DBOD.No.BP. /21.06.001/2011-12

August 10, 2011

The Chairmen and Managing Directors /
Chief Executive Officers of All Commercial Banks
(excluding Regional Rural Banks and Local Area Banks)

Dear Sir/Madam,

Implementation of the Internal Rating Based Approaches (IRB) for
Calculation of Capital Charge for Credit Risk - Draft Guidelines

Please refer to our circular DBOD.BP.BC.23/21.06.001/2009-10 dated July 7, 2009, inter alia, advising banks that they can apply for migrating to Internal Rating Based Approach (IRB) for Credit Risk from April 1, 2012 onwards.

2.  The Basel II Framework presents three methods for calculating credit risk capital charges in a continuum of increasing sophistication and risk sensitivity:

(i)  Standardised Approach (SA);
(ii)  Foundation IRB Approach (FIRB); and
(iii) Advanced IRB Approach (AIRB).

Presently, banks are calculating credit risk capital charge under SA.

3. In the Annual Monetary Policy Statement 2011-12, announced on May 3, 2011, it was mentioned vide paragraph 109 on 'Implementation of Advanced Approaches under Basel II Framework' that Guidelines for Internal Rating Based Approach (IRB) for credit risk was under preparation. Accordingly, the draft guidelines for computing credit risk capital charge under IRB are furnished in the Annex.

4. You are requested to send your comments on the draft guidelines to email latest by September 9, 2011.

Yours faithfully,

(Deepak Singhal)
Chief General Manager-in-Charge

Encl - As above