INDEPENDENT UNIVERSITY, BANGLADESH

Management of Financial Institutions

FIN405
Section: 01
Semester:
Assignment Topic: Challenges of Basel III Accord for Bangladesh Banking System.
Submitted To:
Mr. Md. Rayatul Islam
Date of Submission: 24/01/2021
SUBMITTED BY: Group 9

Group Member’s Name ID

Samiul Hossain Anonno 1731492
Ferdoshi Chomok 1730235
Sadia Sarker Juthi 1722326
Esraah Ahmed 1721411
Nishat Naila 1720043
24 January 2021

Mr. Md. Rayatul Islam

Lecturer

Independent University, Bangladesh

Bashundhara R/A, Dhaka.

Subject: Submission of Assignment

Dear Sir,

We are pleased to submit the report that you asked for & gave us the authorization to work on the
assignments. This assignment is a part of our course. We tried our best to work on it carefully and
sincerely to make the report informative.

The study we conducted enhanced our knowledge to make an executive report. This report has given us
an exceptional experience that might have immense uses in the future endeavors and we sincerely hope
that it would be able to fulfill our expectations.

We have put our sincere effort to give this report a presentable shape and make it as informative and
precise as possible. We want to thank you for providing us this unique opportunity.

Yours Sincerely,

Group 2
Contents
Introduction...........................................................................................................................4
Framework.........................................................................................................................4
Literature Review..................................................................................................................5
Overview of Basel III.............................................................................................................6
Pillars for Basel III Accord.....................................................................................................7
Minimum capital requirements:.....................................................................................7
Capital Conservation Buffer:.............................................................................................7
Countercyclical Capital Buffer:..........................................................................................7
Higher Common Equity Tier 1:..........................................................................................7
Minimum Total Capital Ratio............................................................................................8
Leverage Ratio:...............................................................................................................8
Liquidity Requirements..................................................................................................8
 Liquidity Coverage Ratio:...........................................................................................8
 Net Stable Funding Ratio:..........................................................................................8
Impact of Basel III................................................................................................................8
Challenges of Basel III Accord for Bangladesh Banking System...........................................9
Capital adequacy pressure.................................................................................................10
Liquidity pressure...............................................................................................................11
Impact of Leverage Ratios..................................................................................................11
Cost effective model development.....................................................................................12
Implementing the countercyclical capital buffer.................................................................12
Improving the Risk Architecture............................................................................................12
Managing all the data........................................................................................................12
Audit-ability-data lineage & Transparency.........................................................................13
SOA-Based Architecture.....................................................................................................13
Conclusion.............................................................................................................................14
Reference..............................................................................................................................15
 Introduction
Framework
Passing through the history of economic transformation, financial set-up found today’s phase of
enlargement considering attaining a property economic base in line with world standard
incorporating variety of regulative reforms and series of structural shifts in Bangladesh. Before
adopting the denationalization and privatization policy in Bangladesh, scope of rules for
operational banking sector were mostly restricted to guiding deposit and lending rate and,
allocation of credit till 1982. In 1992, monetary Sector Reform Project (FSRP) was undertaken to
form the sooner reform measures (e.g., Bank Company Act 1991, cash Loan Court Act 1990)
more practical and to enlarge the scope of measures by permitting additional non-public banks
within the trade. Introduction of Credit data Bureau Page three of thirty-five (CIB) at Bangladesh
Bank in 1992 and commencement of disposition Risk Analysis (LRA) in 1993 opened the initial
ground for facilitating the disposition selections and establishing regulatory mechanism. Having
the inheritance of such background-development of restrictive mechanism, banking industry
tried to construct prudent restrictive equipment anticipating the perceived necessity keeping eyes
on the security and property of the trade. It bit by bit integrated numerous regulatory reforms in
several phases of its development and, eventually, to stay up with the international monetary
framework, it embraced the worldwide restrictive tips and stepped into the Basel regime.
Basel III is a global, voluntary regulatory framework on bank capital adequacy, stress testing and
market liquidity risk. This third installment of Basel Accord was developed in response to the
deficiencies in financial regulation revealed by the financial crisis of 2007-2008. It is intended to
strengthen bank capital requirement by increasing bank liquidity and decreasing bank leverage.
Basel III was agreed upon by the members of the Basel committee on banking supervision in
November 2010 .However implementation was extended repeatedly to 31 March 2019. The
Basel III standard aims to strengthen the requirement from the Basel II standard on banks
minimum capital ratios. Basel III has a target to increase the government bond share in the
bank’s capital and solve their liquidity problem.
Basel III implementation status in Bangladesh: Basel III refers to the capital and liquidity
standards prescribed by the bank for International settlement to promote stability of international
banking system. BIS is an international financial institution, which acts as a bank of central bank.
In Bangladesh Basel III was introduced in the year 2010 .In line with Basel III Bangladesh bank
circulated “Guidelines on Risk Based Capital Adequacy” BRPD circular no: 18 , 21 December
2014 and gradual implementation of Basel III has started from 1January 2015 in Bangladesh
.Full implementation of Basel III in Bangladesh will start from January 2019 .The Basel III aims
to strengthen the banking system stability by applying stringent standards designed to improve
the capacity of shocks absorption from economic and financial sector and to reduce the risk of
contagion from the financial sector towards real economy (Walter, 2010). The new standards
take into consideration the improvement of risk management, increasing transparency and
/disclosure requirements of credit institution. The measures require higher standards for banks
regarding capital adequacy, liquidity and leverage effect, the main goal being reducing the
negative effects of financial crises. Banks and the regulators all over the world have been
concerned about the risks of implementing more stringent rules of Basel III. Basel I agreement
introduced in 1988 which known as “International Convergence of Capital
Basel III came out with a comprehensive set of reform measures by correcting flaws perceived in
Basel II, emphasizing the improvement of quantity and quality of capital base of the banks
coupled with stricter liquidity rules with stronger supervision, better governance & risk
management as well as strengthens bank’s transparency & disclosure standards. Basel III reform
package also addresses the lessons of the financial crisis. Bangladesh has adopted new rules
phased in under Basel III in 2015 to strengthen the regulations of the banking sector for creating
a sounder and safer financial system of the country. But Basel III is not flawless. There are
challenges the banking sector of Bangladesh is being faced while implementing Basel III
framework in Bangladesh.

