IMPACT OF BASEL ACCORD ON CORPORATE GOVERNANCE IN RISK MANAGEMENT

Abstract

The study chosen by the research scholar is the Impact of Basel Accord adoption on Corporate Governance system in risk management among banking and non banking sectors. The study is focused on Basel III norms, procedures and creating nexus with Corporate Governance standards. The primary goal of the organization is to maintain minimum capital adequacy ratio in banks so that the banks can protect their depositors, manage financial downturns and to maintain availability of funds as per the need of the concern. The application of Corporate Governance standards in Basel norms enables concern to mitigate risks, creates accountability and transparency in business, creates trust among employees, shareholders and customers. By consistent application of Basel III standards in banks and organizations minimum capital adequacy is maintained which strengthens company financially and economically.

In India, the banking system regulations is directed and controlled by Reserve Bank of India (RBI) which in turn sets the Basel Accord requisitions. According to the International Monetary Fund (IMF), every bank has to adopt Basel standards which brings in enhancement of capital and improves banks performance and financial stability. The Basel Committee for Banking Supervision (BCBS) is framed to manage banking supervisory matters. The BCBS assists banks globally, to adopt internal Basel III standards for mitigating risk and to sustain the banks in financial crisis.  

In this study two banks are chosen by research scholar namely ICICI bank and HDFC bank for drawing comparative analysis in terms of Basel adoption. The comparison is made by considering five years of  CET1CRAR in financial statements reflects position of common equity by considering Tier1 and Tier2 capital adequacy ratio to be maintained in organization.  Minimum Tier 1 and Tier 2 capital has to be maintained by every banks , organization. Tier1 capital provides as cushion to the company by maintaining reserves for unknown contingencies and losses  whereas Tier 2 serves as supplementary capital to the organization. The higher the CAR ratio, the higher is the net profits after tax which considers to be solvent company.

By adopting Basel Accord in the company and Corporate Governance practices brings in smooth functioning of the business by creating minimum risk of losses and generating trustworthiness and develops growth in the business.