The Hindu Business Line : Basel II norms

Apropos the article “Is it time for Basel III” (Business Line, September 3), the basic problems of Basel II are its complicated computing models and its bias against the smaller banks.

Basel I was successful for the simple reason that it was based on easily identifiable factors for income recognition and easy percentage wise provision of increased capital to meet the vicissitudes of the industry. However Basel II in the name of improvement introduced risk factors like loss of professional trained manpower due to resignation, death etc. non compliance with the regulations, management inadequacies, etc., which are inherent in any industry.

The introduction of the Basel II and its non-implementability by the smaller banks due to its sheer complexity ensures that their consolidation with bigger banks become inevitable in due course.

The business advantages the smaller banks and society enjoy due to their accessibility to each other and the resultant localised economic growth are stymied by the inevitable consolidations.

Viewed in this context, Basel III, if contemplated, should focus on the measures to contain speculative risks and supervisory negligence risks due to which most of the bank failures have taken place rather than the risks that are now measured by the present norms.

P. E. Muthu Mumbai

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