Literature Review

In the words of Greenspan, A (2002), “It is evident that regulatory rules can add to ongoing
macro-economic and asset quality cyclicality. Rules are constraints or limits that require
responses as limits are approached. Sometimes those limits, say capital constraints, may induce
tighter lending standards or shrinking balance sheets for a number of institutions at the same
time, engendering significant real business-cycle effects. We must, therefore, be aware of the
implications beyond the original intend of a rule and consider its associated tradeoffs”. The
leverage ratio increases transparency by supplementing the risk-based models with a broader
model that does not distinguish between low-risk and high-risk assets. The ratio could to identify
banks that are operating radically different from their peers. (Richard Barnes et al, 2010).
Measuring the minimum capital requirements based on evaluations by credit rating agencies and
internal rating systems may exacerbate a crisis. (Pozen R.C, 2010). Banks‟ internal risk models
are complex and based on assumptions that proved untrue during the crisis. (Jon Danielson et al
2001).It is obvious that many accept greater risk during the favourable times and pursue the less
risk during the uncertain periods. Market participants are known, generally, to act in a
procyclicalmanner. Periods of credit expansion often precede liquidity crisis. (Graciela
Kaminsky and Carmen M. Reihart, 1999).
In additional, Cosimano and Hakura (2011) confirms those banks’ responses to higher capital
requirements can vary significantly from one economy to a different, reflective cross country
variations within the tightness capital constraints, banks’ web value of raising equity and snap of
loan demand with reference to changes in loan rates.
Higher capital necessities can increase banks’ incremental cost of loans if, contrary to the
Modigliani-Miller (1958) Theorem, the marginal cost of capital is bigger than the marginal cost
of deposits, i.e. if there’s a net value of raising capital. In this case, a better value of equity
finance relative to debt fiancé, would lead banks to boost the worth of their lending and will slow
loan growth and hold back of the economic recovery.
Higher capital necessities can increase banks’ incremental cost of loans if, contrary to the
Modigliani-Miller (1958) Theorem, the marginal cost of capital is bigger than the marginal cost
of deposits, i.e. if there’s a net value of raising capital. In this case, a better value of equity
finance relative to debt fiancé, would lead banks to boost the worth of their lending and will slow
loan growth and hold back of the economic recovery.
Rajan (2008) states that the recent turmoil in global money markets has unconcealed that some
banks had put aside associate inadequate quantity of capital to satisfy a cash squeeze.
Masera (2013) has found that in US the capital regulative system has been followed by the scale
of the bank, in Europe Union banking system risk weighted scheme is so much complex.
In its interim report Macroeconomic Assessment Group of the Bank for International
Settlements, (MAG 2010a) assumed that Basel III requirements will be achieved primarily
through a combination of increases in lending spreads and a tightening of lending standards,
particularly in riskier parts of loan portfolios. These will have an impact on the economy by
reducing debt financed investment and consumption.
Their paper has been endeavors to dissect contrasts within the middle of the system of Basel II
and Basel III and plans to target the difficulties that Bangladesh can look for executing Basel
Accord III. At last, this paper has given a few recommendations on tending to the difficulties of
actualizing the Basel III system in regions, (Sultana & Sharmin, 2015).

