ContentsIndian Banking Sector: Brief Introduction2Online Banking2Banks in India3Nationalised Banks / Public-sector banks4SBI and Associate Banks4Regional Rural Banks5Private-sector Banks7Foreign Banks operating in India8Foreign banks with business in India8Foreign banks with representative offices in India9Control On Banking Companies In India11Functions of Reserve Bank of India12Public sector banks in India15Emergence of public sector banks16Public sector banks before the economic liberalization16Investors can be wrong about adverse impact of Basel III norms on ROE16Basel III17Introduction17Key principles18Capital requirements18Leverage ratio18Liquidity requirements19US Version of the Basel Liquidity Coverage Ratio Requirements19Implementation20Summary of originally (2010) proposed changes in Basel Committee language20U.S. implementation22Key milestones22Analysis on Basel III impact24Macroeconomic impact24Critics24Further studies[edit]25

Indian Banking Sector: Brief IntroductionIndias Rs 77 trillion (US$ 1.25 trillion)-banking industry is the backbone to the economy. The sector emerged strong from global financial turmoil and proved its mettle when the developed economies were shaking. Indias banking sector is on a high-growth trajectory with around 3.5 ATMs and less than seven bank branches per 100,000 people, according to a World Bank report. The statistics are going to improve in near future as the Government aims to have maximum financial inclusion in the country. Policymakers are making all the efforts to provide a facilitating policy framework and infrastructure support to ensure meaningful financial inclusion. Apart from that, financial institutions are collaborating with other service providers (in the fields of telecom, technology and consumer product providers) to create an enabling environment. Online BankingDo-it-yourself is the new banking norm. Just an access to high-speed internet and user-friendly smart-phone applications have made people shift to alternative channels of banking. Many banks have adopted new-age internet tools to reach out to their clients to facilitate easy and comfortable banking.For instance, in ING Vysya Bank, 80 per cent of demand draft volumes generate through real time gross settlement (RTGS) and national electronics funds transfer (NEFT) while for HDFC Bank, 82 per cent of all transactions come from non-bank channels, with net banking and mobile banking accounting for 44 per cent of all transactions. "Most online transactions are real-time and do not involve paper-based transactions, thus saving customer time. We are witnessing rapid customer adoption for net banking over and above their normal account related transactions. They are now viewing net banking as a single stop for all their banking requirements," said Tejas Maniar, Head, net banking, HDFC Bank, said. Some banks like ICICI Bank have endeavoured to take a step further and introduce social media-based banking apps. Pockets by ICICI allows its customers to have the convenience of banking while they are on Facebook. Similarly, Kotak Mahindra Bank is working on online personal finance management tools, shopping cart and an e-relationship manager.Bankers reveal that customers use their net-banking facility for non-account related matters like bills payment, viewing credit card statements, ticket booking etc. For banks, online banking helps save costs too. The cost of doing a transaction at a teller counter ranges from Rs 40 to Rs 50 (US$ 0.65- 0.81) per transaction while in the case of net banking this lowers significantly to Rs 2 to Rs 3 (US$ 0.032-0.048) per transaction. Key Statistics According to the Reserve Bank of India (RBI)s Quarterly Statistics on Deposits and Credit of Scheduled Commercial Banks, March 2013, Nationalised Banks accounted for 52.4 per cent of the aggregate deposits, while the State Bank of India (SBI) and its Associates accounted for 22 per cent. The share of New Private Sector Banks, Old Private Sector Banks, Foreign Banks, and Regional Rural Banks in aggregate deposits was 13.6 per cent, 5.1 per cent, 4 per cent and 2.9 per cent, respectively.

Nationalised Banks accounted for the highest share of 51 per cent in gross bank credit followed by State Bank of India and its Associates (22.7 per cent) and New Private Sector Banks (14 per cent). Foreign Banks, Old Private Sector Banks and Regional Rural Banks had shares of around 4.9 per cent, 5 per cent and 2.5 per cent, respectively. Banks credit (loan) growth increased to 18 per cent for the fortnight ended September 6, 2013, while deposits grew by 13.37 per cent showed the data by RBI. India's foreign exchange reserves increased to US$ 277.73 billion as of October 4, 2013.Recent Developments Private lender HDFC Bank is planning to launch 500 mini branches, to be handled by one to three people, across India by the end of FY14. The bank has added about 219 mini branches pan-India since 2012.

The basic motive behind such a initiative by the bank is to take the formal banking experience to people in unbanked and under-banked areas. A mini branch, manned by one, two or three persons, offers the entire range of products and services including savings and current accounts, fixed deposits, recurring deposits, credit card, instant debit card and also ATM facility. Products such as two wheeler loan, tractor loan, commercial vehicle loan, agricultural and commodities loan among others are also offered. Saudi Arabias National Commercial Bank is said to have signed Tata Consultancy Services (TCS) to make Indias largest software exporter implement its core banking platform for the former. TCS offers a plethora of retail banking solutions under BaNCS, a brand of core banking suite.

National Commercial Bank intends to develop electronic services and provide technology-based banking solutions to its clients through this initiative. On the similar lines, ING Vysya Bank Ltd has appointed IBM and its MobileFirst banking solution for the development of its ING Vysya Mobile - a cost effective, secure and scalable mobile banking application. The new application will help the bank maximise its reach to untapped markets. Moreover, the advanced features will enhance banks involvement with its clients, facilitating higher availability and convenience.

Banks in India

This is a partial list of corporations engaged in banking business within the territory of India . There are currently nationalized banks in India.

