CHANGES IN BASEL NORMS AND ITS IMPACT ON INDIAN BANKS

Basel III norms are guidelines framed by a committee of central banks that is based in Basel, Switzerland. The Reserve Bank of India is also a member of this committee. The norms aim to toughen up the banking system in every country to withstand financial shock. They focus on the risks that banks are vulnerable to, particularly after the crisis in the banking sector, which was triggered by the problem in the US sub-prime mortgage market. Basel III aims to plug the gaps in the existing Basel II guidelines. The new norms will be made effective in a phased manner from January 1, 2013 and implemented fully from March 31, 2019. The guidelines will ensure that banks are well capitalized to manage all kinds of risks. The existing norms stipulate that banks should maintain Tier-I capital, or core capital, and Tier-II capital that comprise instruments with debt-like features. The proposed Basel III norms are going to have a significant impact on the Indian financial sector. While it is in a comfortable position to meet some of the proposed Basel III norms, the implementation of some of the other norms will be a challenge. This paper tries to find out the impact of Basel III norms on the Indian banking industry