Operational risk: impact assessment of the revised standardized approach on Indian banks

Pankaj Sinha and Sakshi Sharma

Abstract

ABSTRACT

The Basel guidelines on operational risk reinforce the relevance of so-called residual risk and outline procedural changes to demonstrate and reinforce policy effectiveness. Banks have been encouraged to move along the spectrum of available approaches (ie, the basic indicator approach, standardized approach and advanced methods approach) for capital calculation as they develop more sophisticated operational risk measurement frameworks and practices.With the proposed newrevised standardized approach for operational risk capital charge calculation, it might be of interest to see the change in capital estimations of Indian banks as per the revised framework. If adopted, this framework will not pose a huge challenge in terms of capital requirements for smaller banks. Larger banks may show an increase in capital charges as per the revised framework; however, the estimated impact on Tier 1 capital will be minimal.