Basel-III Norms and Indian Financial System

Introduction

After the economic crisis of the year 2008, BCBS released the Basel-III Accord in 2010. The purpose of Basel-III norms was to find out the loopholes in Basel-II Norms, especially in context with the debt regulation of the banks. 

The main objective of the Basel-III Norms was to target the activities which were capital-intensive. The purpose of these norms is increasing the capacity of the banks to absorb shock during financial crisis and at the same time, decrease such crisis probabilities. 

Areas of Target of Basel-III Norms 

The Basel-III Norms focus on a few very important areas and these are:
• Risk Coverage
• Capital
• Liquidity
• Leverage

BCBS made it mandatory for all international banks to comply Basel-III Norms by 31 December 2018. The deadline for the banks in India is 31 March 2018. 
 
Capital Requirements under Basel II and Basel III

The following table shows Capital Requirements for the Indian banks under Basel-II and Basel-III Norms.

		As a percentage of risk weighted assets
		Basel II	Basel III (as on January 1, 2019)
A = (B+D)	Minimum Total Capital	8.0	8.0
B	Minimum Tier - I Capital	4.0	6.0
C	of which:  Minimum Common Equity  Tier 1 Capital	2.02	4.5
D	Maximum Tier 2 Capital (within Total Capital)	4.0	2.0
E	Capital Conservation Buffer (CCB)	-	2.5
F = C+E	Minimum Common Equity Tier 1 Capital + CCB	2.0	7.0
G = A+E	Minimum Total Capital + CCB	8.0	10.5

Basel-III Norms and Impact on Indian Financial System: Advantages and Disadvantages
Basel-III Norms offer both pros and cons for the Indian banks. These are discussed here:

Advantages of Basel-III Norms for Indian Banks
i. The Indian Banks will become less probable towards financial shutdown and will become stronger and stable. 
ii. With the proper implementation of Basel-III Norms, the Indian Banks will become sound. 
iii. Advanced approach can help the Indian Banks in efficiently managing their capital, while at the same time, improving profitability. 
iv.    Proper update of the Indian banks to Basel-III Norms will enable them to grab better financial opportunities not just in India but also abroad. 

Disadvantages of Basel-III Norms for Indian Banks
i.    The Indian economy is gradually moving towards higher growth and so, there will be an increased demand for the credit. Because of the increasing credit demand, the Indian banks will grow more in terms of capital requirement. However, this will not be completely possible under Basel-III Norms because these Norms make it mandatory to have capital backup. 
ii.    The Indian economy is still recovering from its economic meltdown because of which it is not possible for the banks to lend money. Increasing credit demand and inability of banks to lend money will push the borrowing rates higher, leading to even more economic slowdown. 
iii.    Also, the Basel-III Norms need an additional cost for implementation, which in turn will have a diverse effect on the returns as well as profitability of the banks. 
iv.    Indian Banks have still not updated completely to Basel-II Norms. In order to avail the advantages of Basel-III Norms, it is mandatory for the banks in Indian financial system to upgrade gradually to these Norms. This is even more important for the banks which have international presence.

Conclusion
Although the cost of implementing Basel-III Norms is high, but imbibing these Norms in Indian financial system will offer a safer financial environment to the entire system as well as the banks. With the higher integration of Indian banks with global financial system, it is important for India to mitigate its financial risk by implementing these reforms. 

About Basel Norms
Basel is a city in Switzerland and is also the Bureau of International Settlement (BIS) Headquarters. The objective of BIS primarily is to promote the assistance among all the central banks with one common goal of common standards as well as financial stability of the banking regulations. 

There is a Basel Committee on Bank Supervision (BCBS) which at present comprises of 27 nations, including India. BCBS has certain agreements of its own and these are known as Basel Accord. 

The basic purpose of Basel Accord is ensuring that all the financial institutions have capital enough to maintain the obligations as well as absorb any kind of unexpected loss. 

As of now, there are three main kinds of guidelines introduced by this body. These are Basel-I, Basel-II and Basel-III. While Basel-I focuses mainly on credit risk. Basel-II, on the other hand, contains detailed focus on risk management, capital inadequacy as well as disclosure requirements. In India, as of now, only the Basel-II Norms’ basic features are implemented.

The Issue of Euthanasia in India and across the World

The five-judge Constitutional bench of Supreme Court on 15 July 2014 issued notice to the State governments and Union Territories (UTs) to submit their responses over legalizing passive euthanasia.