1Nationalised Banks / Public-sector banks 1.1SBI and associate banks 2Regional Rural Banks 3Private-sector banks 4Foreign banks operating in India 5Foreign banks with business in India 6Foreign banks with representative offices in India 7Indian banks with business outside IndiaNationalised Banks / Public-sector banks1. Allahabad Bank2. Andhra Bank3. Bank of Baroda4. Bank of India5. Bank of Maharashtra6. Canara Bank7. Central Bank of India8. Corporation Bank9. Indian Bank10. Indian Overseas Bank11. Oriental Bank of Commerce12. Punjab National Bank13. Punjab & Sind Bank14. Syndicate Bank15. UCO Bank16. Union Bank of India17. United Bank of India18. Vijaya Bank19. IDBI Bank20. Dena Bank21. ECGC

SBI and Associate Banks1. State Bank of India2. State Bank of Bikaner & Jaipur3. State Bank of Hyderabad4. State Bank of Mysore5. State Bank of Patiala6. State Bank of Travancore7. State Bank of Saurashtra(merged into SBI in 2008)8. State bank of Indore(merged into SBI in 2010)Regional Rural Banks1. Allahabad UP Gramin Bank2. Andhra Pradesh GrameenaVikas Bank3. Andhra PragathiGrameena Bank4. Arunachal Pradesh Rural Bank5. AryavartGramin Bank6. Assam GraminVikash Bank7. Baitarani Gramya Bank8. Ballia EtawahGramin Bank9. BangiyaGraminVikash Bank10. Baroda Gujarat Gramin Bank11. Baroda Rajasthan Gramin Bank12. Baroda Uttar Pradesh Gramin Bank13. Bihar KshetriyaGramin Bank14. Cauvery KalpatharuGrameena Bank15. Chaitanya Godavari Grameena Bank16. Chhattisgarh Gramin Bank17. Chikmagalur-KodaguGrameena Bank18. Deccan Grameena Bank19. Dena Gujarat Gramin Bank20. Durg-RajnandgaonGramin Bank21. EllaquaiDehati Bank22. Gurgaon Gramin Bank23. HadotiKshetriyaGramin Bank24. Haryana Gramin Bank25. Himachal Gramin Bank26. Jaipur TharGramin Bank27. JhabuaDharKshetriyaGramin Bank28. Jharkhand Gramin Bank29. KalingaGramya Bank30. Karnataka VikasGrameena Bank31. KashiGomtiSamyutGramin Bank32. Kerala Gramin Bank33. Krishna Grameena Bank34. KshetriyaKisanGramin Bank35. LangpiDehangi Rural Bank36. Madhumalti Building GupteMarg37. Madhya Bharat Gramin Bank38. Madhya Bihar Gramin Bank39. MahakaushalKshetriyaGramin Bank40. Maharashtra Gramin Bank41. MalwaGramin Bank42. Manipur Rural Bank43. MarwarGanganagar Bikaner Gramin Bank44. Meghalaya Rural Bank45. MewarAnchalikGramin Bank46. Mizoram Rural Bank47. Nagaland Rural Bank48. UttrakhandGramin Bank[1]49. Narmada MalwaGramin Bank50. NeelachalGramya Bank51. PallavanGrama Bank52. PandyanGrama Bank53. ParvatiyaGramin Bank54. PaschimBangaGramin Bank55. PragathiGramin Bank56. Prathama Bank57. PuduvaiBharathiarGrama Bank58. Pune District Central Cooperative Bank Ltd.59. Punjab Gramin Bank60. PurvanchalGramin Bank61. Rajasthan Gramin Bank62. Rewa-SidhiGramin Bank63. RushikulyaGramya Bank64. SamastipurKshetriyaGramin Bank65. SaptagiriGrameena Bank66. Sarva UP Gramin Bank67. Satpura Narmada Kshetriya68. SaurashtraGramin Bank69. ShardaGramin Bank70. ShreyasGramin Bank71. SurgujaKshetriyaGramin Bank72. Sutlej KshetriyaGramin Bank73. Tripura Gramin Bank74. UtkalGramya Bank75. Uttar BangaKshetriyaGramin Bank76. Uttar Bihar Gramin Bank77. VananchalGramin Bank78. VidharbhaKshetriyaGramin Bank79. VisveshvarayaGrameena Bank80. Wainganga Krishna Gramin Bank

Private-sector Banks1. Axis Bank2. Catholic Syrian Bank3. Development Credit Bank4. Dhanlaxmi Bank5. Federal Bank6. HDFC Bank7. ICICI Bank8. IndusInd Bank9. ING Vysya Bank10. Karnataka Bank11. KarurVysya Bank12. Kotak Mahindra Bank13. Lakshmi Vilas Bank14. Nainital Bank15. Tamilnadu Mercantile Bank16. South Indian Bank17. YES Bank18. UP Agro Corporation Bank

