Basel norms compliance in India: Issues and concerns

Madhu Swami

MPRA Paper from University Library of Munich, Germany

Abstract: The recurrence of financial crises in the world prompted Group of 10 countries (G – 10) to form the Basel Committee on Banking Supervision (BCBS) of Bank of International Standards. The BCBS proposed a Basel accord in 1988 which was adopted in April 1994 in India. Gradually, India implemented Basel – II and Basel – III norms in 2009 and 2013 respectively. The global financial crisis necessitated the need for strengthening banks all over the world by creating an extensive regulatory framework for computing Credit to Risk weighted Asset Ratio (CRAR) taking into consideration credit market and operational risks. Indian Banks have been following Basel – III norms since 2013 and full compliance will be achieved by 31st March, 2019. The stringent capital adequacy requirements have posed various challenges for the Indian Banks. Full compliance of these new norms will increase Indian banks’ capital needs by $20 billion to $30 billion. Various studies on implementation of Basel norms have revealed that these standards have been formulated taking into account Organisation for Economic Cooperation and Development countries than developing countries. The banks especially in developing countries may face a sharp decline in their return on capital (ROA) due to these new norms. India is finding itself at crossroads, balancing to achieve social objectives of financial inclusion and creating a resilient financial system to absorb financial shocks. The objective of this paper is to study the implementation of Basel standards from 1994 onwards in phases from Basel – I to Basel – III and the challenges faced in the process.

Keywords: Banking; Financial Services; Regulation; Basel Norms; Capital Adequacy (search for similar items in EconPapers)
JEL-codes: G2 G21 G28 (search for similar items in EconPapers)
Date: 2016-02
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Published in Management Guru: Journal of Management Research 1.4(2016): pp. 87-92

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