One of the most discussed and debated issues pertaining to the banking sector in the past few years has been the Basel II norms. India too has not been far left behind in moving towards implementing the same. This article draws a clear picture about the guidelines set by the Basel II norms and also the possible implication on the Indian banks. The article tries to focus on the relevance of the norms in the context of consolidation in the Indian banking sector.
Banks are the most significant players in the Indian financial market. They are the biggest purveyors of credit, and they also attract most of the savings from the population. Dominated by the public sector, the banking industry has so far acted as an efficient partner in the growth and development of the country.
Supporters of the free market economy have always upheld that the private sector banks are better managed vis-à-vis their public counterpart. But the recent debacle of Global Trust Bank, one of the larger new private sector banks, suggests that private sector banks are no paragons of professionalism, efficiency and profitability. The moot point is that irrespective of the owner, banks face similar risks.
Keeping this point into consideration Reserve Bank of India (RBI) has already initiated steps to improve risk management systems in banks. RBI has introduced, on a pilot basis, Risk Based Supervision (RBS) of banks. The model for Indian banks, in this regard, will aid in factoring the "Basel II" requirements with regard to capital adequacy assessment processes. |