Overview of Basel III

The Basel III accord is a set of monetary reforms that was developed by the Basel Committee on
Banking Supervision (BCBS), with the aim of strengthening regulation, supervision, and risk
management within the banking system. Thanks to the impact of the 2008 Global Financial
Crisis on banks, Basel III was introduced to enhance the banks’ ability to handle shocks from
financial stress and to strengthen their transparency and disclosure. Basel III is an extension of
the prevailing Basel II Framework, and introduces new capital and liquidity standards to
strengthen the regulation, supervision and decreasing bank leverage and risk management of the
entire of the banking and finance sector.
Pillars for Basel III Accord

Minimum capital requirements:

The Basel III accord raised the minimum capital needs for banks from 2% in Basel II to 4.5% of
common equity, as a share of the bank’s risk-weighted assets. There is additionally 2.5% buffer
capital demand that brings the whole minimum requirement to 7%. Banks will use the buffer
when they will face the financial stress; however doing therefore will cause even a lot of
monetary constraints once paying dividends.

Capital Conservation Buffer: It is meant to soak up losses in period of financial and economic
stress. A buffer of 2.5% which is an entirely out of Tier 1 capital higher minimum capital
demand to be maintained to confirm that banks accumulate buffers in time of low financial
stress. The capital conservation buffer should be met solely with common equity. Financial
establishments that do not maintain the capital conservation buffer faces restrictions on payouts
of dividends, share buybacks and bonuses.

Countercyclical Capital Buffer: Countercyclical capital buffet could be a countercyclical

buffer at intervals a spread of 0% and 2.5% of common equity or alternative totally loss gripping
capital is enforced consistent with national circumstances. This buffer is associate degree
extension to the capital conservation buffer.

Higher Common Equity Tier 1: It constitutes an increase from 2% to 4.5%. The ratio is set at
3.5% from January 2013, 4& from January 2014 and 4.5% from January 2015.
Minimum Total Capital Ratio: The ratio remains at 8% and additional of the capital
conservation buffer will increase the full quantity of capital an institution should hold to 10.5%
of risk weighted assets of that 8.5% should be tier 1 capital. Tier 2 capital instruments are
harmonized and tier 3 abolished.

Leverage Ratio:
Basel III introduced a non-risk-based leverage ratio to serve as a backstop to the risk-based
capital requirements. Banks are required to contain a leverage ratio in excess of 3%. The non-
risk-based leverage ratio is calculated by dividing Tier 1 capital by the average total consolidated
assets of a bank. In July 2013, the US Federal Reserve Bank announced that the minimum Basel
III leverage ratio would be 6% for Systematically Important Financial Institutions (SIFI) and 5%
for their bank holding companies.
Liquidity Requirements
Basel III introduced two required liquidity ratios:

