Banks need to extract more from IT investments as Basel-III will create technological challenges: Study

Banks should look to build up capital buffer

In order to meet Basel-III norms by March 2019, banks in India will need to begin collecting relevant data points and upgrade their processes, which could run into several thousands, across the organisation, besides banks will have to report their liquidity metrics on a daily basis, noted a recent ASSOCHAM-NIBM joint study.

As the impacts of Basel III fully take shape, banks face a paradox, they need to make technology investments for regulatory compliance, even as margins are squeezed and budgets constrained, highlighted the study titled, 'Basel III standards: Concepts, issues & challenges,' conducted by The Associated Chambers of Commerce and Industry of India (ASSOCHAM) jointly with National Institute of Bank Management (NIBM).

 

The mandated enhancements to banks' risk management infrastructures will also exert pressure on their technology infrastructure, noted the study.

As they invest in technologies mandated by regulations, banks can identify ways to use them for purposes beyond compliance, it added.

Banks face the daunting task of meeting stakeholder, regulator and customer expectations while complying with stringent new requirements that are gradually taking shape in compliance to Basel III norms, noted the ASSOCHAM-NIBM study.

This will force banks to seek more innovative ways of creating operational efficiencies, market differentiation and each bank will need to undertake a deep-dive analysis of its businesses and extract benefits to satisfy all stakeholders.

Besides, top management will be under pressure to make prudent judgements to reinforce systemic controls. This will need increasing IT investments to be able to manage the kind of data population.

Terming the transition to migrate to new design of capital and risk management devices as 'painful,' the study said that evolution of Basel III standards will insulate the banking system against the impending nuances of risks.

Indian banks should look to build up capital buffer now till 2019, added the ASSOCHAM-NIBM study.

Successful implementation of Basel III norms depends upon banks' ability to meet requirements vis-vis adequate regulatory capital by raising and sustaining the quantity and quality of the capital on an on-going basis, highlighted the study.

Indian banks need to conduct extensive risk profile analysis to assess overall capital adequacy and develop strategy for maintain capital levels consistent with risk profile and business plans in future to cope with Basel III expectations, it said.

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