TREASURY MANAGEMENT

GROUP 08:-
Anjulata Jaiswal - 09
Aakash Singh - 61
Aashish Jha - 62
Divyashree Chaudhari - 79
Khushi Verma - 118

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 Have basel norms been successful
in risk mitigation ?

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 Introduction - BASEL NORMS

❏ Basel norms refer to a set of international banking regulations that aim to promote
the stability of the global financial system. In India, these norms are implemented
by the Reserve Bank of India (RBI) to regulate the banking industry.

❏ The Basel norms were first introduced in India in 1999, with the implementation of
Basel I. Since then, India has adopted subsequent versions of the Basel norms,
including Basel II and Basel III.

❏ It is the set of agreement by the Basel Committee of Banking Supervision which

focuses on the risks to banks and the financial system.

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 Why these norms?
❏ Banks lend to different types of borrowers and each carries its own
risk.
❏ They lend the deposits of the public as well as money raised from the
market i.e, equity and debt.
❏ This exposes the bank to a variety of risks of default and as a result
they fall at times.
❏ Therefore, Banks have to keep aside a certain percentage of capital as
security against the risk of non – recovery.
❏ The Basel committee has produced norms called Basel Norms for
Banking to tackle this risk.
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BASEL NORM I
 Basel I

❏ Basel-1 :- Presented in 1988

❏ All banks were needed to keep a capital sufficiency proportion of
8 %.
❏ The capital was grouped into Tier 1 and Tier 2.
Tier 1 :- Lasting & Solid.
Tier 2:- Incorporates undisclosed stores, Non Performing Assets.

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 Did the Basel I Accord Fail?

❏ A key limitation of Basel I was that the minimum capital requirements were
determined by looking at credit risk only.
❏ It provided a partial risk management system, as both operational and
market risks were ignored.
❏ Major concern regarding Basel I was that minimum capital requirements
were determined by analyzing only credit risk.
❏ This only factored in part of the variables that institutions could face. For
example, in this framework, operational risk was ignored.

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 BASEL NORM II

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 Did the Basel II Accord Fail?

❏ Basel II was supposed to create a safer banking world. It failed miserably in that task which has now been
acknowledged by the Bank of International Settlement (BIS) and its Basel II committee.

❏ The implementation of Basel II Agreement has revealed its‘ limits, like390:

❏ The implementation implies high costs regarding the training of staff, IT, especially for countries in Central
and East Europe;
❏ The discrimination between bank (small and large banks);
❏ Fewer loans for countries in the transitional period, especially for banks and companies with low rating;
❏ The increase of the bank concentration degree through fusions and acquisitions between
banks in the system
❏ the variation of interest based on the quality of the credit applicant.
 BASEL NORM III

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 Basel III
❏ In 2010, Basel III guidelines were released.
❏ These guidelines were introduced in response to the financial crisis of 2008.
❏ A need was felt to further strengthen the system as banks in the developed economies were
under-capitalized, over-leveraged and had a greater reliance on short-term funding.
❏ It was also felt that the quantity and quality of capital under Basel II were deemed insufficient to
contain any further risk.
❏ The guidelines aim to promote a more resilient banking system by focusing on four vital banking
parameters viz. capital, leverage, funding and liquidity.

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 India on Basel Norms

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 Impact on Indian Banking System

❏ Higher Capital Requirement.

❏ More technology development.
❏ Liquidity Crunch.

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 How effective have been these Basel norms is
Risk Mitigation?
The Basel norms, which are a set of international banking regulations developed by the Basel Committee on Banking
Supervision to ensure the stability and soundness of the global banking system. These norms consist of three pillars
that address different aspects of risk management in the banking industry.

The first pillar focuses on minimum capital requirements and requires banks to hold a certain level of capital based
on their risk-weighted assets.

The second pillar focuses on supervisory review and requires banks to have a comprehensive risk management
framework in place, which includes the identification, assessment, and management of all types of risks.

The third pillar focuses on market discipline and requires banks to disclose information about their risk management
practices, capital adequacy, and risk exposures.

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 How effective have been these Basel norms is
Risk Mitigation?
Risk mitigation strategies are used to reduce the negative effects of threats and disasters on business continuity.
These strategies include avoidance, reduction, transference, and acceptance. Risk mitigation planning involves
identifying, monitoring, and evaluating risks and consequences inherent to completing a specific project. A risk
matrix is often used to categorize additional risks based on their likelihood and impact of occurrence. Once risks are
identified, a mitigation plan is developed, and strategies are put in place to reduce the impact of the risks

Basel norms emphasize the importance of interdependence in risk management, which requires an understanding of
the mutual influence among risk factors and the sensitivity of each to others. This can be accomplished only through
the integration of key departments like finance, risk and compliance, and the data systems they use. Basel norms
provide a clear path for incorporating climate risk into the broader risk assessment that a bank conducts for regulators
and for making commercial decisions.

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 Conclusion
❏ While the effectiveness of the Basel Norms in mitigating risk is
still debated, they have undoubtedly led to improvements in the
banking sector's risk management practices.
❏ However, it is important to continue to monitor and adapt these
guidelines as the global financial landscape evolves.

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