A study on the impct of Basel III guidelines on Indin banking sector

Abstract

Basel III is a global regulatory standard agreed upon by the members of the Basel Committee on Banking Supervision in 2010-11 that aims to maintain bank capital adequacy and to mitigate stress and market liquidity risk. It is a set of reform measures given in the form of a framework whose major objectives are to: 1) improve the banking sector's ability to absorb shocks arising from financial and economic stress, irrespective of the source. 2) improve the risk managing capabilities of the banks and ensure better governance. 3) make the banking system more transparent and strengthen its disclosures. There are two levels in which this standard works: 1) Micro-prudential Level. 2) Macro-prudential Level. In the micro-prudential level, the focus is on bank-level regulation that may help the individual institution to be stable during period of stress. In the macro-prudential level, the focus is on the system wide risks that can make the entire banking system vulnerable during periods of stress and how such risks can be resisted. These two approaches are necessarily complementary as more resilient the individual bank, less will be the impact of system wide risks.