A Study on the Implications of Basel-III on Indian Banking Industry

The global financial meltdown aftermath in banking sector 2007–2009 was triggered by flaws in the U.S sub-prime mortgage market. Several banks found it difficult to maintain adequate liquidity and central bank has to pump in liquidity. In this context, Basel III accord was released in 2010 which identified the loopholes of Basel–II accord on the banks debt regulation. Basel III attempts to increase the resilience on internationally active banks to liquidity stresses. Basel III protocol embarked and notified for Indian banks by RBI, is a comprehensive set of reforms measures to strengthen the regulations, supervision and risk management of the banking sector. The objective is to improve the banking sector ability to absorb shocks arising from financial and economic stress. Basel-III guidelines were imposed for more rigorous and stringent Capital and Liquidity requirements and prescribe changes for the way deductions are made while calculating the capital adequacy percentages which has an impact on Indian banks, which do not have re-securitization exposures and small trading books. The present research paper attempts to examine the Basel-III compliance, analyze implications on Indian banks and suggest actions for future directions of regulations. Implementation of Basel-III effective from April 01, 2013 in a phased manner and will be fully implemented as on March 31, 2019. Burgeoning issues to be resolved and banks cannot afford to be idle, So Basel III measures ensures that banking system as a whole does not crumble and its spill over impact on the real economy is minimized.