Impact of Basel II Accord on the Stability of Indian Banks: A Comparative Study of Public and Private Sector Banks

Reserve Bank of India plays a major role in guiding and directing banks to establish and maintain a risk management system of international standards. Banks in India have well designed systems and procedures to handle credit risk, market risk and operational risk system. The present study was conducted to find the impact of Basel II Accord on the stability of Indian public and private banks. The sample size included 26 public sector banks and 20 private sector banks. The study finds that most of the banks follow the standardised approach as per the guidelines of the Reserve Bank of India to cover the operational risk, credit risk and market risk. It has also been found that the public sector banks have gone in for further issue of equity shares to enhance their capital adequacy ratio. Several banks running on the brink of very low or sometimes even negative profitability have been permitted by the government to write-offtheir losses against their paid-up capital.