Resources for Basel II Capital Accord (Basel II)

Insurance licence only if banks qualify for Basel II

economictimes.indiatimes.com

Banks planning to venture into the insurance sector will be given licences only if they establish that they have adequate resources to meet the Basel II capital requirements, to be implemented from 2008. The IRDA has decided to make this mandatory for banks applying for insurance licences.

“Any bank’s application for an insurance venture will be considered only if they are able to first show that they have enough funds to meet the Basel II norms. This will be the first priority, before they explain how they would inject funds for their insurance business,” said CS Rao, chairman IRDA. Earlier this year, the Reserve Bank of India too had reportedly asked banks seeking to enter into the insurance business to explain how they would organise capital to meet Basel II norms and for the insurance venture.

Basel II is the new international framework on capital adequacy norms for banks. The new norms require most banks to set aside more capital for the present level of business. Earlier, RBI had decided to ask banks with sizeable international business to adopt the Basel II framework in March 2008, a year earlier than others. Now, banks with insurance ambitions will have to prepare themselves early.

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