All the three pillars of Basel II provide best practices and guidance to make the financial system strong and stable in the world. India has chosen to be in sync with international community in terms of implementation of Basel II Accord. But there are diverse challenges like bank wise loan policy, advanced risk measures linked to variation, evaluating the off balance sheet risk exposure etc., that need to be addressed for succulent implementation of Basel II.

Diverse economies have been devastated by severe financial crisis e.g., Mexican crisis of 1994, financial crisis in Thailand (1997/8), restructuring cost of financial sector at over 50% of the GDP in Indonesia, Russian/Brazilian crisis of 1998/9 and emergence of recent infirmities in the Argentinean banking system. These and other events and developments starkly highlighted the fragility of banking and finance and provided a sense of contextual immediacy to the vastly altered ground realities of the macroeconomic vulnerability and crisis in the banking sector.

The traditional face of banks as mere financial intermediaries has transformed because of the paradigm shift from balance sheet to off-balance sheet intermediation, move from capital adequacy to capital efficiency and transition from banking to financial services. Appropriate risk management architecture is a function of the size, complexity of business, risk philosophy, market perception and the level of capital of banks. Competition needs to foster convergence towards best practices in risk management because of growing role of market forces, need for internationally consistent prudential norms and a high-quality financial infrastructure and interdependence of prudential standards.

Professional Banker Magazine, Indian Banks, Financial Crisis, Financial Sector, Banking Sectors, Financial Intermediaries, Risk Management Architecture, Gross Domestic Product, GDP, Financial Services, Global Financial System, Global Financial Markets, Monetary Policies, Decision-making Process.