ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

A+| A| A-

Why Indian Banks Need to Adopt the Basel III Internal Ratings-based Approach

As Indian banks are becoming bigger due to consolidation and through business expansion, it is necessary to adopt the advanced Basel III version for better utilisation of scarce capital and improve efficiency. The importance of Basel III internal ratings-based approach that may be adopted by the banks to strengthen their internal credit risk management framework is highlighted in this article. A better understanding of risk inherent in business will not only improve the banks’ underwriting standards but also enable them to accelerate growth and enhance risk adjusted performance.

Risk-taking is a natural part of banking transactions. The regulatory agency is responsible for creating a sound financial environment by setting the regulatory framework where the supervisory agency monitors the financial viability of banks and checks compliance with regulations. The pitfalls associated with the regulatory capital requirements (cherry-picking capital arbitrage) led to the development of more risk-based or internal model-based Basel III internal ratings-based (IRB) approach.

Combining the principles of risk management with those of shareholder analysis allows the lender to exploit the strengths of each for better strategic planning. Risk management makes bankruptcy less likely, by making us aware of the volatility of overall cash flows. It reduces the cost of financial distress and gives a bank better access to capital markets.

Dear Reader,

To continue reading, become a subscriber.

Explore our attractive subscription offers.

Click here


To gain instant access to this article (download).

INR 59

(Readers in India)

$ 6

(Readers outside India)

Published On : 20th Jan, 2024

Support Us

Your Support will ensure EPW’s financial viability and sustainability.

The EPW produces independent and public-spirited scholarship and analyses of contemporary affairs every week. EPW is one of the few publications that keep alive the spirit of intellectual inquiry in the Indian media.

Often described as a publication with a “social conscience,” EPW has never shied away from taking strong editorial positions. Our publication is free from political pressure, or commercial interests. Our editorial independence is our pride.

We rely on your support to continue the endeavour of highlighting the challenges faced by the disadvantaged, writings from the margins, and scholarship on the most pertinent issues that concern contemporary Indian society.

Every contribution is valuable for our future.