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Does Indian Banks are ready for Internal Ratings based Approach for Credit Risk?

The Basel III regulations have suggested reducing mechanistic reliance on credit ratings given by external Credit Rating Agencies under Standardized approach (SA) to Credit Risk Management. The committee recommended the implementation of revised SA and Internal Ratings based Approach (IRB) approach from1 January 2022 to enhance the reliability in the calculation of riskweighted assets (RWAs) and get better banks' capital ratios. The Standardized approach used by Indian Banks for Credit risk may not be helping the Indian banks in controlling the rising NPAs leading to increasing provisions, reducing profitability and capital ratios of Indian Banks.