The five-judge Constitution bench comprising of Chief Justice of India R.M. Lodha, and Justice J.S. Khehar, J. Chelameswar, A.K. Sikri and Rohinton F. Nariman reasoned that States and UTs must also be heard because the issue not only involves the Constitutionality of euthanasia but also involves morality, religion and medical science.

The notice was issued by the SC bench on a PIL filed by Non-Governmental Organization (NGO) Common Cause. In the PIL Common Cause had reasoned that, if there is medical expert opinion that a person treatment is beyond from being curable has reached the point of no return, then the person should be given the right to refuse the treatment and die, if the person gives a living will.

However, Attorney General of India contented that the issue of legality involved host of issues which needs to looked from multiple angle and hence it would be appropriate that legislature address the issue of legality of euthanasia. He further contended that legalizing euthanasia may give rise to misuse of it.

Tracing the debate over euthanasia

The notice issued by the SC bench was a follow up of the 25 February 2014 judgement of three-judge SC bench headed by the then Chief Justice P Sathasivam wherein the bench had referred the issue of legalising euthanasia to the Constitution bench for further hearing. The three-judge bench of SC had relied on earlier cases of the SC.

P Rathinam Case of 1994: 
The SC bench struck down Section 309 of the Indian Penal Code relating to attempt to suicide terming it as unconstitutional.

Naresh Marotrao Sakhre Case of 1995: 
Bombay High Court ruled that euthanasia is homicide.

Gian Kaur Case of 1996:
 In 1996 Gian Kaur Case the Constitution Bench upheld that the right to live with dignity under Article 21 of the Constitution will be inclusive of right to die with dignity. However, the decision did not arrive at a conclusion for validity of euthanasia, be it active or passive.

Aruna Ramachandra Shanbaug Case of 2011: 
The Supreme Court rejected the plea for mercy killing of Aruna Shanbaug who has been in a persistent vegetative state for the past 37 years and had laid down elaborate guideline for carrying out passive euthanasia. It rejected the issue of active euthanasia and moots decriminalisation of attempt to suicide.

Passive euthanasia entails the withholding of common treatments, such as antibiotics, necessary for the continuance of life. On the other hand,active euthanasia entails the use of lethal substances or forces, such as administering a lethal injection, to kill and is the most controversial means.

Guidelines laid down by SC in Aruna Shanbaug Case:

• A decision has to be taken to discontinue life support either by the parents or the spouse or other close relatives, or in the absence of any of them, such a decision can be taken even by a person or a body of persons acting as a next friend. It can also be taken by the doctors attending the patient. However, the decision should be taken bona fide in the best interest of the patient.
• Even if a decision is taken by the near relatives or doctors or next friend to withdraw life support, such a decision requires approval from the High Court concerned.
• When such an application is filled the Chief Justice of the High Court should forthwith constitute a Bench of at least two Judges who should decide to grant approval or not.
• A committee of three reputed doctors to be nominated by the Bench, who will give report regarding the condition of the patient. Before giving the verdict a notice regarding the report should be given to the close relatives and the State. After hearing the parties, the High Court can give its verdict.

As India has no law about euthanasia, the Supreme Court's guidelines are law until and unless Parliament passes legislation.

Euthanasia across the World

The Netherlands: Issued rules for passive or involuntary euthanasia called Groningen guidelines in 2004. Rules were expanded in 2006 after reports that doctors were killing newborns if found ill. Netherlands was the first country to pass such guidelines.

Switzerland: Article 115 of the penal code does not consider assisting suicide for an honourable motive illegal. Lethal drugs can be taken with assistance.

Germany: In June 2010 Federal Court allowed passive euthanasia with applicant’s consent.

United Kingdom: The bill on euthanasia was rejected by the House of Commons in 2004 and House of Lords in 2007.

France: Under the end of life law of 2009, doctors are advised not to take extreme measures to keep dying or brain dead patients alive.

Albania: Passive euthanasia was allowed in 1995 through a law if 3 or members agree to withdraw life support systems.

Luxembourg: Permits active euthanasia for over 18 years in age

Quebec province of Canada: On 5 June 2014 adopted legislation Right-to-Die allowing terminally ill patients to kill themselves with a doctor’s help

US states of Oregon, Washington and Vermont: Euthanasia is allowed if doctor assisted