Effectiveness and limitations of basel III – A case of India

The Basel III is designed as a strategy for managing the volatility in global banking industry that is encountered during the financial crisis of 2007–2008.The main objective of this framework is to provide more resilient banking system by improving the quality and quantity of the regulatory capital requirement for the banks. As a consequence, the risk coverage is augmented and bank's immunity power against the financial crisis is improved. The new global framework has introduced a number of fundamental reforms such as strengthening the quality and level of required bank capital, introduction of capital buffers and new short term - long term liquidity standards that is underpinned by leverage ratio. These reforms are designed with a view to address the system-wide risk and to build a strong foundation for the global banking industry. This new regulation poses various challenges and has some negative impact on the bank's way of operation and profitability. This paper explores the various merits and demerits that Basel III will bring to the banking industry by analysing it in the light of Indian banking industry.