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International financial markets were facing a rough time in 1970s. In response of this, the central bank governors of G 10 countries established a Committee on Banking Regulations and Supervisory Practices which was later renamed as Basel Committee on Banking Supervision. This committee works for enhancing the financial stability by improving the quality of banking supervision worldwide. In 1988, Basell norms were adopted to strengthen the soundness and stability of the international banking system and to mitigate competitive inequalities. In June, 2004, BCBS published Basel II guidelines, which were based on three parameters-Capital adequacy requirements, supervisory review and market discipline. In 2010, Basel III guidelines were released in response of the financial crisis of 2008, to strengthen the banks which were under-capitalised, over-leveraged. The present paper begins with building a common understanding of the concept of Basel norms, then an attempt is made to understand the impacts of Basel norms on banking system in India.
Keywords: basel norms, banking systems, capital adequacy requirements, leverage ratios
Banks lend to different types of borrowers and each carries its own risk. They lend the deposits of public as well as money raised from the market- equity and debt. The intermediation activity exposes the bank to a variety of risks. Cases of big banks collapsing due to their inability to sustain the risk exposures are readily available. Therefore, banks have to keep aside a certain percentage as security against the risk of non-recovery. Basel Committee provided the norms called Basel norms to tackle the risk.
Basel is a city in Switzerland. It is the headquarters of Bureau of International Settlement (BIS). BIS was established by the Hague agreements of 1930. It is an international organisation of central banks which fosters international monetary and financial cooperation and serves as a bank for central banks. BIS fosters cooperation among central banks with a common goal of financial stability and common standards of banking regulations. It also provides banking services, but only to central banks, or to international organisations. As an organisation of central banks, the BIS seek to make monetary policy more predictable and transparent among its 55 member central bank. The BIS' main role is in setting capital adequacy requirements to safeguard banks' operations. In every two months...