Foreign Banks operating in India1. Abu Dhabi Commercial Bank2. Australia and New Zealand Bank3. Bank Internasional Indonesia4. Bank of America NA5. Bank of Bahrain and Kuwait6. Bank of Ceylon7. Bank of Nova Scotia(Scotia Bank)8. Bank of Tokyo Mitsubishi UFJ9. Barclays Bank PLC10. BNP Paribas11. Calyon Bank12. Chinatrust Commercial Bank13. Citibank N.A.14. Credit Suisse15. Commonwealth Bankof Australia (Recently Launched Retail Services in Mumbai)16. DBS Bank17. DCB BanknowRHB Bank18. Deutsche Bank AG19. FirstRand Bank20. HSBC21. JPMorgan Chase Bank22. Krung Thai Bank23. Mashreq Bank psc24. Mizuho Corporate Bank25. Royal Bank of Scotland26. Shinhan Bank27. SocitGnrale28. Sonali Bank29. Standard Chartered Bank30. State Bank of Mauritius31. UBS32. Woori Bank. Foreign banks with business in IndiaBanks with branches in India. 1. ABN AMROBank N.V. - Royal Bank of Scotland2. Abu Dhabi Commercial Bank3. American Express Bank4. Antwerp Diamond Bank5. Arab Bangladesh Bank6. Bank International Indonesia7. Bank of America8. Bank of Bahrain and Kuwait9. Bank of Ceylon10. Bank of Nova Scotia11. Bank of Tokyo Mitsubishi UFJ12. Barclays Bank13. BNP Paribas14. Calyon Bank15. Chinatrust Commercial Bank16. Citibank17. DBS Bank18. Deutsche Bank19. HSBC(Hongkong& Shanghai Banking Corporation)20. JPMorgan Chase Bank21. Krung Thai Bank22. Mashreq Bank23. Mizuho Corporate Bank24. National Australia Bank25. Shinhan Bank26. SocitGnrale27. Sonali Bank28. Standard Chartered Bank29. UBSForeign banks with representative offices in India American Banks American Express Bank of New York Wachovia Bank Northern Trust Australian Banks Commonwealth Bank Westpac Banking Corporation Austrian Banks RaiffeisenZentralbank Belgian Banks Fortis Bank KBC Bank Canadian Banks Royal Bank of Canada UAE Banks Emirates Bank International French Banks Credit Industriel et Commercial Natixis German Banks HypoVereinsbank Commerzbank Dresdner Bank DZ Bank AG Deutsche Zentral Genossenschafts Bank HSH Nordbank Landesbank Baden-Wrttemberg Irish Banks Depfa Bank Italian Banks BancaIntesa Banca di Roma BancaPopolare di Verona BancaPopolare di Vicenza UBI Banca Monte deiPaschi di Siena Sanpaolo IMI UniCredit Nepalese Banks Everest Bank Portuguese Banks CaixaGeral de Depositos Russian Banks Vnesheconombank Promsvyazbank South African banks First Rand Bank South Korean Banks Woori Bank Spanish Banks Caixabank Banco de Sabadell Banco Bilbao VizcayaArgentaria Sri Lankan Banks Hatton National Bank Swiss Banks Credit Suisse Zurich CanControl On Banking Companies In IndiaThe central bank of the country is the Reserve Bank of India (RBI). It was established in April 1935 with a share capital of Rs. 5 crores on the basis of the recommendations of the Hilton Young Commission. The share capital was divided into shares of Rs. 100 each fully paid which was entirely owned by private shareholders in the begining. The Government held shares of nominal value of Rs. 2,20,000.

Reserve Bank of India was nationalised in the year 1949. The general superintendence and direction of the Bank is entrusted to Central Board of Directors of 20 members, the Governor and four Deputy Governors, one Government official from the Ministry of Finance, ten nominated Directors by the Government to give representation to important elements in the economic life of the country, and four nominated Directors by the Central Government to represent the four local Boards with the headquarters at Mumbai, Kolkata, Chennai and New Delhi. Local Boards consist of five members each Central Government appointed for a term of four years to represent territorial and economic interests and the interests of co-operative and indigenous banks.

The Reserve Bank of India Act, 1934 was commenced on April 1, 1935. The Act, 1934 (II of 1934) provides the statutory basis of the functioning of the Bank.

The Bank was constituted for the need of following: To regulate the issue of banknotes To maintain reserves with a view to securing monetary stability and To operate the credit and currency system of the country to its advantage.

Functions of Reserve Bank of India

The Reserve Bank of India Act of 1934 entrust all the important functions of a central bank the Reserve Bank of India.

Bank of Issue

Under Section 22 of the Reserve Bank of India Act, the Bank has the sole right to issue bank notes of all denominations. The distribution of one rupee notes and coins and small coins all over the country is undertaken by the Reserve Bank as agent of the Government. The Reserve Bank has a separate Issue Department which is entrusted with the issue of currency notes. The assets and liabilities of the Issue Department are kept separate from those of the Banking Department. Originally, the assets of the Issue Department were to consist of not less than two-fifths of gold coin, gold bullion or sterling securities provided the amount of gold was not less than Rs. 40 crores in value. The remaining three-fifths of the assets might be held in rupee coins, Government of India rupee securities, eligible bills of exchange and promissory notes payable in India. Due to the exigencies of the Second World War and the post-was period, these provisions were considerably modified. Since 1957, the Reserve Bank of India is required to maintain gold and foreign exchange reserves of Ra. 200 crores, of which at least Rs. 115 crores should be in gold. The system as it exists today is known as the minimum reserve system. Banker to Government

The second important function of the Reserve Bank of India is to act as Government banker, agent and adviser. The Reserve Bank is agent of Central Government and of all State Governments in India excepting that of Jammu and Kashmir. The Reserve Bank has the obligation to transact Government business, via. to keep the cash balances as deposits free of interest, to receive and to make payments on behalf of the Government and to carry out their exchange remittances and other banking operations. The Reserve Bank of India helps the Government - both the Union and the States to float new loans and to manage public debt. The Bank makes ways and means advances to the Governments for 90 days. It makes loans and advances to the States and local authorities. It acts as adviser to the Government on all monetary and banking matters.

