What will be the implications of Basle-II norms on capital requirements of banks?
As far as Basle-II norms are concerned, there are three components: credit risk, market risk and operational risk. However, the big black box for the banking sector as a whole is the operational risk. In a base case you take gross income of banks and 15% capital. All commercial banks have a gross income of Rs 80,000 crore as of 2003 and its 15% would be Rs 12,000 crore. If this approach is followed all banks will need some capital. What is your view on consolidation in the Indian banking sector? Over a period of time, banks will need to have some areas of strength, international quality products and services and critical mass. They will also require capital. Consolidation in the banking sector can address some of them. A merger between two public or private sector banks will not be complementary. A public sector bank has the geographical reach whereas a private bank has the technical expertise coupled with sound risk management practices. Hence a marriage across the sector will have gr
