The Journey from Basel I to Basel III and Implications for Indian Banks

The Bank for International Settlements has devised the Basel norms in an attempt to set international norms for risk management in banks. While Basel I played a major role in creating awareness of the importance of capital in managing banking risk, Basel II emphasized the forms of capital recognized in capital adequacy measures. The Basel III norms have emerged against the background of the global banking crisis of 2007. Basel III primarily aims to boost banks’ capital, get banks to move away from short-term funding, improve risk management and governance, and strengthen banks’ transparency and disclosures. As Indian banks make the transition to Basel III, they will face the challenge of meeting the credit needs of a growing economy, as also the needs of socially responsible banking, while adjusting to a more stringent regulatory regime in terms of raising more and better quality capital, greater provisioning and upgrading their risk management systems.