Bankers' Bank and Lender of the Last Resort

The Reserve Bank of India acts as the bankers' bank. According to the provisions of the Banking Companies Act of 1949, every scheduled bank was required to maintain with the Reserve Bank a cash balance equivalent to 5% of its demand liabilites and 2 per cent of its time liabilities in India. By an amendment of 1962, the distinction between demand and time liabilities was abolished and banks have been asked to keep cash reserves equal to 3 per cent of their aggregate deposit liabilities. The minimum cash requirements can be changed by the Reserve Bank of India.

The scheduled banks can borrow from the Reserve Bank of India on the basis of eligible securities or get financial accommodation in times of need or stringency by rediscounting bills of exchange. Since commercial banks can always expect the Reserve Bank of India to come to their help in times of banking crisis the Reserve Bank becomes not only the banker's bank but also the lender of the last resort.

Controller of Credit

The Reserve Bank of India is the controller of credit i.e. it has the power to influence the volume of credit created by banks in India. It can do so through changing the Bank rate or through open market operations. According to the Banking Regulation Act of 1949, the Reserve Bank of India can ask any particular bank or the whole banking system not to lend to particular groups or persons on the basis of certain types of securities. Since 1956, selective controls of credit are increasingly being used by the Reserve Bank.

The Reserve Bank of India is armed with many more powers to control the Indian money market. Every bank has to get a licence from the Reserve Bank of India to do banking business within India, the licence can be cancelled by the Reserve Bank of certain stipulated conditions are not fulfilled. Every bank will have to get the permission of the Reserve Bank before it can open a new branch. Each scheduled bank must send a weekly return to the Reserve Bank showing, in detail, its assets and liabilities. This power of the Bank to call for information is also intended to give it effective control of the credit system. The Reserve Bank has also the power to inspect the accounts of any commercial bank.

As supereme banking authority in the country, the Reserve Bank of India, therefore, has the following powers:(a) It holds the cash reserves of all the scheduled banks.

(b) It controls the credit operations of banks through quantitative and qualitative controls.

(c) It controls the banking system through the system of licensing, inspection and calling for information.

(d) It acts as the lender of the last resort by providing rediscount facilities to scheduled banks.

Custodian of Foreign Reserves

The Reserve Bank of India has the responsibility to maintain the official rate of exchange. According to the Reserve Bank of India Act of 1934, the Bank was required to buy and sell at fixed rates any amount of sterling in lots of not less than Rs. 10,000. The rate of exchange fixed was Re. 1 = sh. 6d. Since 1935 the Bank was able to maintain the exchange rate fixed at lsh.6d. though there were periods of extreme pressure in favour of or against

the rupee. After India became a member of the International Monetary Fund in 1946, the Reserve Bank has the responsibility of maintaining fixed exchange rates with all other member countries of the I.M.F.

Besides maintaining the rate of exchange of the rupee, the Reserve Bank has to act as the custodian of India's reserve of international currencies. The vast sterling balances were acquired and managed by the Bank. Further, the RBI has the responsibility of administering the exchange controls of the country.

Supervisory functions

In addition to its traditional central banking functions, the Reserve bank has certain non-monetary functions of the nature of supervision of banks and promotion of sound banking in India. The Reserve Bank Act, 1934, and the Banking Regulation Act, 1949 have given the RBI wide powers of supervision and control over commercial and co-operative banks, relating to licensing and establishments, branch expansion, liquidity of their assets, management and methods of working, amalgamation, reconstruction, and liquidation. The RBI is authorised to carry out periodical inspections of the banks and to call for returns and necessary information from them. The nationalisation of 14 major Indian scheduled banks in July 1969 has imposed new responsibilities on the RBI for directing the growth of banking and credit policies towards more rapid development of the economy and realisation of certain desired social objectives. The supervisory functions of the RBI have helped a great deal in improving the standard of banking in India to develop on sound lines and to improve the methods of their operation.

Promotional functions

With economic growth assuming a new urgency since Independence, the range of the Reserve Bank's functions has steadily widened. The Bank now performs a varietyof developmental and promotional functions, which, at one time, were regarded as outside the normal scope of central banking. The Reserve Bank was asked to promote banking habit, extend banking facilities to rural and semi-urban areas, and establish and promote new specialised financing agencies. Accordingly, the Reserve Bank has helped in the setting up of the IFCI and the SFC; it set up the Deposit Insurance Corporation in 1962, the Unit Trust of India in 1964, the Industrial Development Bank of India also in 1964, the Agricultural Refinance Corporation of India in 1963 and the Industrial Reconstruction Corporation of India in 1972. These institutions were set up directly or indirectly by the Reserve Bank to promote saving habit and to mobilise savings, and to provide industrial finance as well as agricultural finance. As far back as 1935, the Reserve Bank of India set up the Agricultural Credit Department to provide agricultural credit. But only since 1951 the Bank's role in this field has become extremely important. The Bank has developed the co-operative credit movement to encourage saving, to eliminate moneylenders from the villages and to route its short term credit to agriculture. The RBI has set up the Agricultural Refinance and Development Corporation to provide long-term finance to farmers.

Classification of RBIs functions

The monetary functions also known as the central banking functions of the RBI are related to control and regulation of money and credit, i.e., issue of currency, control of bank credit, control of foreign exchange operations, banker to the Government and to the money market. Monetary functions of the RBI are significant as they control and regulate the volume of money and credit in the country.

