Basel III not enough for global play, says Boston Consultancy Group study

Wednesday, 24 August 2011 01:53 - - {{hitsCtrl.values.hits}}

MUMBAI: Indian banks need a more enabling regulatory environment to be at par with global standards, according to a study by Boston Consultancy Group. “Basel III is not enough. The Reserve Bank of India should create a centre for excellence in risk management,” said BCG partner and director Saurabh Tripathi.

The study recommends a regulatory shift where RBI will “define a new paradigm - going beyond Basel III.” Its recommendations to the regulator include sponsoring a risk management centre for research and training, encouraging mobile technology to achieve low-cost financial inclusion and introducing productivity metrics in mandatory reporting by banks.

Among other things, it has said the government should expedite real sector reforms to enable banks to manage bad debts better. It notes that non-performing asset (NPA) levels in sectors such as MSME (micro, small and medium enterprises), agriculture and real estate are high and the speed of response to default is slow.

Besides, it should also introduce performance-linked compensation framework for PSU banks, wherein 12-15% of the salary could be variable for at least 75% of the staff.

For banks, BCG has suggested that the back office processing staff is on the higher side comparable to global standards.

Process re-engineering and operating model change can help reduce costs, improve service and contain operating risks. It has also called for a post-CBS (core banking solution) IT strategy and a new procurement framework that encourages speedy investment decisions.

The study notes that cutting across bank categories, the industry appears to be holding low headcount in human resources and finance portfolio. Economising on these capabilities may hurt long-term health of the organisation.

It has hence called for an adjustment in the public sector compensation structure.