World Journal of Research and Review (WJRR) ISSN:2455-3956, Volume-4, Issue-1, January 2017 Pages 40-45 40 www.wjrr.org Abstract— The banking industry is the lifeline of any economy. It is one of the most important pillars of the financial sector. Development of any country is highly dependent on the performance of the banking industry. For an economy to remain healthy and going, it is important that the banking system grows fast and yet be stable. Due to the importance in the financial stability of the country, banks are highly regulated in most of the countries. The collapse of financial institution in one country can also lead to sequential collapse of financial institutions in other countries, warranting that global minimum prudential levels shall be implemented. More so, cross-country discrepancies in financial regulation have significant ramifications for the competitiveness of financial firms. Index Terms— Banking industry, financial stability,Indian Banks. I. INTRODUCTION Following high number of disruptions happening in the international financial markets like the Herstatt debacle of 26 June 1974 and the breakdown of Bretton Woods system, the G-10 countries formed a standing committee in 1975 under the auspices of the Bank for International Settlements (BIS), called as the Basel Committee on Banking Supervision (BCBS). The Committee‟s decisions have no legal force. The committee formulates supervisory standards and guidelines and recommends statement of best practice in the expectation that individual national authorities will implement them. To date, there have been three adaptations of the Basel regulations, referred to as Basel I, Basel II, and Basel III. Even before Lehman Brothers collapsed in September 2008, the need for a fundamental strengthening of the Basel II framework had become apparent. The banking sector entered the financial crisis with too much leverage and inadequate liquidity buffers. These weaknesses were accompanied by poor governance and risk management, as well as inappropriate incentive structures. The dangerous combination of these factors was demonstrated by the mispricing of credit and liquidity risks, and excess credit growth. One of the key shortcomings of the first two Basel Accords was that they approached the solvency of each institution independently. The financial crises 2007-08 highlighted the additional systemic risk and demonstrated the need for more efficient regulation of banking industry. To reinforce the stability of the financial system, policy makers and the Basel Dr. Pushpkant Shakdwipee, Associate Professor, Pacific University Masuma Mehta, Research Scholar, Pacific University committee has introduced the latest Accord – Basel III, the reforms was fully endorsed by the Group of Governors and Heads of Supervision, the oversight body of BCBS, at its September 2010 meeting. Basel III has set its objectives to improve the shock absorbing capacity of each and every individual bank as the first order of defense and in the worst case scenario, if it is inevitable that one or a few banks have to fail, Basel III has measures to ensure that the banking system as a whole does not crumble and its spill-over impact on the real economy is minimized. Therefore, Basel III has some micro-prudential elements so that risk is contained in each individual institution; and a macro-prudential overlay that will “lean against the wind” to take care of issues relating to the systemic risk. According to the Basel Committee on Banking Supervision (BCBS) it is important that the banking industry is strong and easily able to recover from financial stress (BCBS, 2010). The reform of Basel II into Basel III intends to improve the banking industry accordingly. The BCBS has reformed the framework to try to amend the market failures that became evident in the financial crisis. The lessons learned from the crisis are coming to use. Basel III builds on the three pillars from Basel II. Focus is on enhancing the quality and quantity of the capital and to have stronger risk coverage. The highlights of Basel III are as follows:  Implements changes starting Jan 2013 and going through a transitional period that lasts until Jan 2019  Raises the quality, consistency, and transparency of the capital base through stricter rules on eligibility of instruments to be included in (core) Tier 1 capital.  Enhance risk coverage by strengthening counterparty credit risk capital requirements arising from derivatives, repurchase transactions, and security financing.  Supplements risk-based capital requirements with the addition of a non-risk-based leverage ratio as a backup measure.  Reduce procyclicality and promotes countercyclical capital buffers through a combination of forward looking provisioning and capital buffers.  Addresses systemic risk and interconnectedness, with more specific proposals to be developed in 2010  Introduces new global liquidity standards that include a stressed liquidity coverage ratio and a longer-term structural liquidity ratio. Impact of Basel III on Indian Banks Pushpkant Shakdwipee, Masuma Mehta