Operational risk: impact assessment of the revised standardized approach on Indian banks

Pankaj Sinha and Sakshi Sharma

Journal of Operational Risk

Abstract: ABSTRACT The Basel guidelines on operational risk reinforce the relevance of so-called residual risk and outline procedural changes to demonstrate and reinforce policy effectiveness. Banks have been encouraged to move along the spectrum of available approaches (ie,;the basic indicator approach, standardized approach and advanced methods approach);for capital calculation as they develop more sophisticated operational risk measurement;frameworks and practices.With the proposed newrevised standardized approach;for operational risk capital charge calculation, it might be of interest to see the change;in capital estimations of Indian banks as per the revised framework. If adopted, this;framework will not pose a huge challenge in terms of capital requirements for smaller;banks. Larger banks may show an increase in capital charges as per the revised;framework; however, the estimated impact on Tier 1 capital will be minimal.

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