stance to contain inflation, as food and energy prices still remain as a challenge.
Courtesy : www.asianage.com
In its report on Currency and Finance (2006-0
released on Thursday the RBI said that the banking system would be exposed to enhanced risks in terms of currency risk, counter party credit risk, legal risk, risk of regulatory arbitrage, risk in derivatives transactions and reputation risk.With fuller capital account convertibility, the banks are expected to undertake transactions in multiple currencies acting as the channels for the flow of funds in and out of the country. A fuller capital account regime may allow banks to receive deposits and raise borrowings from both residents and non-residents. Then, banks can also lend and invest in both domestic and foreign jurisdictions.
The RBI has mentioned that implementation of Basel II would also pose several challenges. India has followed a three track mode, whereby commercial banks, co-operative banks and re-gional rural banks are placed at different levels so far as capital adequacy norms are concerned. The RBI has warned that though it does not raise any concern from the systematic viewpoint, it does give rise to re-gulatory arbitrage. It has adviced banks to derive ma-ximum advantage out of their investments in the technology and avoid wasteful expenditure.
The RBI may not soften its stance to contain inflation, as food and energy prices still remain as a challenge.
Courtesy : www.asianage.com