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Banking today in india1


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Banking today in india1

  1. 1. BANKING TODAY IN INDIA CHAPTER: INTRODUCTION INTRODUCTION: Banking has become a part and parcel of our day-to-day life. Today, banks offer an easy access to common .They carry out variety of functions apart from their main functions of accepting deposits and lending. Banking is a service industry. Banks provide financial services to the people, business and industry. Merchant banking, money transfer, credit cards, ATM are some of the important financial services provided by the modern banks. Indian banking system, over the years has gone through various phases after establishment of RBI in 1935, during the British rule, to function as Central Bank of The Country. Earlier central bank’s functions were being looked after by the imperial bank of India. In February, 1996, a scheme of social control was set-up, whose main function was to periodically assess the demand for bank credit from various sectors of the economy to determine the priorities for grant of loans and advances so as to ensure optimum and efficient utilization of resources. On July 19, 1969, the government promulgated banking companies (acquisition and transfer of undertaking) ordinance 1969 , to acquire 14 bigger commercial banks with paid up capital Rs.1,813 crore and with 4,134 branches accounting for 80 of advances. Subsequently in1980, six more banks were nationalized which brought 91 of the deposits and 84 of the advances in public sector banking. During 1962, Deposit Insurances Corporation was established to provide insurance cover to the depositors. In the post-nationalization period there was substantial increase in the number of branches opened, in rural and semi-urban centers bringing down the population per bank branch to 12,000 approximately. During 1976, RRBs were established on the recommendations of M. Narasimham committee report under the sponsorship and support of public sector banks as the third component of multi-agency credit system for agriculture and rural development. The service area approach was introduced during 1989. Banks being financial intermediaries canalize funds through the process of mobilization and development of funds and in this process, they gat exposed to different kinds of risks such as liquidity risk, interest rate movement risk, credit risk, foreign exchange risk, etc. Risk can be defined as the potential loss from a banking transaction, which a bank can suffer due to variety of reasons. E.g. Form of loan, investment in securities, etc. The risk arises due to uncertainties, which in turn arise due ton changes taking place in the prevailing economic, social & political, environment & lack or non-availability of information concerning such changes. The basic objective of risk management is to protect stake holder’s value by maximizing the profit and optimizing the capital funds for ensuring long term solvency of the bank. The process of risk management broadly comprises the following: 1 Risk identification. 2 Risk measurement or quantification. 3 Risk control or risk mitigation. 4 Monitoring and reviewing.
  2. 2. BASIC CONCEPTS: It is necessary to understand the basic concepts used in banking. These are as under: 1) Banking: Banking has been defined as “Accepting for the purpose of lending and investment, of deposits of money from the public, repayable on demand, order or otherwise and withdrawable by cheque, draft or otherwise.” 2) Banker: Banker is a person who accepts deposits, money on current accounts, issue and pay cheques and collects cheques for his customers. 3) Customer: A customer is person who has an account with the bank, performers, at least a transaction of a banking activity nature. 4) Banking Company: Banking company means any company, which transacts the business of banking in India. Section 7, of the Banking Regulation Act, provides that “no company other than a banking company shall use as part of its name any of the words ‘Bank’, ’Banker’, or ‘Banking’, and no company shall carry on the business of banking in India unless it uses as part of its name at least one of such words”. It further provides that no firm, individual or group of individuals shall, for the purpose of carrying on any business, use as parts of its name, any of the words, bank, banking or banking company’. FEATURES OF BANKING: The essential features of banking are given below: 1) Dealing in Money: The bank deals in money. They accept deposits from the public. There are different types of deposits such as savings, current, fixed, recurring, etc. Banks advance money as loans to the needy people. There are again different types of advances such as cash credit, term loans, bill discounting, over drafts, etc. Thus, the banks are basically dealer in money. 2) Agency: Banks act as an agents of the customer. They provide variety of agency services, besides the basic function of accepting deposits and lending money. Fund transfer, credit cards, Tele banking, cheque clearing, bills collection are some of the services provided by the banks as an agent. 