Basel Norms Compliance: Initiatives by Commercial Banks in India

Abstract

The Banking Sector in the developed economies as well as in the emerging market economies may face unique problems in the absence of well developed credit rating systems. The mechanism of robust data collection, lack of proper analytical attitude, inappropriate capital assessment methods, non-transparent systems and other infrastructure related problems can disturb the financial system of a country Basel Accord for capital adequacy provides a sound framework for addressing increasingly complex risks faced by banks with an objective to foster a secure and reliable banking sector. Basel norms have been adopted by Indian commercial banks as per RBI guidelines to build up a more transparent and risk free financial base. The present study attempts to examine the Indian commercial banks’ response to implement Basel II framework as per Reserve bank guidelines. An effort has been made to find out whether the commercial banks in India are ready for the Basel III norms. For this purpose, annual reports of public and private sector banks operating in India have been analyzed in detail for the year ended 2010-11. The study has indicated that Indian commercial banks have taken significant and structural initiatives with regard to risk management to implement the Basel II norms in their organizational structure. The study also highlighted that almost all the banks under the study have entered in Memorandum of Understanding (MOU) with credit rating agencies for the purpose of rating their domestic and overseas exposures.