PSU banks feel Basel II blues

MUMBAI: Despite claims to the contrary, public sector banks may not quite be ready for the Basel II regime, yet.

Dr K C Chakravarthy, chairman and managing director, Indian Bank, said, “We are still not very clear on Basel II implementation. The hitch is, there is lack of data on operational risk losses. There are too many technicalities involved, which are far beyond our understanding. Management information system needed from every branch is missing. Getting data on operational risks, credit risk and market risk for all the previous years is a tedious task.”

It would take at least five years for Indian banks to adapt to Basel II requirements, he averred.

Operational risks are losses arising out of frauds and bad loans. Public sector banks, which are concentrated across the country, with a major presence in rural areas, have issues in getting this data. Lack of computerisation and manual labour make it even more difficult to churn out the data required for Basel II.

“Power cuts and network issues are a major hurdle. Also, public sector banks have a chunk of branches in rural areas where data capturing is tough as there is a lot of paper work and manual entry,” said an official with a leading public sector bank.

In order to make life simpler, Oriental Bank of Commerce has appointed ICRA to set up a system for the internal working of Basel II implementation. OBC has also started training its employees in streaming its database in calculating operational risks, credit risks and market risks.

“Operational risk losses like frauds, internal process losses that occurred during the previous years are taken into account and calculated using the annual revenue of the bank,” said Allen Pereira, executive director, OBC. “However, the problem is getting accurate MIS data from every branch.”

H N Sinor, chief executive of Indian Banks’ Association (IBA) said public sector banks are still reluctant to take up modern technology. “They are facing serious issues with data management necessary for the implementation of Basel II. Getting past data is a major hurdle. Moreover, most of them are stuck with paperwork and manual labour. They should understand that Basel II norms will be helpful in calculating regulatory capital and better risk management,” Sinor said on the sidelines of a function last week.

“Basel II is a banker’s nightmare. Data issues, history of data and hesitance to take up advanced technology are major problems,” M B N Rao, chairman and managing director, Canara Bank said at a banking summit last month.

IT companies like i-flex, Infosys and Wipro are helping banks on the technology front.

Arun Pingaley, head-functional solutions and experts group of Revelus, said very few public sector banks were ready for Basel II implementation. “The problem with public sector banks is that 40% of their branches are not fully computerised. At the same time, private banks and foreign banks are in a better state as they have computerised systems in each and every branch,” he said.

Not only is it difficult for them to get accurate data, but also, collating it in the data warehouse is a problem, he added.

Meanwhile, banks have been investing heavily to comply with Basel II norms. Among others, HDFC Bank has raised Rs 4,200 crore through the equity route recently, while SBI raised Rs 1,500 crore.