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Part - VI

Though not mandatory for non Basel II countries including India, majority of them are also going to implement Basel II. This article outlines some great opportunities for India coming out of Basel II implementation. These opportunities can be classified in two categories - Banking and Non - Banking. With second highest growth rate in the world and huge scientific and general work force, India is now well recognized as one of the fast emerging nations in the world. Goldman Sachs and many other research reports have predicted a robust growth of Indian economy in the coming decades. A sound and evolved banking system would be a prime requirement to support the hectic and enhanced levels of domestic and international economic activities in the country.

Though India is credited with a very strong banking system, in comparison to many peer group countries, still some better risk practices by Indian banks are required. The majority of Indian banks are either nascent or at a very low level of competence in all, Credit, Market and Operational risk measurement and management system. They are lagging behind in the use of modern risk methodologies and tools in comparison to their western counterparts. Economic reforms, higher market dynamics and large-scale globalization demand a robust Risk Management System in the Indian banks. The current level of Risk Based Supervision and Market disclosures are also not very satisfactory in the Indian Banking system. This is more evident from the recent problems in one well-known private sector bank and in some co-operative banks. Basel II gives an opportunity and a framework for improvement to the Indian banks. A Basel II compliant banking system will further enhance the image of India in the League of Nations. The country rating of India will surely improve, and consequently facilitate a higher capital inflow in the country. This will tremendously help India to move on the higher growth trajectory in the coming decades.

The explanation why countries such as India are eager to adopt the new framework perhaps lies in the Basel II authors' contention that "by motivating banks to upgrade and improve their risk management systems, business models, capital strategies and disclosure standards, the Basel II framework should improve their overall efficiency and resilience." Even Basel I was originally meant for internationally active banks in the G-10 countries but it was soon accepted universally as a benchmark measure of a bank's solvency and was, subsequently, adopted in some form by more than 100 countries.

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* Contributed by -
Vipul Mittal & Saurabh Singh,
Ist Year, MBA (Global),
Institute of Management Technology (IMT), Nagpur.