Equally important, however, are the non-monetary functions of the RBI in the context of India's economic backwardness. The supervisory function of the RBI may be regarded as a non-monetary function (though many consider this a monetary function). The promotion of sound banking in India is an important goal of the RBI, the RBI has been given wide and drastic powers, under the Banking Regulation Act of 1949 - these powers relate to licencing of banks, branch expansion, liquidity of their assets, management and methods of working, inspection, amalgamation, reconstruction and liquidation. Under the RBI's supervision and inspection, the working of banks has greatly improved. Commercial banks have developed into financially and operationally sound and viable units. The RBI's powers of supervision have now been extended to non-banking financial intermediaries. Since independence, particularly after its nationalisation 1949, the RBI has followed the promotional functions vigorously and has been responsible for strong financial support to industrial and agricultural development in the country.Public sector banks in IndiaPublic Sector Banks(PSBs) are banks where a majority stake (i.e. more than 50%) is held by a government. The shares of these banks are listed on stock exchanges. There are a total of 26 PSBs in India..

Reserve Bank of India BharatiyaMahila Bank Allahabad Bank Andhra Bank Bank of Baroda Bank of India Bank of Maharashtra Canara Bank Central Bank of India Corporation Bank Dena Bank IDBI Bank Indian Bank Indian Overseas Bank Oriental Bank of Commerce Punjab and Sind Bank Punjab National Bank Syndicate Bank UCO Bank Union Bank of India United Bank of India Vijaya Bank State Bank of India Associated Banks ofState Bank of India State Bank of Bikaner and Jaipur State Bank of Hyderabad State Bank of Indore State Bank of Mysore State Bank of Patiala State Bank of Travancore State Bank of SaurashtraEmergence of public sector banksThe Central Government entered the banking business with the nationalization of the Imperial Bank Of India in 1955. A 60% stake was taken by theReserve Bank of Indiaand the new bank was named as theState Bank of India. The seven other state banks became the subsidiaries of the new bank when nationalised on 19 July 1960.[1]The next major nationalisation of banks took place in 1969 when the government of India, under prime ministerIndira Gandhi, nationalised an additional 14 major banks. The total deposits in the banks nationalised in 1969 amounted to 50 crores. This move increased the presence of nationalised banks in India, with 84% of the total branches coming under government control.[2]The next round of nationalisation took place in April 1980. The government nationalised six banks. The total deposits of these banks amounted to around 200 crores. This move led to a further increase in the number of branches in the market, increasing to 91% of the total branch network of the country. The objectives behind nationalisation where: To break the ownership and control of banks by a few business families, To prevent the concentration of wealth and economic power, To mobilize savings from masses from all parts of the country, To cater to the needs of the priority sectors.

Public sector banks before the economic liberalizationThe share of the banking sector held by the public banks continued to grow through the 1980s, and by 1991 the public sector banks accounted for 90% of the banking sector. A year later, in March, 1992, the combined total of branches held by public sector banks was 60,646 across India, and deposits accounted for Rs. 1,10,000 crore. The majority of these banks were profitable, with only one out of the 27 public sector banks reporting a loss.[3]Problem, with nationalised banks reporting a combined loss of Rs. 1160 crores. However, the early 2000s saw a reversal of this trend, such that in 2002-03 a profit of Rs. 7780 crores by the public sector banks: a trend that continued throughout the decade, with a Rs. 16856 croreprofit in 2008-2009.

Investors can be wrong about adverse impact of Basel III norms on ROE

Its promise to own at least 58%, made in its hour of socialistic glory when the financial system around the world melted, may tie-down the Indian banking industry. It is neitherable to provide capital, nor can it let banks raise funds from investors, who may be more than willing if the government loosens its grip. One unintended consequence of this could turn out to be a blessing for the nation if the government of the day turns out to be wiser.

Under the pretext of capital needs, it could wriggle out of it to ensure private participation. If investors are given confidence, no amount of capital will be short. Remember the boldestever fund raising by an Indian company, ICICI Bank $5 billion. "The government will have to consider diluting their holding as it doesn't seem to be in a position to invest in these banks," says RomeshSobti, MD & CEO, IndusInd Bank, who showed how promise could lure capital, than past performance. "Many public sector and private sector banks have raised capital through hybrid bonds, which have to be phased out under the new capital norms."

The implementation of the capital norms is not certain till such time it is implemented. That is not only in India, but capital needs are opposed by most bankers across the world.

The lobby led by JP Morgan's Jamie Dimon in the US opposes high capital prescription. So do many Indian bankers', but only in private.

While capital is just one of the focus items, the bigger worry for banks could come from the treatment of their pension liabilities. With its focus on the quality of capital after the financial crisis, RBI has proposed full recognition of liabilities from defined benefit pension funds in the calculation of the Common Equity Tier 1 to ensure it is able to absorb losses. This also eliminates the risk of this being used to protect depositors and other creditors.

"Banks are not too worried about capital," says Kumar Dasgupta, partner, Price Waterhouse. "Pension is a bit of an issue where there may have to be a relief and the liability is still to an extent unquantified."

This could be more harmful to their share prices than capital, as these would reflect on the profit and loss statement of banks. The simultaneous implementation of Basel III and the so-called 'dynamic provisioning' norms will magnify the troubles that banks could face amid the near Rs 2 lakh crore of loans that would have been restructured by this fiscal end. "Additional provisioning is required to reach the proposed dynamic provisioning requirement of 2.4-3% of loans in the balance sheet," say analysts at Credit Suisse. "And banks with high credit costs will find it difficult to meet the additional burden."

