Basel 3 and the Indian Banks

It was supposed to be implemented from the very first day of 2013. Yes, the Basel 3 norms which had been planned to come in to affect from 1^st January has now been postponed till April 1. But what are the Basel 3 norms and why do the Indian Banks need it. This article will give a complete overview about the Basel 3 norms that are going to be introduced in our country within a few months time.

Well, the name Basel is derived from a place that is located in Switzerland. The Basel norms were introduced in the aftermath of the 2008 bubble crisis so that Banks all over the world posses the financial strength to absorb any kind of financial shocks. The idea behind introducing the Basel 3 was taken after the European Debt Crisis shattered the economy and its disastrous impact on the Banks. The Basel 1 and 2 norms are already in effect and now in order to tighten the banks liquidity as well as the leverage of Indian Banks. The Reserve Bank of India which is a member of the Basel Committee on Banking Supervision urged upon the need to implement the Basel 3 norms will come in to effect from April 1, 2013.

Now lets see the Basel 3 norms for Indian Banks

·         The Banks need to maintain a 4.5% of common equity that is 6% of the Tier 1 capital of the risk weighted class. Common equity means the equity and the retained earnings of the bank.

·         They need to have a capital conservation buffer of 2.5% within March 31, 2008.

·         Capital adequacy ratio must be 11.5%. This ratio determines the capacity of the bank to meet the time liabilities and other risks such as credit and operational risk. It is calculated by the following formula:

CAR=Tier 1 capital +Tier 2 capital/RWA

·         A leverage ratio of 4.5% must be maintained.

The reason as to why the implementation of the Basel 3 norms was delayed was due to the fact that currently the Indian banks do not qualify for the capital requirements of these norms. The Government needs to implement at least Rs 90,000 crores  as equity to retain its stake in the Public Sector Banks. The Finance Ministry has recently decided to inject of Rs 12,000 crore in 12 public sector banks including State Bank of India, Central Bank of India and the United Bank of India in the form of investments. Out of the proposed Rs. 12000 crores SBI will get 0.56 %, CBI will get 0.99 % and UBI will get 0.73 %. Well, the impact of these norms will have a positive impact on the Indian banks as the equity requirement will go up to Rs 3.2 to 4 trillion in the next six years. According to the credit rating agency ICRA, the return on equity could drop by 1.4% which can be compensated by raising the lending yields.

Below is the image of the three pillars of Basel 3 norms

Delhi Gang Rape- The other aspect of it

2012 ended with the greatest irony ever with the rape of a 23 year old girl Damini. It really pained us a lot to accept the fact that in spite of making every possible efforts we could not save the girl. Today, we claim ourselves to be a developing country and claim to be one of the developed countries of the world and an incident like this and that too in the capital of a country is a real shame. There have been protests all over India urging the Government to take strict steps towards the rapists. Even some of the MP's sexist comments have ended them up in a controversial arena and have found their places in the breaking news of every news channel. Assurances have been given by the Government to tighten up the security for the girls all over the country as it launched the helpline number 181 which in the first place suffered a technical snag.

Now, there have been several recommendations suggested from the different people of the country some said girls should master martial arts, some said we have to change our mind set. Well, all these are accepted but i think we are overseeing or rather need to take up another issue which is very vital and that is we need to suggest or rather alert some of our film directors and script writers not to glorify SEXUAL CONTENT so heavily in the films. Using a PORN star in the film, using abusive language in the dialogues and claiming a film as a family film by showing a school girl as a bikini clad woman. Doesn't that encourage rape in our Society?. Well, if we lay stress on these things, then a lot can be improved in a country like India where we eat and live BOLLYWOOD.

NOTE: All the opinion expressed above are personal, others might not agree with it.