Basel III: Impact analysis for Indian Banks


Siddharth Shukla


The global financial crisis of 2007-08 raised the question whether the Basel Accord II was sufficient enough to protect and facilitate proper functioning of the banking systems across the globe. Sensing the need for better control and protection to the investors, the Basel Committee on Banking Supervision (BCBS) formulated Basel Accord III in 2010. As far as the Indian Banking industry is concerned, besides being subjected to domestic regulations stipulated by the Reserve Bank of India, banks in India have to comply with international regulations as well. In line with international standards, Reserve Bank of India has suggested that Indian banks implement Basel III guidelines by March 2019. However, the full implementation of Basel III Accord is still pending. Indian banks have been given specific time bound guidelines for switching to Basel III guidelines. This paper is an effort to study the probable impact of Basel III implementation for Indian banks.

The initial section of this paper discusses the background of Basel Accords I and II introduced in the past and major recommendations made by Basel Committee under Basel III Accord. Earlier studies carried out in this field are reviewed and placed in the subsequent sections. In this paper, based on past data, a relationship is established between parameters suggested by Basel Committee under Basel III Accord and its probable impact on level of advances, net Non-Performing Assets (NPAs) and net profits. The parameters considered under the study are Capital Adequacy Ratio, Leverage Ratio, Liquidity Coverage Ratio and Net Stable Funding Ratio. The findings and probable impact of variation of these parameters are discussed in the concluding section.

Read Full Article