Preparedness level of Indian public sector banks for implementation of Basel III

Abstract

PurposeThe purpose of this paper is to explore the preparation level of Indian public sector banks for the implementation of Basel III. It is mandatory for public sector banks in India to make adequate preparations to comply with the Basel III international regulations.Design/methodology/approachThis study uses a modified questionnaire (Ernst & Young, 2013; AL-Tamimiet al., 2016) to examine the preparedness level of Indian public sector banks for implementing Basel III. Seven hypotheses are developed and tested.FindingsThe results show that Indian public sector banks are positively inclined toward Basel III, and the awareness level of Indian banks’ managers is adequate concerning Basel III. The banks have required resources for the proper implementation of Basel III, which is a prerequisite for its implementation. Banks know about the expected benefits that can be attained from implementing Basel III appropriately and banks are also aware of the high cost attached with Basel III. The capital adequacy ratio of public sector banks is above 11 percent, showing the banks’ readiness for Basel III.Practical implicationsThe public sector banks need to concentrate on revising the existing policies to sharpen their risk management practices. Moreover, improving the level of education on Basel III is still required and the results also support the importance of advanced technology and trained human resources at all level as a basic requirement for the implementation of Basel III. It can be achieved by the support of government, Reserve Bank of India (RBI) and other concerned agencies. The enforcement of Basel III will also create various challenges for Indian public sector banks, in terms of declining profitability, increasing capital requirements and nonperforming assets. That is why the impact of Basel III norms on Indian public sector banks cannot be undervalued.Originality/valueThe findings would assist the Indian public sector banks to know about their preparedness level for Basel III and what are the necessary actions to encourage Basel III implementation process. The present study would be important for regulators and decision makers in banks, as the main purpose of this study is to increase their awareness of Basel III norms. The result would also help the regulators regarding the corrective measures that should be taken by RBI in order to motivate the banks for enforcing Basel III.