Indian banks should draw a roadmap by the end of this year for complying with new capital rules under the international Basel II accord, the Reserve Bank of India (RBI) said on Tuesday.
Banks will have to set aside additional capital for market risks in two stages spread over the financial years ending March 2005 and 2006, the RBI said in its annual monetary policy.
Currently, Indian banks do not set aside capital for market risk.
"Banks should examine in depth the options available under Basel II and draw a road map by end-December 2004 for migration to Basel II and review the progress made thereof at quarterly intervals," the RBI said.
Top global bank regulators agreed this month to a sweeping overhaul of bank capital rules to strengthen the world's financial system.
"In principle, we have agreed that we would like to move there but according to our own set of factors," RBI Governor Y.V. Reddy told CNBC television.
The draft accord struck in Basel came after five years of haggling over how to modernise 1988 rules - the first Basel agreement - to suit today's highly sophisticated financial markets.
The new accord is meant to make banks more sensitive to risk and thus help protect the world's banking system from shocks like the Enron scandal or an emerging market debt crisis.
The biggest international banks will implement in December 2007 the new accord.