Impact of BASEL 3 norms on performance of commercial banks – A study of select Indian banks

Abstract

The concept of capital Adequacy in commercial banks in India received focus only after the implementation of Basel norms framed for capital structure across the countries. Given the autonomy to central banks to operate within the framework, the Reserve Bank of India (RBI) has followed a caution approach right from beginning. Even at the time of implementation of Basel 2 norms, the RBI had implemented and monitored the norms more stringently that resulted in having much lesser impact of financial crises 2008 in the financial system of India in general and banking sector in particular. Basel 3 norms were framed keeping in view certain gaps of the Basel 2 norms. The Basel 3 norms are more stringent and stress on creating additional buffers to meet the financial crisis. It also requires banks to maintain additional layer of common equity, capital conservation buffer, countercyclical capital buffer, leverage ratio, minimum liquidity ratio etc. These measures will impact the operational performance of banks. Therefore, this paper is an attempt to analyse the impact of Basel 3 norms on operational performance of banks in India.