15MBA056 CP Proposal

Research Topic: Basel Norms and its compliance by Indian selected Indian banks
Abstract:
This paper aims to first build a deeper understanding of the emergence of Basel banking norms (Basel I), and
the transition to each of the subsequent regulations (Basel II and Basel III). The primary purpose of
developing this understanding is to further analyze the extent of effectiveness of the Basel norms. To explore
how such regulations impact an economy. The idea here is to study how; for instance, banking institutions
have shaped up to these norms – and whether the effects were favorable or adverse. We then conclude by
conceptually looking at the future direction of regulations such as the Basel norms in the banking industry.
Introduction:
Banking awareness: Bank for International settlements & Basel Accord / Norms.
 Historically, in 1973, the sudden failure of the Bretton Woods System resulted in the amount of casualties
in 1974 such as withdrawal of banking license of Bankhaus Herstatt in Germany, and shut down of
Franklin National Bank in New York. The incident illustrated the presence of settlement risk in
international finance.
 In 1974, the central bank governors of the G-10 countries took the project to set up a committee on
Banking Regulations and Supervisory Practices in regulate to tackle such issues.
 The birth of the Basel banking norms is certified to the incorporation of the Basel Committee on Banking
Supervision (BCBS), established by the central bank of the G-10 countries in 1974.
 This came into existence being under the support of Bureau / Bank for International Settlements, Basel,
Switzerland.
 The BCBS Committee formulate guidelines and provide recommendation on banking regulation based on:
1. Capital risk,
2. Market risk,
3. Operational risk.
 G10 is a group of eleven industrial countries which consult and cooperate on economic, monetary and
financial matters. Countries are Canada, France, Germany, Japan, the Netherlands, Switzerland, the
United States, Belgium, the United Kingdom and Italy.
 The Committee acts as a forum where regular cooperation between the member countries takes place
regarding banking regulations and supervisory practices.
 The Committee aims at improving supervisory knowhow and the quality of banking supervision quality
worldwide.
 India has accepted Basel Accords for banking system.
The purpose of the accord is to ensure that to meet obligations and to absorb unexpected losses all the
financial institutions have enough capital on account.
Capital adequacy ratio / Capital to risk weighted asset ratio is the ratio of bank’s capital to its risk. BIS &
BCBS track a banks CAR to know that it can absorb losses and complies with statutory capital requirements.
Capital Adequacy Ratio = Tier 1 Capital + Tier 2 Capital

Risk Weighted Exposures
Tier 1 Capital = Equity Capital, statutory reserves, disclosed reserves, Capital Reserves (surplus arising out of
the sale proceeds of the assets), other intangible assets
Tier 2 Capital = Subordinate capitals, revaluation / undisclosed reserves, hybrid instrument and subordinate
term debt. Tier 2 Capital is less secured.
Risk weighted exposures = Asset * risk weight (%). Different asset is multiplied by different risk weight (%)
like in assets loans to corporate, loans to small businesses and guarantees and other non-balance sheet
exposures.
Basel I:
 India adopted Basel 1 guidelines in 1999.

 It focused almost entirely on credit risk.
 Creation of a banking asset classification system on the basis of the inherent risk of the asset.
 It sets out the minimum capital requirements of financial institutions with the goal of minimizing
credit risk.
 It defines capital and structure of risk weighs for Banks.
 The minimum capital requirements were fixed at 8% of risk weighted assets.
Basel II:
 The guidelines were published by Basel Committee on banking supervision in 2004.
 This guideline is the reform version of Basel I.
 It is made to control the misuse of Basel I norms.
 Ensuring the capital allocation is more risk sensitive for bank.
 Enhance disclosure requirements which would allow market participants to assess the capital
adequacy of an institution.
 Ensuring that the different risk are quantifiable based on data and formal techniques.
 Attempting to align the economic and regulatory capital more closely to reduce the scope of
regulatory arbitrage.
 Three pillar of Basel II:
1. Minimum Capital Requirements,
2. Supervisory review process,
3. Market Discipline.
 The Basel II norms were planned to create a uniform international standard on the amount of
capital that banks need to guard themselves against financial and operational risks.
Basel III:
 The Basel III norms are the revised version of Basel II.
 It guidelines were released in 2010.
 It was introduced in response to the financial crisis of 2008.
 It aims at making most banking activities such as their trading book activities more capital-
intensive.
 It aims to promote a more resilient banking system by focusing on four vital banking parameters :
1. Capital,
2. Leverage,
3. Funding,
4. Liquidity.
 It calls for greater strengthening of capital requirements, bank liquidity and bank leverage.
 It builds on Basel I & Basel II documents, and seeks to improve the banking sector ability to deal
with financial stress, improve risk management and strengthen the bank transparency.
The recent requirement of infusion of additional equity in view of the low economic growth and increasing
non-performing assets of Indian banks paint a gloomy picture.
This paper is arranged in the following sections - The review of literature is presented in Section II. A
detailed analysis of Basel I, Basel II and Basel III accords are discussed in Section III. Section IV discusses
the cross country analysis of the Basel accords. Cooperation of the Basel Committee with other regulators and
with the non-member countries are discussed in Section V. Section VI discusses the understanding of the
Indian scenario in the context of implementation of the Basel III accord. Finally, summary and select
recommendations are presented in Section VII.
Literature Review:
Dr. P. Srithar, N.Bairavi, G.Mariselvam(2015) studied on Oil Price Volatility and its Impact on the
selected Economic Indicators in India As trading economics is considered as an authentic source of data
collection, the secondary data of the mention variables is collected from this reliable source. The
aforementioned simple regression models were individually run on SPSS to find out the impact of COP on
GDP, NSE and CPI of India. The data collected for inflation and crude oil prices also indicate that when
crude oil prices move up inflation rate also moves in the same direction in India.
Indrani Hazarika(2015) studied on An Analytical Study on the Impact of Fluctuating Oil Prices on OPEC
Economies. The study is based on secondary data available on the Annual Bulletin of OPEC and Spot Crude
Oil Prices. For the present study macroeconomic data has been collected for the twelve OPEC member
countries and the Brent Crude Oil Spot Price FOB per barrel. But the most important findings according to
the present study is fluctuating oil prices do not impact significantly the macroeconomic indicators of OPEC
economies with 81% of the world’s proven reserves, producing 40% of world’s crude oil and OPEC’s oil
exports represents 60% of the total petroleum traded internationally.
Problems:
Objectives:
To check the compliance of Basel Norms in selected Indian banks
Hypothesis:
Research Methodology:
Finding & Interpretation:

Conclusion:
References:
http://www.investopedia.com
http://www.bankexamstoday.com
https://en.wikipedia.org/wiki/Basel_II
http://www.bis.org/bcbs/basel3.htm

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Research Topic: Basel Norms and its compliance by Indian selected Indian banks

Capital Adequacy Ratio = Tier 1 Capital + Tier 2 Capital

 India adopted Basel 1 guidelines in 1999.

To check the compliance of Basel Norms in selected Indian banks

Finding & Interpretation:

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