Basel IIIIntroductionBasel III(or theThird Basel Accord) is a global, voluntary regulatory standard on bankcapital adequacy,stress testingandmarket liquidityrisk. It was agreed upon by the members of theBasel Committee on Banking Supervisionin 201011, and was scheduled to be introduced from 2013 until 2015; however, changes from April 1, 2013 extended implementation until March 31, 2018.[1][2]The third installment of theBasel Accords(seeBasel I,Basel II) was developed in response to the deficiencies infinancial regulationrevealed by thelate-2000s financial crisis. Basel III was supposed to strengthen bankcapital requirementsby increasing bank liquidity and decreasing bankleverage.1Key principles 1.1Capital requirements 1.2Leverage ratio 1.3Liquidity requirements 1.4US Version of the Basel Liquidity Coverage Ratio Requirements 2Implementation 2.1Summary of originally (2010) proposed changes in Basel Committee language 2.2U.S. implementation 2.3Key milestones 2.3.1Capital requirements 2.3.2Leverage ratio 2.3.3Liquidity requirements 3Analysis on Basel III impact 3.1Macroeconomic impact 3.2Critics 3.3Further studies 4See also 5References 6External linksKey principlesCapital requirementsThe original Basel III rule from 2010 was supposed to require banks to hold 4.5% of common equity (up from 2% in Basel II) and 6% of Tier I capital (up from 4% in Basel II) of "risk-weighted assets" (RWA).[3]Basel III introduced "additional capital buffers", (i) a "mandatory capital conservation buffer" of 2.5% and (ii) a "discretionary counter-cyclical buffer", which would allow national regulators to require up to another 2.5% of capital during periods of high credit growth.Leverage ratioBasel III introduced a minimum "leverage ratio". The leverage ratio was calculated by dividing Tier 1 capital by the bank's average total consolidated assets;[4]The banks were expected to maintain a leverage ratio in excess of 3% under Basel III. In July 2013, the US Federal Reserve Bank announced that the minimum Basel III leverage ratio would be 6% for 8Systemically important financial institution(SIFI) banks and 5% for their bank holding companies.[5]Liquidity requirementsBasel III introduced two required liquidity ratios.[6]The "Liquidity Coverage Ratio" was supposed to require a bank to hold sufficient high-quality liquid assets to cover its total net cash outflows over 30 days; theNet Stable Funding Ratiowas to require the available amount of stable funding to exceed the required amount of stable funding over a one-year period of extended stress.[7]US Version of the Basel Liquidity Coverage Ratio RequirementsOn October 24, 2013, the Federal Reserve Board of Governors approved an interagency proposal for the U.S. version of the Basel Committee on Banking Supervisions (BCBS) Liquidity Coverage Ratio (LCR). The ratio would apply to certain U.S. banking organizations and other systematically important financial institutions.[8]The comment period for the proposal is scheduled to close by January 31, 2014.The U.S. LCR proposal came out significantly tougher than BCBSs version, especially for larger bank holding companies.[9]The proposal requires financial institutions and FSOC designated nonbank financial companies[10]to have an adequate stock of High Quality Liquid Assets (HQLA) that can be quickly liquidated to meet liquidity needs over a short period of time.The LCR consists of two parts: the numerator is the value of HQLA, and the denominator consists of the total net cash outflows over a specified stress period (total expected cash outflows minus total expected cash inflows).[11]The Liquidity Coverage Ratio applies to US banking operations with assets of more than 10 billion. The proposal would require: Large Bank Holding Companies (BHC) - those with over $250 billion in consolidated assets, or more in on-balance sheet foreign exposure, and to systemically important, non-bank financial institutions;[12]to hold enough HQLA to cover 30 days of net cash outflow. That amount would be determined based on the peak cumulative amount within the 30 day period.[13] Regional firms (those with between $50 and $250 billion in assets) would be subject to a modified LCR at the (BHC) level only. The modified LCR requires the regional firms to hold enough HQLA to cover 21 days of net cash outflow. The net cash outflow parameters are 70% of those applicable to the larger institutions and do not include the requirement to calculate the peak cumulative outflows.[14] Smaller BHCs, those under $50 billion, would remain subject to the prevailing qualitative supervisory framework.[15]The US proposal divides qualifying High Quality Liquid Assets into three specific categories (Level 1, Level 2A, and Level 2B). Across the categories the combination of Level 2A and 2B assets cannot exceed 40% HQLA with 2B assets limited to a maximum of 15% of HQLA.[16] Level 1 represents assets that are highly liquid (generally those risk-weighted at 0% under the Basel III standardized approach for capital) and receive no haircut. Notably, the Fed chose not to include GSE-issued securities in Level 1, despite industry lobbying, on the basis that they are not guaranteed by the full faith and credit of the US government. Level 2A assets generally include assets that would be subject to a 20% risk-weighting under Basel III and includes assets such as GSE-issued and -guaranteed securities. These assets would be subject to a 15% haircut which is similar to the treatment of such securities under the BCBS version. Level 2B assets include corporate debt and equity securities and are subject to a 50% haircut. The BCBS and US version treats equities in a similar manner, but corporate debt under the BCBS version is split between 2A and 2B based on public credit ratings, unlike the US proposal. This treatment of corporate debt securities is the direct impact of DFAs Section 939 (i.e., the removal of references to credit ratings) and further evidences the conservative bias of US regulators approach to the LCR.The proposal requires that the LCR be at least equal to or greater than 1.0 and includes a multiyear transition period that would require: 80% compliance starting January 1, 2015, 90% compliance starting January 1, 2016, and 100% compliance starting January 1, 2017.