3) Credit Creation: the banks can create credit. It is an additional function of bank. Creating of credit is an unique feature of banking. Every deposit can create credit. Additional money can be created for the purpose of lending. However, there is a limit for such credit. The Reserve Bank of India has adopted certain measures to control credit created by the banks. Thus banks have to follow the restrictions laid down by the Reserve Bank of India in this respect. 4) Commercial Nature: All the banking functions are carried out with the aim of making profit. Therefore, the nature of business of banks is commercial. They pay interest on deposits and these deposits are advanced to the needy persons at a higher rate of interest. Therefore, there is a fixed and
  3. 3. minimum of profit in banking operations. Besides, these banks also charge for the services rendered to the customers and add to the profit. 5) Withdrawable Deposits: The deposits made by the customers can be withdrawn by cheques, draft or otherwise. The bank issue books to their customers. The customers have an option to withdrawal money either by cheque or withdrawal slips. The deposits are also withdrawable on demand. However, fixed deposits can be withdrawn at maturity and these deposits cannot be withdrawn by cheques by the customers. There are certain restrictions on the number of withdrawals in case of saving deposits. Introduction: The Indian banks occupy a pivotal place in the organized sector of the Indian money market. They are the single major sources of institution finance in the country. Indian banks are those banking companies registered in India under the Indian companies Act and are also subject to the Indian Banking Regulation Act, 1949. The Indian banks are essentially commercial banks operating in western style. They render banking services, such as acceptance of deposits, advancing of loans and remittance facilities, as well as allied non-banking functions like agency and utility services, such as collection of cheques, bills, payment of premier, accepting bills of exchange, provision of safe deposit vaults, etc. Functions and Services of Indian Banks: The Banking Commission’s Report has enlisted the following services rendered by Indian commercial banks: 1.Deposit schemes: current a/c, saving a/c, fixed or term deposits, monthly interest income deposits schemes, cash certificates, annuity/retirement schemes, farmers deposits schemes, daily savings schemes, minors saving schemes, marriage/educational savings plans. 2. Deposits linked with special benefits: insurance linked savings bank a/c, Housing deposits schemes, salary reserve scheme. 3. Service Provided for Depositors: collection of cheques, demand draft, bill of exchange, promissory notes, hundis, inland & foreign documentary and clean bills, purchase of local and foreign currency, documentary/clean bills, negotiation of bills under inland & foreign letters of credit established by branches and correspondents, carrying outstanding instructions of depositors for payment of insurance premium, payment of subscriptions payment of certain taxes, and gift remittances. 4. Loan schemes: Call loans, term loans, cash credit, overdraft, letter of credit, personal loans for durable consumer goods, contraction of residential house,
  4. 4. CHAPTER: 2 PAST BANKING: History: The origin of banking in India dates back to 1770 when the first bank, named the Hindustan bank, was started by the English agency house of Alexander & co. Calcutta. The bank was, however, would up in 1832. Presidency banks: The real growth banking began in the country when the government was awakened to the need for banks in 1806 with the establishment of the first presidency bank, called of Bank of Bengal, in Calcutta in the year. Then followed the establishment of two other Presidency Banks, namely, The Bank of Bombay in 1840 and the Bank of Madras in 1843.To each of these banks, the government had subscribed Rs.3 lakhs to their share capital. However, a major part of their share capital was contributed by the European shareholders. These presidency banks, however, enjoyed the monopoly of government banking. They were also given the right of note issue in 1823, which was, however withdrawn in 1862. These three Presidency Banks continued till 1920. In 1921 they were amalgamated into Imperial of India. Indian Banks: The year 1960 is a landmark in the history of public banks in India, since in that year the principle of limited liability was first applied to banks. Since 1860 till the end of the nineteenth century, a number of Indian banks came into existence. For instance, the Allahabad Banks was started at Allahabad Bank of simla was started. In 1889, another Indian Bank called Oudh Commercial Bank was established. In 1895,the famous Punjab National Bank came into existence. Inspired by the Swadeshi Movement, several Indian entrepreneurs ventured into the Modern Banking Business. During the boom period of 1906-13, thus, there was a mushroom growth of banks. Many prominent banks also came into existence during this period. These were the Bank of Baroda (1908), and the Central Bank of India (1911). Foreign banks: In addition to the Indian Banks, a number of multi national foreign banks called ‘Exchange Banks’, with their head offices in their homes countries, entered the banking system of India. Exchange banks were essentially meant for financing the foreign trade of the country, but they also conducted banking activity in competition with Indian Banks. The exchange banks are termed ‘Exchange Banks’ because they were financed and managed by non-Indians. Bank crisis: Till about the middle of the twentieth century, the Indian Banks had a checkered career in the country. But banking experienced serve set backs during the period 1913-17, as 108 banks failed and
