Basel III guidelines are bold, innovative and have been well drafted. The standards will be implemented gradually and the impact will also be monitored by the guardians of financial systems and economy.

After the Herstatt failure of 1974, the regulators world over have been working to design regulatory framework to make the financial system safe. Bank for International Settlement (BIS) published Basel I papers in July 1988, which was the first internationally accepted framework of banking risk regulation. Basel I was drafted at a time when banks were only carrying out the core function of accepting deposits for the purpose of lending. However, when later on the banking functions went into a metamorphosis by retaining the core functions, the Basel I principles suffered from many deficiencies and the risk measurement framework was found to be inadequate with the changes in the banking landscape. Basel II, published finally in June 2006, was a well deliberated and calibrated framework to address the changed scenario. No sooner Basel II framework was published and implemented the global financial system had to witness collapse and bankruptcy of financial giants posing systemic threat to the financial system. The policy makers started debating and brainstorming on how to redesign the global financial system so that another destructive and devastating crisis does not occur again. Basel III guidelines are intended to achieve this objective. Basel Committee on Banking Supervision (BCBS) issued several revisions and enhancements after the June 2006 guidelines. BCBS set of rules encompassing revisions and enhancements after this publication is commonly known as Basel III Framework. Basel II was a self-contained complete guideline over Basel I. On the contrary, Basel III guidelines on the one hand, supplements Basel II guidelines and on the other also addresses certain macro prudential regulation by identifying systemic risk as an important risk.

Basel III norms mandate that banks will have to set aside buffers of 2.50% towards capital conservation. Banks have to start creating this capital from January 01, 2016 and create 2.50% on or before January 01, 2019. This capital conservation buffer would have to be set aside from the bank's net profit/earnings. This requirement would be over and above the 8% CRAR prescribed by BIS (9% in case of Indian banks). This would mean that banks would have to maintain minimum 10.50% CRAR. The banks below the buffer range will face Prompt Corrective Action (PCA) from the regulator. Banks not fulfilling the minimum requirement will be restricted from paying dividends.

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