The article goes as follows:
The Reserve Bank of India (RBI) is yet to comply with certain requirements of the Basel III norms, according to a report by the Basel Committee on Bank Supervision (BCBS). The BCBS reviewed the implementation status of Basel III standards across 30 global systemically important banks (G-Sibs) till May 2019. Critical aspects such as the securitisation framework and the Total Loss-Absorbing Capacity (TLAC) requirements have not been published by the RBI. These regulations play a pivotal role in strengthening the risk management capacities of banks and maintaining financial stability.
Understanding the Deficiencies
The securitisation framework encompasses various measures such as credit enhancement facility, liquidity facility, underwriting facility, interest rate or currency swaps and cash collateral accounts. The TLAC requirements ensure that G-Sibs can absorb losses and recapitalize sufficiently to continue their operations without jeopardizing taxpayers’ funds or financial stability. In addition, the RBI has not released draft regulations on the revised Pillar 3 disclosure requirements that were enforced from the end of 2016.
Development of Interest Rate Risk in the Banking Book
Indian banks are in the process of implementing regulations for managing Interest Rate Risk in the Banking Book (IRRBB). However, the RBI is still yet to release the final guidelines on the same, despite these regulations having been implemented globally from the end of 2018.
Basel III Norms
The Basel III norms are a set of international regulations developed by the BCBS following the 2007-09 financial crisis. The central objective of these measures is to bolster the regulation, supervision and risk management capabilities of banks. The standards are based on three pillars designed to enhance the banking sector’s resilience against economic instability, improve risk management and governance and strengthen transparency and disclosures.
Understanding BCBS
The BCBS, operating under the Bank for International Settlements (BIS), is a global standard-setter for prudential regulation of banks and provides a platform for regular cooperation on banking supervisory matters. Representing around 95% of the world’s GDP, the BIS was established in 1930 and is owned by 60 central banks from across the globe.
Facts About Basel III Norms and BCBS
| Basel III Norms | BCBS |
|---|---|
| A set of international measures developed after the 2007-09 financial crisis. | A committee under the Bank for International Settlements (BIS). |
| Aims to strengthen regulation, supervision, and risk management of banks. | Global standard-setter for prudential regulation of banks. |
| Improves banking sector's capacity to absorb shocks from economic instability. | Identifies global systemically important banks using a specific methodology. |
Significance of the Global Systemically Important Banks (G-SIBs)
The BCBS identifies G-SIBs through a unique methodology involving quantitative indicators and qualitative factors. A G-SIB is a bank with a systemic risk profile so crucial that its failure could potentially instigate a wider financial crisis and threaten the global economy. This highlights the importance of strict compliance with regulations like the Basel III norms to maintain global financial stability.