  5. 5. another 373 banks failed in 1922-36 which was again followed by the failure of 620 more banks in 1937-48. The Central Banking Enquiry Committee (1929) traced the following major causes of bank failures in India: 1. Insufficient paid-up capital and reserves; 2. Poor liquidity of assets: 3. Combination of non-banking activities with banking: 4. Irrational credit policy causing reckless and injudicious advances; 5. Favoritism by the directors and their vested interests; 6. Incompetent and inexperienced directors; 7. Mismanagement; 8. dishonest management; 9. creation of long-term loans on the basis of short –term deposits; 10. Indulgence in speculative investment; 11. Ignorance of the people about banking business; 12. lack of co-ordination among banks; 13. absence of a central bank for overall supervision and control; 14. lack of suitable banking legislation for regulation of banks And above all, the shattered public confidence in banks may be accounted for the failure of many Indian commercial banks overtime. Another event of bank failure took place in 1946-47, with the crash of the A.B.C bank, the Exchange Bank of India and Africa and the North Bank. Eventually, at the time the Independence (in 1947), India inherited an extremely weak banking structure, with urban orientation, comprising 544 small non-scheduled banks, giving bulk finance to the trading sector. Moreover, only a few of them possessed an all-India character, while most of them had limited geographical coverage in their business. Banking development during the planning era: After, independence, the Government of India launched economic planning in the country since 1951. During the 37 years of the planning era, commercial banking has undergone drastic transformation through several important development and policy measures introduced by the government. Some of these are discussed in a nutshell in the sections. Some of the major changes introduced in the Indian banking system may be enlisted as follows: 1. liquidation and amalgamation of banks; 2. Nationalization of the Reserve Bank of India; 3. Banking legislation; 4. Evolution of public sector banking through bank nationalization; 5. Declining significance of foreign banks; 6. Structural changes of commercial banking; 7. New strategies in banking business;
  6. 6. Liquidation & Amalgamation of Banks: Even in the post-Independence period when the history of bank failures continued, the Reserve Bank of India adopted policy of systematic elimination of weaker and uneconomic banking units by resorting to delicensing, compulsory mergers and liquidation of such banks, thereby strengthening the banking system in the country. As history goes, there were 14 bank failures in 1954-1963; there were 92 cases of total bank failures which also included two scheduled banks (Laxmi Bank & Palai Central Bank in 1960). This led the government to insert a new section, Section 45 in the Banking Co’s Act in September 1960, which empowered the Government of India, on the recommendation of the Reserve Bank, to compulsorily amalgamate weak banks with strong well-managed banks. In the 1960s, thus, a strong move to consolidate banking system had taken place. As a result of mergers, amalgamations and liquidations, the number of scheduled bank declined from 92 in 1951 to 73 by end of June 1969 and that of non-scheduled banks from 474 to 16 in the same period. During the post-bank nationalization period 13 more non-scheduled commercial banks went out of business, so that by 1985 their number had decline to 3. PRESENT BANKING: The Indian banking system has displayed its commendable performance during the last fiscal (2006-07) in the midst of new challenges and opportunities. The national and international environments were significantly different from the previous years. It is the volatility that mattered more than liquidity conditions were generally being during most part of the year, the sub prime crises in the US and the monetary tightening policies being persued various major economies have resulted in short spells of liquid it crunches and even credit crunches. Consequently, interest rates have hardened gradually. Impact: Emerging economies performed relatively better with higher Gross Domestic Product (GDP) rates and generally rising levels of exports. While credit spread were shrinking everywhere, the retail credit revolution persisted, expert