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Effect of change in Basel standards in the banking industry

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  1. Introduction
  2. The concept of Basel-III norms in Indian banks
  3. Research methodology
  4. An abstract of market discipline
  5. Data analysis and presentations
  6. List of tables
    1. Scheduled commercial banks
    2. Capital adequacy ratio â€" Scheduled commercial bank wise
  7. Bibliography
  8. Conclusion

As the deadline for implementing the Basel-III norms in Indian banks has arrived they are still preparing to solve the enigma of risk management for insuring more transparent and risk-free financial bases. According to the Reserve Bank of India, its association with the Basel 'Committee on Banking Supervision' dates back to the year 1997, as India was among the 16 non-member countries that were consulted while drafting of the core principles of the Basel I II and III norms. The RBI at that time became a member of the 'Core Principles Liaison Group' in 1998, and subsequently became a member of the 'Core Principles Working Group Committee on Capital'. Basel I norms focused on the teaching of credit and market risks faced by the banks. The Basel II norms brought into focus a larger number of risks requiring management by banks on a larger canvas. Besides the increase in the number of risks, to be managed banks are now beginning to focus on their inter-linkages with a view to achieve a more comprehensive risk management framework. The implementation of the Basel II norms, therefore, is being increasingly seen as a medium through which banks could constantly endeavor to upgrade their risk management systems in order to address the changing risks environments in which they operate. Basel II prescriptions have ushered in a transition from the traditional regulatory measure of Capital Adequacy to an evaluation of whether a bank had found the most efficient use of its capital to support its business portfolio i.e., a transition from capital adequacy to capital efficiency. In India, banks had been following the earlier Basel-I since 1993-94. In fact, regulators required a minimum Capital to Asset Ratio of 9 per cent, which was above the 8 per cent level as mentioned in the Basel-II accord. Despite being one of the fastest growing economies in the world, Indian banks are far behind their western counterparts in relation to their risk measurement and management techniques and managing their credit market and operational risks.

[...] This finding represents a change in the way banks view their expenditure on operational IT infrastructure, and a recognition by the banking community that the impact of Basel II extends far beyond compliance with a new set of industry regulations. When considering both a technology vendor with which to partner and software solutions to implement around Basel II compliance, the factors which participating banks ranked most highly were reliability, customer focus, ease of integration, and flexibility. Results indicate that the banks participating in the Oracle survey presented a positive perspective on the coming of Basel II, with most respondents commenting that the accord is likely to result in both better business decisions from more advanced information management and more efficient and effective allocation of capital. [...]


[...] An attempt on these guidelines was to assess the process of evolution of Basel standards in banking industry prescribed to be practiced by Basel abroad and subsequently posted in Indian banking scenario with respect to credit risk and market risk .The study also seeks to assess exclusively the Capital Adequate Ratio(CAR) with respect to certain other variables chosen as NPAs prevailing in bank, measures taken to control the effect on such loss assets and management of such loss assets by these banks. [...]


[...] It has been observed that after the implementation of Basel Standards in the banking industry there has been an increase in the level of capital adequacy ratio off all the banking sectors i.e., private sector banks, public sector banks and foreign banks from the year 2000-05.the banks who had negative CAR started having the positive one and the one who did not maintain any CAR started maintaining it. Chapter: 5 LIMITATIONS As the topic being very vast in size so analysis and gathering of information was one of the limitation which was faced in the research. [...]

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