it would be a daunting task to create the required level of technological architecture and human skill across the institution. rating requirement : although there are a few credit rating agencies in india, the level of rating penetration is very low. a study revealed that in 1999, out of 9640 borrowers enjoying fund - based working capital facilities from banks, only 300 were rated by major agencies. further, rating is a lagging indicator of the credit risk and the agencies have poor track record in this respect. there is a possibility of rating blackmail through unsolicited rating. moreover rating in india is restricted to issues and not issuers. encouraging rating of issuers would be a challenge. choice of alternative approaches : the new framework provides for alternative approaches for computation of capital requirement of various risks. however, competitive advantage of irb approach may lead to domination of this approach among big banks. banks adopting irb approach will be more sensitive than those adopting standardized approach. this may result in high - risk assets flowing to banks on standardized approach, as they would require lesser capital for these assets than banks on irb approach. hence, the system as a whole may maintain lower capital than warranted and become more vulnerable. it is to be considered whether in our quest for perfect standards, we have lost the only universally accepted standard. absence of historical database : computation of probability of default, loss given default, migration mapping and supervisory validation require creation of historical database, which is a time consuming process and may require initial support from the supervisor. incentive to remain unrated : in case of unrated sovereigns, banks and corporates, the prescribed risk weight is 100 %, whereas in case of those entities with lowest ratting, the risk weight is 150 %. this may create incentive for the category of counterparties, which anticipate lower rating to remain unrated. supervisory framework : implementation of basel ii norms will prove a challenging task for the bank supervisors as well. given the paucity of supervisory resources, there is a need to reorient the resource deployment strategy. supervisory cadre has to be properly trained for understanding of critical issues for risk profiling of supervised entities and validating and guiding development of complex irb models. corporate governance issues : basel ii proposals underscore the interaction between sound risk management practices and corporate good governance. the bank's board of directors has the responsibility for setting the basic tolerance levels for various types of risk. it should also ensure that management establishes a framework for assessing

performed by credit functions and assessment of a bank's capital assessment process. conclusion implementation of basel ii has been described as a long journey rather than a destination by itself. undoubtedly, it would require commitment of substantial capital and human resources on the part of both banks and the supervisors. rbi has decided to follow a consultative process while implementing basel ii norms and move in a gradual, sequential and co - coordinated manner. for this purpose, dialogue has already been initiated with the stakeholders. a steering committee comprising representatives of banks and different supervisory and regulatory departments is taking stock of all issues relating to its implementation. as envisaged by the basel committee, the accounting profession too, will make a positive contribution in this respect to make indian banking system stronger.