perhaps in the US, where home loan markets have witnessed negative growths. The two mortgage giants of America’s $11 tn mortgage market. Fannie mae and Freddie Mac, have recently posted huge quarterly losses of 1.4 bn and $2 bn respectively, and are desperately searching for funding sources to augment their capital bases. Banks, in the US, in turn, may now find it difficult to depend on them to buy or guarantee their mortgages. With the resultant reduction of credit funds the US banks may experience the ill effects of a possible recession it. The economy as well, to add to their woes, on the face of the subprime crisis. Many investment bankers like Lehman Brothers, in fact, suffered huge losses and many CEOs have even lost their jobs following the crisis. Progress: As India celebrates its 60th independence anniversary and an amazing ascendance as one of the fastest growing economies in the world (second only to China), one sector which has played a vital role in propping up its economy is undoubtedly the banking sector. The banking sector’s performance is seen as the replica of economic activities of the nation as a healthy banking system acts as the bedrock of solid economic and industrial growth of a nation. The Asian crisis of 1997 and the resent events like the US subprime crisis and growing concerns over carry trade have once again
  7. 7. underlined the significance of a strong and robust financial sector for the smooth and efficient allocation of resources. During the past six decades, since independence, the banking sector has witnessed significant changes and has surely come a long way from the days of nationalization during the early 1970s to the advent of liberalization, globalization and privatization, in the post-1991era.the flurry of reforms witnessed over the last one-and-a-half decade has brought about significant changes in the banking arena in the country with technology being a major facilitator of this transformation. ATMs, internet banking, credit cards, and now mobile banking have helped revolutionize the banking landscape in the country. Leveraging on their new-found tech- savvy and increased thrust on productservice innovation, the banks in the country witnessed a phenomenal growth in the last few years as the economic growth moved into top gear to be amongst the best in the world (India’s GDP grew in excess of 8%consistently since 2003-04onwards with a growth of 9.0%and9.2% in 2005-06 and 2006-07, respectively). With buoyancy in the overall economy, led by robust corporate performances, the banking sector reported sterling performances. According to the economic survey 2006-07,the scheduled commercial banks (SCBs) witnessed a sharp rise in their total income during2005-06,growing by 16.8% as against 3.5% in 2004-05.interest income, which is the major source of income of these banks too grew sharply by 18.4% in 2005-06as against 7.9% in the previous year, thanks to increased volumes of credit and hardening of interest rates. With the favorable impact of increased interest income, the overall operating profit of SCBs registered a growth of 10.9% in 2005-06 as against a decline of 3.0% in 2004-05.operating profits of all banks (including SBI and its associates, nationalized banks, other public sector bank, foreign bank etc.) increased in 2005-06. The strong momentum continued in 2006-07,as the sector churned out another impressive performance. According to the reserve bank of India’s annual report 2006-07,a host of positives characterized the banking sector in the country during the fiscal. For instance, in terms of asset quality-the foremost concern of any bank-the banks have shown remarkable improvement. According to the report, the capital to risk-weighted asset ratio (CRAR)of scheduled commercial bank at end march 2007 remained unchanged from the previous year, meaning that the expansion of capital kept pace with the increase in total risk-weighted assets. An other positive was that the core capital (i.e., Tier 1) ratio of the banks declined from 9.3% as at end-march 2006 to 8.3% at end- march 2007 (Tier 1 capital is considered a measure of capital adequacy of bank, and is the ratio of a bank’s core equity capital to its total risk-weighted assets).asset quality of scheduled commercial bank improved further during the year, with gross and net NPA ratios declining to 2.7% (from 3.5%) and 1.1%(from 1.3%),respectively, at end-march 2007. In terms of top line growth, the overall picture too was satisfactory with total income(as a percent of total assets)of SCBs rising, albeit marginally, from 8.03% in 2005-06 to 8.04%in 2006-07, due to an increase in interest income resulting mainly from a significant rise in credit off-take. However, interest expenses too grew at the same time, thus leading to a sharper increase in total expenditure (as percent to total assets), despite the fall in operating expenses. As a result during 2006-07, profits before provisions and taxes (as percent to total assets) were lower than in the previous year. However, profits after tax (as percent to total assets) at 0.90% during 2005-06 (0.88%) due to lower provisions.