 Liquidity Coverage Ratio: This is often to safeguard banks against sustained financial
stress for thirty days amount. To push short term resilience of a banks liquidity risk
profile, the Basel committee developed the liquidity coverage ratio. This customary aims
to confirm that bank has enough stock of unencumbered prime quality assets that consists
money or assets that can be converted into cash at very little or no loss valuable in private
markets to fulfill its liquidity require for a thirty days liquidity stress scenario.
 Net Stable Funding Ratio: It needs a minimum quantity of stable sources of funding at a
bank relative to the liquidity profile of the assets moreover because the potential for
contingent liquidity desires arising from off balance sheet commitments over an annual
horizon. The target of long run stability of economic liquidity risk profile is met by
maintaining ratio of obtainable quantity of stable funding to needed quantity of stable
funding at a minimum 100%.

Impact of Basel III

The requirement that banks must maintain a minimum capital amount of 7% in reserve will make
banks less profitable. Most banks will attempt to maintain a better capital reserve to cushion
themselves from financial distress, until lower the amount of loans issued to borrowers. They're
going to be required to carry more capital against assets, which can reduce the dimensions of
their balance sheets. 6 A study and research revealed that, in 2011 the medium-term effect of
Basel III on GDP would be -0.05% to -0.15% annually. to remain afloat, banks are going to be
forced to extend their lending spreads as they pass the additional cost on to their customers. The
introduction of latest liquidity requirements, mainly the Liquidity Coverage Ratio (LCR) and Net
Stable Funding Ratio (NSFR), will affect the operations of the bond market. To satisfy LCR
liquid-asset criteria, banks will recoil from holding high run-off assets like Special Purpose
Vehicles (SPVs) and Structured Investment Vehicles (SIVs). The implementation of Basel III
will affect the derivatives markets, as more clearing brokers exit the market thanks to higher
costs. Basel III capital requirements specialize in reducing counterparty risk, which depends on
whether the bank trades through a dealer or a central clearing counterparty (CCP). When a bank
enters into a derivative trade with a dealer, Basel III creates a liability and requires a high capital
charge for that trade. On the contrary, derivative trade through a CCP leads to only a 2% charge,
making it more attractive to banks. The exit of dealers would consolidate risks among fewer
members, thereby making it difficult to transfer trades from one bank to a different and increase
systemic risk

Challenges of Basel III Accord for Bangladesh Banking System

The most significant challenge the banking sector of Bangladesh is going to face under the Basel
III accord is to balance the interests of the business against the needs of the regulator. It will
drive significant challenges that need to be understood and addressed for example: different
approaches adapted by different countries to implement Basel III. The issues surrounding
managing data quality and stress testing and also the issues of auditing the regulatory data and
many more. So, working out the most effective way to follow Basel III will be a bit tough.
Basel III implementation in Bangladesh banking system will limit the leverage effect as
additional measures to capital requirements calculated according to risk at micro prudential level.
On the other hand, introduction of international liquidity standards is the another measure of the
same, which provide short term (30 days) resistance to shock/crisis of liquidity and a solid
profile of structural liquidity on long-term (one year). At macro-prudential level, the measures
have anti-cyclical character and consist of introduction of a countercyclical capital buffer in
order to protect the financial system against systemic risks associated with unsustainable credit
growth (represents 2.5 percent over the minimum capital-Tier 1 composed of common stock,
retained earnings and reserves.
In case of capital conservation buffer in order to cover losses if the bank faces financial problems
(varies within an interval which reaches maximum value at 2.5 percent depending by the phase
of economic cycle). Countercyclical capital buffer is directly proportional to systemic risk and is
calculated according to credit/GDP indicator. In case of computing a leverage effect, the purpose
being to limit debt levels in the banking system in times of boom. Systemically important banks,
concerns being orientated to reducing the probability and impact of their bankruptcy, reducing
public sector intervention and the imposition of a level playing field by reducing the competitive
advantage that these banks hold in financing
As per Basel III norms it will be difficult for state owned commercial banks to increase its Tier I
and Tier II capital due to higher credit and operational risk. It is quite impossible to mitigate the
requirement for its negative capital adequacy ratio for the DFIs. According to Basel III norms the
bank can increase its equity portion by issuing common equity. The capital market of
Bangladesh is not quite stable at the moment to support the banks raise capital through.
According to statistics from the Bangladesh Bank, for State-Owned Commercial Bank and
Development Financial Institutions, the retained earnings won’t provide enough capital to meet
even the regulatory requirements. Banks will have to raise funds from the market for this capital
shortage. Many commercial banks raised capital funds from the market over the past years. This
has increased the stock volatility. This makes it even harder for the banks to acquire capital more
smoothly.
Capital adequacy pressure
Capital Adequacy Norms: Impact on Banks Capital Adequacy Ratio = Total Regulatory Capital
(Tier I + Tier II + Tier III)/ Risk weighted Assets (Credit risk + Market risk+ Operational risk)
Improving Quality, Consistency and Quality of the Capital

