Basel III or Basel 3 released in December, 2010 is the third in the series of Basel Accords. These accords deal with risk management aspects for the banking sector. So we can say that Basel III is the global regulatory standard on bank capital adequacy, stress testing and market liquidity risk. (Basel I and Basel II are the earlier versions of the same, and were less stringent). Norms to be implemented from March 31, 2015 in phases and would be fully implemented as on March 31, 2018
What does Basel III is all about?
According to Basel Committee on Banking Supervision "Basel III is a comprehensive set of reform measures, developed by the Basel Committee on Banking Supervision, to strengthen the regulation, supervision and risk management of the banking sector".
Thus, we can say that Basel III is only a continuation of effort initiated by the Basel Committee on Banking Supervision to improve the banking regulatory framework under Basel I and Basel II. This latest Accord now seeks to improve the banking sector's ability to deal with financial and economic stress, improve risk management and strengthen the banks' transparency.
What are the objectives / aims of the Basel III measures?
Basel 3 measures aim to:
Thus we can say that Basel III guidelines are targeted at to improve the ability of banks to withstand periods of economic and financial stress as the new guidelines are more stringent than the earlier requirements for capital and liquidity in the banking sector.
What are the major changes proposed in Basel iii over earlier accords i.e. Basel i and Basel ii?
Systemically Important Financial Institutions (SIFI): As part of the macro-prudential framework, systemically important banks will be expected to have loss-absorbing capability beyond the Basel III requirements. Options for implementation include capital surcharges, contingent capital and bail-in-debt
How Basel III Norms Will Affect Indian Banks?
The Basel III which is to be implemented by banks in India as per the guidelines issued by RBI from time to time will be challenging task not only for the banks but also for Government of India. It is estimated that Indian banks will be required to raise Rs 6, 00,000 crores in external capital in next nine years or so i.e. by 2020 (The estimates vary from organisation to organisation). Expansion of capital to this extent will affect the returns on the equity of these banks especially public sector banks. However, only consolation for Indian banks is the fact that historically they have maintained their core and overall capital well in excess of the regulatory minimum.