  8. 8. CHALLENGES TO FUTURE BANKING: The central banker, in its recent report on Trend and Progress of Banking in India (2006-07), has identified certain challenges that the bankers have to face in the near future. Some of the important issues are discussed below: 1) Focus on RRBs, UCBs and Rural co-operative banks: These institutions have not been performing satisfactorily for a variety of reasons. Of late, the central banker has been engaged in the task of bringing in the required reforms so that they transform themselves into efficient organizations. 2) Extension of Banking into Underbanked Areas: Indian Banking, over the years, has displayed skewness, with a preference to Urban/Metro banking. With a view to ensuring that there is extension of services equitably in semi-urban and rural branches, the RRB has been issuing new licenses on a 50:50 basis between urban and semi-urban /rural branches. 2) Increased Flow of Credit to Agriculture and SME Sector: These two sectors have vast potential for absorption of large volume of credit funds. As the sectors carry the Priority sector tag’, it is essential for banks’ to channelize substantial credit funds into them. 3) Raising the Capital Bases: Banks need infusion of additional capital to be Basel II-compliant and also to support the expected higher asset bases. As organic growth is not adequate, banks need to look into mergers and FDI funds, besides equity raising through public offer. 4) The challenges of Consolidation, Convergence and Competition: Indian Banking has to adopt the universal banking model for better business opportunities. The banks are Required to consolidate to become bigger players and be in a position to face competition from foreign players. While banks are on the right track, they have a long way to go. CHAPTER 3: BASEL I AND II INTRODUCTION: Banking is the art and science of measuring and managing risks, in lending and investment activities, so that banks turn out surpluses commensurate with their risk perceptions. As banks the world over are highly leveraged entities, their failures will cause significant distress to the depositors and deprive borrowers of loans funds which are generally less expensive and scarce with competing claimants.
  9. 9. Basel I norms aimed at ensuring capital adequacy for banks as proportion of the risk weighted assets. It is criticized to be a “one size fits all” model, lacking in sophisticated measurement and management of risks. Hence, the need for asset of new regulations title Basel II. Basel I and II To stabilize the banking system but also to avoid unfair competition, the amount as well as the quality of required equity capital is internationally harmonizing took place for the first time in 1988 affected by the standards of the Basel Committee for Bank Supervision (“Basel”) and the guidelines of the European Union based on Basel I. Basel I norms were announced by the Basel committee in 1988 were adopted by the banks by the end of 1992. The norms mainly focused on credit risk. In 1996, the accord was partially amended to include the market risk. Following the South East Asian crisis, the Basel committee in June 1999 proposed a new set of norms to reinforce the soundness of the global financial systems. These norms, which came to be called Basel II, sought to better align the regulatory capital with underlying risk and replace the current “broad brush approach” with a preferential broad based risk weighting approach. These wear able risk management, capital adequacy sound supervision and regulation and transparency of operation. Thus, Basel norms came into being in response to the unprecedented growth in financial intermediation in the aftermath of the world oil prices hike in the 1970s with the consequent rise in financial risks and failures throughout the world. THE NEED FOR BASEL II IN INDIA: The Basel II Capital Accord is an amended regulatory framework that has been developed by the Bank of International Settlements that requires all internationally active banks, at every tier within the banking group, to adopt similar or consistent risk-management practices for tracking and publicly reporting exposure to operational, credit and market. Basel II norms have been targeted principally active banks on a consolidated basis. A three year transitional period for full sub-consolidation will be provided for those countries where this is not currently a requirement. Basel II is a three-pillar based approach, which seeks to develop a comprehensive, systematic and sophisticated system for banks to assess the various risks to which they are exposed. It also aims at minimizing the procylical swings that have been witnessed in the bank credit cycle. It explains how risks could change as capital requirements respond to changes in the real underlying risks. A sufficiently risk sensitive capital regime is expected to impart timely information regarding risks. IMPLICATIONS FOR INDIAN BANKING Most banks are required to rethink their business strategies as well as the associated risks to facilitate the implementation of Basel II. Effective management of risk has always been the focus area for banks owing to the increasing sophistication in the product range and service and the complex channels that deliver them. This makes it imperative for banks to adopt sophisticated risk management techniques and to establish a link between risk exposures and capital.
