Do You Have The Time For Basel II?

by Rajendra Chaudhary    Jun 19, 2006

Though Basel II is largely regarded to be a regulatory issue designed for banks to ensure that they have adequate capital to cover their exposures, it has to be said that for a successful Basel II implementation, one can’t do without ‘good’ IT.

As the March 2007 deadline approaches, commercial banks across India are beginning to assess their IT investments and stepping up their efforts to prepare an accommodating IT infrastructure for deploying a Basel II solution.

As internal processes of each bank are different from other, there is no common solution for these banks. They may be similar on broader high-level fundamentals, but then they largely differ in their daily operations. It is these differences unique to each bank that prevent the making of a common ‘pill’ for Basel II compliance.

Now the question arises as to how does one choose the right solution.

Aditya Menon, CIO, Yes Bank believes that in a Basel II implementation the main criterion that needs to be kept in mind is the objective and the time frame within which a bank would like to do the implementation.

According to him, “Once you establish the time to implement a solution, you can either build a solution according to your needs from scratch with support from some consulting outfit and a vendor, or go for a prepackaged, ready to use solution.”

While purchasing a pre-built solution, banks will need to consider the integration of their Basell II solution with the existing technical infrastructure and also be mindful of other future system implementations. Menon advised that while considering a prepackaged solution, banks should ask the vendor whether they have already done interfaces to the platform that is deployed at the bank and whether they have a ready data model or they are building from scratch.

“Going for a prepackaged solution would serve better as Basel II implementation is a huge undertaking and building it from scratch could prove to be a drain on the IT resources of the bank,” said Praveen Kumar A., VP-IT, IDBI Bank

Speaking further he said, “Basel II brings many complexities to computing and calls for a high level of integration between various applications such as application processing, credit decision, risk rating, collateral management. These requirements can put a lot of pressure on the IT resources of the bank. Hence a prepackaged offering can save the bank a lot of trouble.”

However Kumar cautioned that banks must ensure that their solution is scalable enough to withstand the test of time. The technical architecture of the solution should be flexible enough to accommodate any changes that may be proposed in the accord in the future.

Despite the vital role of IT, many consider IT infrastructure a secondary issue.

Deb Ghosh, Chief Architect, APAC, TIBCO said that though IT forms a crucial element of Basel II implementation, the more important thing as of now is to align the internal processes and getting the right architecture to support those processes and bring transparency required across the risk silos.

According to Ghosh, “The basic mantra of this regulation is pricing your risk and that will require a re-look at the fundamental architecture which supports the bank’s risk business. But the CIO’s should not take this as an obligation, rather than a great opportunity to better serve their customers.”