RBI/2011-12/311
DBOD.No.BP.BC.67/21.06.202/2011-12

December 22, 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 (IRB) Approaches for
Calculation of Capital Charge for Credit Risk

Please refer to our circular DBOD.No.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 calculation of capital charge for Credit Risk from April 1, 2012 onwards.

2. The draft guidelines for computing credit risk capital charge under IRB were accordingly issued on August 10, 2011 to seek comments and suggestions from all the stakeholders. Based on the comments/suggestions received on the draft guidelines, the final guidelines on IRB as prepared are attached in Annex.

3. Banks intending to move to any of the IRB approaches for computing capital charge for credit risk are advised to assess their preparedness for the same with reference to these guidelines. If a bank feels that it is prepared to adopt IRB approaches as per these guidelines, it may submit a letter of intention and its Boards approval for adoption of IRB approach for credit risk to RBI (Chief General Manager-in-Charge, Reserve Bank of India, Department of Banking Operations and Development, Central Office, 12th Floor, Shahid Bhagat Singh Road, Mumbai 400001), along with a gist of self assessment report between April 1, 2012 and June 30, 2012. RBI will make initial assessment of the banks preparedness based on these documents and if satisfied, RBI will allow the bank to give detailed application for moving to IRB approaches as mentioned in Section G of the guidelines. Banks application will then be followed up with a detailed scrutiny by the RBI and depending on the result of the scrutiny and parallel run; RBI may consider giving final approval to the bank for moving to IRB approaches.

4. It may also be mentioned here that to get the final approval from RBI, the banks will not only have to ensure that they comply with these guidelines but there will also be continuous endeavour from them to improve their credit risk management processes and systems.

Yours faithfully,

(Deepak Singhal)
Chief General Manager-in-Charge