  10. 10. Basel II is intended to improve safety and soundness of the financial system by placing increased emphasis on banks’ own internal control and risk management processes and models, the supervisory review process, and market discipline. Indeed, to enable the calculation of capital requirement under the new accord requires a bank to implement a comprehensive risk management framework. Over a period of time, the risk management improvements that are the intended result may be rewarded by lower capital requirement. However, these changes will also have wide-ranging effects on a bank’s information technology systems, processes, people and business, beyond the regulatory compliance, risk management and finance function. Basel II also encourages the ongoing improvement in risk measurement, assessment and mitigation. Thus, the new Accords presents banks with an opportunity to gain competitive advantage by allocating capital to those processes, segments, and markets that demonstrate a strong risk/ return ratio. The key findings of the survey are as under:  Banks surveyed appeared to have either already begun or are about to begin their Basel II program. They seemed confident of their ability to meet the RBI guidelines for achieving the Standardized Approach for Credit Risk and the Basic Indicator Approach in respect of Operational Risk. However, given the impending timelines for the implementation of the Basel II norms, banks lagging behind need to devote considerable resources in the area so that they can address the necessary requirements of the RBI.  Compliance with regulation is driving the Basel II implementation program in 46% of the banks surveyed. New private sector banks ranked enterprise risk management over compliance as their key driver.  Although the regulator is yet to is sue more specific guidelines in addition to those that have been issued so far, only 16%of the banks surveyed have commenced the process of planning for the more advanced approaches of Basel II, including collection of last data, risk mitigation techniques and capital modeling.  From technological perspective, responded banks indicated that some progress has been made in credit and market risk management. However, the same level of preparedness was not evidence in the case of operational risk.  Approximately, 75% of the banks surveyed have not specifically budgeted funds for their Basel II program.  Eighty- nine percent of the banks surveyed indicated they have ‘dedicated team’ responsible for Basel II implementation. However, very few banks have established the position of Chief Risk Officer with a reporting line to the CEO/ Board and whose role has been defined with sufficient clarity.  Ninety percent of the banks believe that successful implementation will not only result in better compliance but will also improve efficiency of capital management, enhance shareholder value and lead to improved management of their operational risks.  Over 95% of the private sector banks surveyed view “regulatory validation of their risk management systems and models’ as their biggest Basel II challenge, which would be addressed gradually as more detailed guidance is provided by the regulator. On the other hand, Public Sector
  11. 11. Banks (PSBs) view “validation of systems/models by internal and external auditors” as a bigger challenge. Challenges in implementing Basel II:  The biggest challenge for Indian banks implementing Basel II is likely to be the regulatory validation of systems, a subject which would require more detailed guidance from the regulator.  Another significant challenge relates to the data- its availability and quality. The resolution of this challenge, which is greater in the case of operational risk, would require considerable time and resources.  With Basel II looming large, risk and capital management presents an even bigger challenge for banks with a higher proportion of Non-Performing Assets as capital allocation needs to be based on the risk characteristic of the asset.  Private sector banks, both old and new, view validation of their risk systems/models by the RBI as their most critical challenge.  PSBs, on the other hand, consider validation of risk assessment by internal and external auditors (as required under Pillar II) as their biggest challenge.  Cost of compliance is not perceived by banks as a significant concern, clearly indicating that most challengers are either regulator or technology-driven. The future of Basel II in India: Banks in India are now looking to capitalize on the favorable business conditions arising from the steady economic growth in the country. But high levels of debt represent a real strategic threat, especially when the competitive pressures are increasing. At the same time, there continues to be a squeeze on interest margins. The search for higher yields is being reflected in moves towards less- established markets and more complex products, both of which inevitably raise a bank’s risk profile. We believe there are a number of issues that will require consideration in the fullness of time, particularly as Basel II implementation programs within banks mature. Some of these are:  An early ‘buy in’ from the senior management and business leaders is essential to help ensure the success of the Basel II project. Without visible support ant encouragement from the business leaders, implementation can become very difficult and time-consuming.  Good risk management involves a high degree of cultural change. Embedding good risk management practices into the day-to-day business processes is necessary to help ensure compliance with the qualitative and quantitative aspects of Basel II requirements.  Sophisticated risk management techniques, particularly under the advanced approaches, require resources with appropriate skill sets and proper training.  A number of banks, globally, have found it useful to offer incentives to and reward good risk management practices through the use of human resources policies.  The advanced approaches for credit and operational risk management recommend the use of loss data for the purpose of capital modeling. Banks should evaluate the external databases available to assess if relevant information can be obtained.
  12. 12.  Banks in India now need to comply with a number of different regulatory initiatives, Basel II, and Clause 49.Implementation of these as stand-alone solutions can duplicate effort. An integrated approach through a suitable risk management frame-work could well help the bank to gain synergies. Besides, the new or altered methods that must be employed for computing capital requirements, there would also be a change in resource needs, processes and the Information Technology architecture. These changes could ultimately pose broad challenges for a bank’s board of directors and its senior management, who are charged with new risk management, who are charged with new risk management and reporting responsibilities under the new Accord. These senior leaders will need to consider how Basel II compliance could (or should) integrate with other efforts they are making to improve corporate governance.