Basel norms are designed to ensure safety and stability of the banking system at an international level. The norms were introduced in 1988 in the name of Basel I, which through subsequent and continuous modification has now taken the shape of Basel III. Indian banks being internationally active, are well preparing themselves to comply with the new Basel III norms. The paper tries to collect and investigate the views of bankers, researchers and experts in the field of banking risk management about the effectiveness of Basel norms for risk management in Indian banking industry

The Basel Committee on Banking Supervision (or Basel Committee in short) plays a leading role in standardizing bank regulations across jurisdictions. The Basel committee’s primary objective is strengthening the bank’s capital to improve the banking sector’s ability to deal with financial and economic stress, improve risk management and strengthen the banks’ transparency. This is defined in terms of the Capital Adequacy Ratio, i.e., Capital to Risk weighted Assets Ratio (CAR or CRAR). Basel I introduced the concept of capital adequacy. Basel II stands on three pillars – first pillar: minimum capital requirements; second pillar: supervisory review, and third pillar: market discipline. The first pillar mainly stressed upon the denominator, i.e., risk weighted assets, and gave various measures to optimally assess the level of risk that the bank is exposed to. The second pillar is a regulatory response to the first pillar, giving regulators better ‘tools’ over those previously available. It also provides a framework for dealing with those risks which are not completely covered in the first one. The third pillar aims to complement the minimum capital requirements and supervisory review process by developing a set of disclosure requirements which allows the market participants to gauge the capital adequacy of the banks. Once some of the loopholes of Basel II got exposed during the financial crisis that struck most of the economies towards the end of the first decade of the 21st century, the Basel committee members shifted their attention to the numerator of the CRAR, i.e., the capital. The definition of eligible capital has been grossly changed under Basel III.

Financial Risk Management Journal, Banking Supervision, Basel Committee, Perceptions of Bankers, Researchers Towards, Basel Norms, Banking Risk Management.