Basel II norms

Print
Category: Uncategorised
Published Date Written by Attingal College Main User

ACHIEVEMENTS FROM THE PROJECT:

The study is more relevant in the present scenario because RBI issues guidelines to the banks to implement Basel II Norms and to maintain international standard. Maintaining adequate capital on the basis of risk weighted credit exposure helps the banks to meet credit risk, market risk and operational risk. If the banks are compelled to maintain adequate capital from its total resources in order to meet these risks, it will reduce the amount available for giving loans. Idle resources will not generate any income so it is a burden to banks. In the present competitive world, profitability of banks goes on decreasing and maintaining a provision of money to meet these norms and thus create a burden on banks. At same time, the banks have to maintain the international standards so as to compete in the globally competitive environment. So the Indian Banks are also found to implement the Basel Norms. Thus this study is important in the sense that it examines both the plus and minus points of its implementation in the Indian Scenario.

SUMMARY OF THE PROJECT:

The Basel Committee established by the Governors of Group Ten countries in 1974 studied bank failures in eight countries: namely, Germany, Japan, Norway, Spain, Sweden, Switzerland, the United Kingdom and the U.S.  It examined the reasons for the failures, how the failures were resolved and what regulatory changes followed from the crisis.  A good understanding of the reasons behind bank failures is crucial in developing a regulatory system that reduces the risk of future failures.  While the focus is on why the banks failed, the other two issues give interesting additional evidence.  The way a crisis is resolved may have been anticipated by market participants and may thus have had an impact on the severity of the crisis.

            Basel study illustrates how the crisis was resolved and analyse in details, the underlying causes of failure and also examines changes in the legal and regulatory regimes that resulted from the crisis.  In 1988, the committee decided to introduce a capital measurement system commonly referred to as the Basel Capital Accord. This system provided for the implementation of a credit risk measurement framework with a minimum capital standard of eight per cent by end 1992.  Since 1988, this framework has been progressively introduced not only in member countries but also in virtually all other countries with internationally active banks.

In the present era, banks are facing the crucial problem in the area of Non-Performing Assets (NPA).  The increasing amount of NPA reduces the profitability of banks.  In order to reduce NPA banks are introducing a number of techniques like credit rating, credit screening etc.  The introduction of Basel II norms stresses the reduction of credit risk, market risk and operational risk and also recommends to maintain adequate amount of capital to meet these risks.  RBI issues guidelines to the banks to implement Basel II norms and to maintain international standard. Maintaining adequate capital on the basis of risk weighted credit exposure helps the banks to meet credit risk, market risk and operational risk.  At the same time if the banks are compelled to maintain adequate capital from its total resources in order to meet these risks, it will reduce the amount available for giving loans.  Idle resources will not generate any income, so it is a burden to banks.  In the present competitive world, profitability of banks goes on decreasing and maintaining a provision of money to meet these norms and this create a burden to banks.  At the same time, banks have to maintain the international standards, so as to compete in the globally competitive environment.  The study is conducted to find out whether the banks have adequate financial resources to implement these norms and also the attitude of banks towards the implementation and the relative advantages through the implementation of these norms.

CONTRIBUTION TO THE SOCIETY:

Basel II addresses the issues by factoring in the differential risk factor in loans made to different types of business entities, markets and geographies and allowing banks to have different levels of minimum capital taking into account intrinsic riskiness of exposure.  Banks which are Basel II compliance can project a better image and attract more business from the market.  The public can choose banks on the basis of market disclosures for keeping their deposits and for their credit requirements.  Banks will also have incentive to select assets of better quality.  As a result there will be accent on turning up of credit appraisal and professionalism in credit decisions.  There will be shift to emphasis from adequacy of capital to capital efficiency.  The likely impact of the accord on the behavior of banks has occasioned much discussion.  In particular, it has been argued that the behavior of banks could be different depending on whether they are capital constraint or not, an issue fraught with significant implications for monetary policy.            RBI issues guidelines to the banks to implement Basel II norms and to maintain international standard. Maintaining adequate capital on the basis of risk weighted credit exposure helps the banks to meet credit risk, market risk and operational risk.  At the same time if the banks are compelled to maintain adequate capital from its total resources in order to meet these risks, it will reduce the amount available for giving loans.  Idle resources will not generate any income, so it is a burden to banks.  In the present competitive world, profitability of banks goes on decreasing and maintaining a provision of money to meet these norms and this create a burden to banks.  At the same time, banks have to maintain the international standards, so as to compete in the globally competitive environment.  The study is conducted to find out whether the banks have adequate financial resources to implement these norms and also the attitude of banks towards the implementation and the relative advantages through the implementation of these norms.

 

 

Copyright @ 2013 Govt. College Attingal Designed by C-Dit