[17]Lastly, the proposal requires both sets of firms (large bank holding companies and regional firms) subject to the LCR requirements to submit remediation plans to U.S. regulators to address what actions would be taken if the LCR falls below 100% for three consecutive days or longer.ImplementationSummary of originally (2010) proposed changes in Basel Committee language First, the quality, consistency, and transparency of the capital base will be raised. Tier 1 capital: the predominant form of Tier 1 capital must be common shares and retained earnings Tier 2 capital: supplementary capital, however, the instruments will be harmonised Tier 3 capital will be eliminated.[18] Second, the risk coverage of the capital framework will be strengthened. Promote more integrated management of market and counterparty credit risk Add the CVA (credit valuation adjustment)-risk due to deterioration in counterparty's credit rating Strengthen the capital requirements for counterpartycredit exposures arising from banks' derivatives, repo andsecurities financingtransactions Raise the capital buffers backing these exposures Reduceprocyclicalityand Provide additional incentives to moveOTC derivative contractsto qualifying central counterparties (probablyclearing houses). Currently, the BCBS has stated derivatives cleared with a QCCP will be risk-weighted at 2% (The rule is still yet to be finalized in the U.S.) Provide incentives to strengthen therisk managementof counterparty credit exposures Raise counterparty credit risk management standards by including wrong-way risk Third, a leverage ratio will be introduced as a supplementary measure to the Basel II risk-based framework, intended to achieve the following objectives: Put a floor under the build-up ofleveragein the banking sector Introduce additional safeguards againstmodel riskandmeasurement errorby supplementing the risk based measure with a simpler measure that is based on gross exposures. Fourth, a series of measures is introduced to promote the build up of capital buffers in good times that can be drawn upon in periods of stress ("Reducing procyclicality and promoting countercyclical buffers"). Measures to address procyclicality: Dampen excess cyclicality of the minimum capital requirement; Promote more forward looking provisions; Conserve capital to build buffers at individual banks and the banking sector that can be used in stress; and Achieve the broadermacroprudentialgoal of protecting the banking sector from periods of excess credit growth. Requirement to use long term data horizons to estimate probabilities of default, downturn loss-given-defaultestimates, recommended in Basel II, to become mandatory Improvedcalibration of the risk functions, which convert loss estimates into regulatory capital requirements. Banks must conductstress teststhat include wideningcredit spreadsin recessionary scenarios. Promoting stronger provisioning practices (forward looking provisioning): Advocating a change in the accounting standards towards an expected loss (EL) approach (usually,EL amount:=LGD*PD*EAD).[19] Fifth,a global minimum liquidity standard for internationally active banks is introduced that includes a 30-day liquidity coverage ratio requirement underpinned by a longer-term structural liquidity ratio called theNet Stable Funding Ratio. (In January 2012, the oversight panel of the Basel Committee on Banking Supervision issued a statement saying that regulators will allow banks to dip below their required liquidity levels, the liquidity coverage ratio, during periods of stress.[20]) The Committee also is reviewing the need for additional capital, liquidity or other supervisory measures to reduce theexternalitiescreated bysystemically importantinstitutions.As of September 2010, proposed Basel III norms asked for ratios as: 79.5% (4.5% + 2.5% (conservation buffer) + 02.5% (seasonal buffer)) forcommon equityand 8.511% forTier 1 capitaland 10.513% for total capital.[21]U.S. implementationThe U.S.Federal Reserveannounced in December 2011 that it would implement substantially all of the Basel III rules.[22]It summarized them as follows, and made clear they would apply not only to banks but also to all institutions with more than US$50 billion in assets: "Risk-based capital and leverage requirements" including firstannual capital plans, conductstress tests, andcapital adequacy"including a tier onecommon risk-based capital ratiogreater than 5 percent, under both expected and stressed conditions" seescenario analysison this.Arisk-based capital surcharge Market liquidity, first based on the US's own "interagency liquidity risk-management guidanceissued in March 2010" that requireliquidity stress testsand set internal quantitative limits, later moving to a full Basel III regime- see below. TheFederal Reserve Boarditself would conduct tests annually "using three economic and financial market scenarios."Institutions would be encouraged to use at least five scenarios reflecting improbable events, and especially those considered impossible by management, but no standards apply yet to extreme scenarios.Only a summary of the three official Fed scenarios "including company-specific information, would be made public" but one or more internal company-run stress tests must be run each year with summaries published. Single-counterparty credit limitsto cut "credit exposureof a covered financial firm to a single counterparty as a percentage of the firm's regulatory capital. Credit exposure between the largest financial companies would be subject to a tighter limit." "Early remediation requirements" to ensure that "financial weaknesses are addressed at an early stage". One or more "triggers for remediationsuch as capital levels, stress test results, and risk-management weaknessesin some cases calibrated to be forward-looking" would be proposed by the Board in 2012. "Required actions would vary based on the severity of the situation, but could include restrictions on growth, capital distributions, and executive compensation, as well as capital raising or asset sales."[23]It was unclear as of December 2011 how these rules would apply toinsurance,hedge fundsand other large financial players. The announced intent was "to limit the dangers of big financial firms being heavily intertwined."[22]Key milestonesCapital requirementsDateMilestone: Capital Requirement

