“Indian Banking Sector: Capital Adequacy
under Basel II”
Assocham Research Bureau
During one of the toughest years faced by the banks and financial institutions globally, the
banking sector world over was crippled by massive capital depletion caused by losses and write-
downs while their balance sheets clogged by complex credit products and other illiquid assets of
Failure of number of banks in countries like US, UK, Iceland, Ukraine, Belgium, Ireland, Latvia,
Russia and Spain had severe impact on their economy. However, the Indian banking sector not
only resisted such a scenario but improved significantly. US alone accounted for as many as 60
banks failures during 2008-09, costing the FDIC Deposit Insurance Fund nearly a whopping
USD 25 billion.
In stark contrast to the deterioration in the capital base of the banking sector in major parts of the
world, Indian banks’ compliance to sound banking practices envisaged by the Basel II norms laid
strong foundation of a robust banking and financial system.
The process of implementing Basel II norms in India has been carried out in phases. Phase I has
been carried out for foreign banks operating in India and Indian banks having operational
presence outside India with effect from March 31, 2008.
In phase II, all other scheduled commercial banks (except Local Area Banks and RRBs) have
been made to adhere to Basel II guidelines from March 31, 2009. Considering the full
implementation of Basel II norms, banks are looking to maintain a cushion in their respective
The minimum capital to risk-weighted asset ratio (CRAR) in India is placed at 9 per cent, one
percentage point above the Basel II requirement. All the banks have their Capital to Risk
Weighted Assets Ratio (CRAR) above the stipulated requirement of Basel guidelines (8 per cent)
and RBI guidelines (9 per ce