kishori j udeshi : implementation of basel ii - an indian perspective address by ms kishori j udeshi, deputy governor of the reserve bank of india, at the world bank / imf / us federal reserve board 4th annual international seminar on policy challenges for the financial sector : basel ii, washington dc, 2 june 2004. * * * yesterday we had very absorbing discussions on macro issues, regulatory perspectives and risk management challenges relating to basel ii. we are now not debating whether to go forward with basel ii but how to implement basel ii. in fact, understanding basel ii concepts is one step away from agreeing to it in principle. implementing basel ii is another long step away from understanding it. let me briefly detail some implementation issues with specific reference to india. features of indian financial system a feature, somewhat unique to the indian financial system is the diversity of its composition. we have the dominance of government ownership coupled with significant private shareholding in the public sector banks which in turn continue to have a dominant share in the total banking system. these public sector banks are listed on the stock exchange and their performance is reflected in their p / e ratios. the private sector banks especially the new ones are world class. we also have cooperative banks, whose numbers are large and pose a challenge because of the multiplicity of regulatory and supervisory authorities. there are also regional rural banks with links to their parent commercial banks. foreign bank branches operate profitably in india and by and large the regulatory standards for all these banks are uniform. the process of providing financial services is changing rapidly from traditional banking to a one stop shop of varied financial services and the old institutional demarcations are getting increasingly blurred. approach to prudential norms : a review the reserve bank ’ s approach to the institution of prudential norms has been one of gradual convergence with international standards and best practices with suitable country specific adaptations. our aim has been to reach global best standards in a deliberately phased manner through a consultative process evolved within the country. this has also been the guiding principle in the approach to the new basel accord e. g. while the minimum capital adequacy requirement under the basel standard is 8 % in india, we have stipulated and achieved a minimum capital of 9 %. on the other hand, banks in india are still in the process of implementing capital charge for market risk prescribed in the basel document although since 1998 we have in place several surrogates such as an investment fluctuation reserve of 5

suit. two weeks ago, the guangdong provincial government issued its first offshore rmb bond in hong kong, a much - welcomed addition to the list of local government issuers such as shenzhen and hainan. together with cmof bonds, these official - sector issuances provide much - needed benchmark yield curves that can be referenced by the market. earlier this week, the hkma co - hosted an industry event with the national development and reform commission to facilitate mainland corporates to issue bonds in hong kong. all these efforts will promote the development of a vibrant and sustainable dim sum bond market in hong kong. in the foreign exchange market, it is encouraging to see the continued growth of rmbrelated activities in hong kong. according to the tma's semi - annual surveys, the us dollar and rmb have consistently been the most traded currency pair in our fx market. the total value of fx transactions involving the rmb in april 2024 more than doubled year on year. in terms of risk management products, good progress has been made as well. the swap connect commenced operation in 2023. earlier this year, the hkma accepted onshore cmof and policy bank bonds as collateral for obtaining rmb liquidity. this has opened a tremendous window to explore other possibilities for investors to put their onshore bond holdings to more productive use, including efficiency enhancement and obtaining liquidity. there are other rmb - related risk management products in the pipeline, and we look forward to the early opportunity of the product launch. infrastructure the unsung hero behind the more visible business of liquidity or products is hong kong's robust rmb infrastructure that provides the highly efficient and reliable plumbing in handling vast volumes of rmb flows, including 80 % of global offshore rmb transactions. infrastructure enhancement is critical to maintaining our hub status. one important initiative is the upgrading of the central moneymarkets unit ( cmu ), which is a key platform for the lodging of dim sum bonds and the smooth functioning of bond connect. 3 / 4 bis - central bankers'speeches to achieve our vision of transforming the cmu into an icsd ( international central securities depository ), the system upgrade is in full swing. its business model and product offerings are also undergoing a major revamp to make its operation more commercialised, customer - oriented and market - based. another ground - breaking initiative is project mbridge, which is a multi - central bank digital currency ( cbdc ) platform shared among participating central