Addressing the global banking seminar of IBA, Capoor announced that RBI will soon introduce a new risk-rating mechanism for banks to strengthen them. Elaborating further, Capoor said: ``We are working on ratings of banks on capital, asset quality, asset management, earnings and liquidity (Camel) system to evaluate the risks in each bank and its operational and financial soundness.''

``It will bring the Indian banking system on par with the international system, Capoor observed. Camel system which is followed in several countries, rates banks on a scale of 1-5 where one indicates the best and five the worst on risk pattern and other criteria of financial soundness.

Lack of a good asset and liability management system was a major shortcoming in the Indian banking system, Capoor observed. ``A comprehensive framework is required for measuring andmonitoring the risks associated with liquidity, interest rates and foreign exchange,'' he added.

RBI was also considering issuing new accounting guidelines. It was presently looking into issues of accounting and other banking practices and was consulting the Institute of Chartered Accountants of India over the issue with a view to make banks' balance sheets more transparent, according to Capoor.

Reserving a note of caution for the attending bankers, he said ``Indian banking system will have to become more competitive because of the ongoing reforms and RBI will support their endeavour with policy framework that will have a thrust upon their better performance and operations.''

Earlier, in his opening remarks at the second business session of the conference, Bank of Baroda chairman and managing director K Kannan said with liberalisation exposing banks to new risks, more effective regulations and supervisions of the banking system should be put in place.

``With enough regulatory planning, the worsteffects of liberalisation can be avoided,'' said Kannan, who is also the deputy chairman of IBA. He praised the tabling of the anti-money laundering Bill in Parliament and said regulators and supervisors must ensure that banks keep away from malpractices.

Kannan said banks in developing countries need to establish modern enterprise-wide risk management systems within their organisations. The regulators should exhort the banks to bring about this change. The second Narasimham committee on banking sector reforms in India has also viewed risk management systems as an important component of internal control systems.

The Bank of Baroda chief said attention of regulators and supervisors is rightly focussed on internal control in banks, brought about by a bank's board of directors, management and other personnel.