Making Indian Banks Basel-II Compliant:Issues and Evidence

Though the New Capital Accord (Basel II) unveiled by Basel Committee on Banking Supervision (BCBS) would be made applicable initially to internationally active banks, going forward the Basel II stipulations have important implications for the whole banking sector, bank regulators and the real economy. This paper seeks to analyse the impact of the Basel II stipulations on Banks in India in terms of (i) Loan Pricing policies (ii) Composition of porfolio and credit flows to different sectors and issues in operational risk management. The study undertakes empirical testing hypothesis on the relationship between risk and capital, flow of credit to different sectors and pricing of credit within the constraints of publicly available data. The study has suggested an action plan for the Indian banks so that they remain competitive in the post-Basel-II Scenario.