2014Minimum capital requirements:Start of the gradual phasing-in of the higher minimum capital requirements.

2015Minimum capital requirements:Higher minimum capital requirements are fully implemented.

2016Conservation buffer:Start of the gradual phasing-in of the conservation buffer.

2019Conservation buffer:The conservation buffer is fully implemented.

Leverage ratioDateMilestone: Leverage Ratio

2011Supervisory monitoring:Developing templates to track the leverage ratio and the underlying components.

2013Parallel run I:The leverage ratio and its components will be tracked by supervisors but not disclosed and not mandatory.

2015Parallel run II:The leverage ratio and its components will be tracked and disclosed but not mandatory.

2017Final adjustments:Based on the results of the parallel run period, any final adjustments to the leverage ratio.

2018Mandatory requirement:The leverage ratio will become a mandatory part of Basel III requirements.

Liquidity requirementsDateMilestone: Liquidity Requirements

2011Observation period:Developing templates and supervisory monitoring of the liquidity ratios.

2015Introduction of the LCR:Initial introduction of the Liquidity Coverage Ratio (LCR), with a requirement of 60%. This will increase by ten percentage points each year until 2019.

2018Introduction of the NSFR:Introduction of the Net Stable Funding Ratio (NSFR).

2019LCR comes into full effect:Liquidity Coverage Ratio of 100% is expected of firms.

Analysis on Basel III impactMacroeconomic impactAnOECDstudy[24]released on 17 February 2011, estimated that the medium-term impact of Basel III implementation on GDP growth would be in the range of 0.05% to 0.15% per year. Economic output would be mainly affected by an increase in bank lending spreads, as banks pass a rise in bank funding costs, due to higher capital requirements, to their customers. To meet the capital requirements originally effective in 2015 banks were estimated to increase their lending spreads on average by about 15 basis points. Capital requirements effective as of 2019 (7% for the common equity ratio, 8.5% for the Tier 1 capital ratio) could increase bank lending spreads by about 50 basis points.[25]The estimated effects on GDP growth assume no active response from monetary policy. To the extent that monetary policy would no longer be constrained by the zero lower bound, the Basel III impact on economic output could be offset by a reduction (or delayed increase) in monetary policy rates by about 30 to 80 basis points.[24]CriticsBasel III has been criticized by banks, organized in theInstitute of International Financein Washington D.C. (large American and European banks, including Goldman Sachs, Morgan Stanley, Deutsche Bank) with the argument it would hurt them and economic growth.OECDestimated that implementation of Basel III would decrease annual GDP growth by 0.050.15%,[24][26]blaming regulation as responsible for slow recovery from thelate-2000s financial crisis.[27][28]Basel III was also criticized as negatively affecting the stability of the financial system by increasing incentives of banks to game the regulatory framework.[29]The American Banker's Association,[30]community banks organized in the Independent Community Bankers of America, and some of the most liberal Democrats in the U.S. Congress, including the entire Maryland congressional delegation with Democratic Sens. Cardin and Mikulski and Reps. Van Hollen and Cummings, voiced opposition to Basel III in their comments submitted to FDIC,[31]saying that the Basel III proposals, if implemented, would hurt small banks by increasing "their capital holdings dramatically on mortgage and small business loans."[32]Others have argued that Basel III did not go far enough to regulate banks as inadequate regulation was a cause of the financial crisis.[33]On January 6, 2013 the global banking sector won a significant easing of Basel III Rules, when theBasel Committee on Banking Supervisionextended not only the implementation schedule to 2019, but broadened the definition of liquid assets.[34]Further studies[edit]In addition to articles used for references (see References), this section lists links to recent high-quality publicly available studies on Basel III. This section may be updated frequently as Basel III is still under development.DateSourceArticle Title / LinkComments

Feb 2012BNP Paribas FortisBasel III for dummiesVideo"All you need to know about Basel III in 10 minutes." Updated for Jan 06 2013 decisions.

Dec 2011OECD: Economics DepartmentSystemically Important BanksOECD analysis on the failure of bank regulation and markets to discipline systemically important banks.

Jun 2011BNP Paribas: Economic Research DepartmentBasel III: no Achilles' spearBNP Paribas' Economic Research Department study on Basel III.

Feb 2011Georg, Co-PierreBasel III and Systemic Risk Regulation What Way Forward?An overview article of Basel III with a focus on how to regulate systemic risk.

Feb 2011OECD: Economics DepartmentMacroeconomic Impact of Basel IIIOECD analysis on the macroeconomic impact of Basel III.

May 2010OECD Journal:Financial Market TrendsThinking Beyond Basel IIIOECD study on Basel I, Basel II and III.

May 2010BloombergBusinessWeekFDIC's Bair Says Europe Should Make Banks Hold More CapitalBair said regulators around the world need to work together on the next round of capital standards for banks ... the next round of international standards, known as Basel III, which Bair said must meet "very aggressive" goals.

May 2010ReutersFACTBOX-G20 progress on financial regulationFinance ministers from the G20 group of industrial and emerging countries meet in Busan, Korea, on June 45 to review pledges made in 2009 to strengthen regulation and learn lessons from the financial crisis.

May 2010The EconomistThe banks battle backA behind-the-scenes brawl over new capital and liquidity rules"The most important bit of reform is the international set of rules known as "Basel 3", which will govern the capital and liquidity buffers banks carry. It is here that the most vicious and least public skirmish between banks and their regulators is taking place."