According to Mr SS Kohli chairman of India Infrastructure Finance Co Ltd, cautioned banking institutions to strengthen their internal credit rating system to minimize risk weight age to arrest defaults in their lending.

Releasing a Study brought out by the Associated Chambers of Commerce and Industry of India on Basel and Beyond recently with Mr Sajjan Jindal, Dr Swati Piramal, Mr Dilip Modi and Mr DS Rawat president senior VP, Mr Kohli said that “Banking institutions are totally immune to current meltdown but refusing to lend to industry as these are in the grip of severe confidence crisis. It will take some time for banks to rebuild their confidence on industry to broad base their lending as Indian financial institutions should shed their unnecessary dependence on external credit rating agencies to sanction loans. Rather these institutions ought to strengthen their internal credit rating system to ensure transparency and fair play in loan disbursement.”

According to Mr Kohli ever since banking institutions collapsed worldwide especially in US, Indian banking system remained as stronger as it was before because it had larger government equity into it.

Mr Kohli pointed out that in economies of scale, governments have been pumping in money to bail out their banking system, while in India, the system is intact and that is why it has withstood the adverse implications of global slowdown.

According to him, Indian banking system should adopt Basel II norms which many banks have already started but when the Basel II norms were finalized for adoption to worldwide banking system, the scenario was entirely different and it is because of this reason, these norms need to be further revised to ensure transparency in the banking system.

Mr Kohli also said that up to INR 25 crore of loans sanctioned for their seekers should be disbursed purely based on internal ratings of the banking system in which the capital adequacy ratio should be between 10 to 11%. Loans exceeding Rs.25 crore ceiling should be endorsed by banking system in Indian context with credit ratings of external agencies.

According to Mr. Kohli, Basel II norms should be reframed to suit the present conditions prevailing in the banking system with present context of global slowdown.