The New Basel Capital Accord:A Primary Indian Perspective

The Basel standards seek to establish safeguards for the banking system via a framework of regulatory capital requirements. This paper begins by highlighting the inadequacies of Basel-I and how these inadequacies were addressed and to a large extent overcome in Basel II. The likely implications of the latter Accord for EMEs (emerging market economies) in general and India in particular, are then examined, with special emphasis on key features such as discrimination against smaller banks, pro-cyclicality and impact on capital inflows. Finally, an econometric model is postulated to throw light on the issue of how the capital requirements are likely to impinge on the behaviour of Indian banks.