Capital Adequacy focuses on the total position of banks’ capital and protection of depositors and
other creditors from the potential shocks of losses that a bank might incur. It helps absorbing all
possible financial risks like credit risk and other core risks, market risk, operational risk, residual
risk, credit concentration risk, interest rate risk, liquidity risk, reputation risk, settlement risk,
strategic risk, environmental & climate change risk etc. Under Basel-II, banks in Bangladesh are
instructed to maintain minimum capital requirement (MCR) at 10.0 percent of the risk weighted
assets (RWA) or Taka 4.0 billion as capital, whichever is higher, with effect from July-
September 2011 quarter. As on 2012 the SCBs, DFIs, PCBs and FCBs maintained CAR of 8.1,
-7.7, 11.4 and 20.6 percent respectively. 2 SCBs, 2 DFIs and 4 PCBs could not maintain
minimum required CAR. The CAR of the banking industry was 10.5 percent in year 2012 and
9.1 percent in 2013 up to end of June. All foreign banks maintained minimum required capital.
Noteworthy that industry CAR stood at 9.1 percent. The financial health of Bangladesh banking
system has improved significantly in terms of capital adequacy ratio if we compare the
composite ratios from year 2008 to 2013. As per BASEL III norms it will be difficult for state
owned commercial banks to increase its Tier I and Tier II capital due to higher credit and
operational risk. On the other hand, for DFIs, it is quite impossible to mitigate the requirement
for its negative capital adequacy ratio. According to BASEL III norms the bank can increase its
equity portion by issuing common equity. At present the capital market of Bangladesh is not
stable at all and is not quite supportive for banks to collect fund by issuing common equity.
According to statistics from the Bangladesh Bank for State-owned Commercial Banks and
Development Financial Institutions, the retained earnings won’t provide enough capital to meet
even their regulatory requirements; banks will need to turn to the market to address this capital
shortage. Over the past few years, regardless of their public promises, many commercial banks
have sourced funds via the capital markets, thereby increasing stock volatility. Such changes in
the market, bankers feel keenly the dual pressures from regulatory bodies and investors making it
even more difficult for bank to acquire capital smoothly and promptly in case of capital shortage.

Liquidity pressure
In addition to amending capital adequacy ratios, the Basel Committee included a related
requirement on liquidity in the new capital accord. This update has major implications for
Bangladeshi banks; it arose as a result of the liquidity challenges faced by major financial
institutions. The advance-to-deposit ratio in the banking sector declined to below 72 per cent in
September 2013 as credit demand in the private sector continued to drop since the second half of
the last fiscal year due to dull business situation in the country amid political unrest. According
to the latest BB data, the overall ADR in the banking sector dropped to 71.65 percent as of
September 26 from 73.34 per cent as of August 1, 2013. BB data showed that the ADR in the
banking sector was 76.95 per cent as of January 10, 76.28 per cent as of February 7, 75.28 per
cent as of March 14, 75.26 per cent as of April 25, 74.90 per cent as of May 2, 74.01 per cent as
of June 13, 73.35 per cent as of July 11, 73.34 per cent as of August 1 and 71.65 per cent as of
September 26 of this year. As per the BB rules, the conventional commercial banks are not
allowed to invest more than 85 per cent of their deposits while Islamic banks and Islamic wings
of the conventional commercial banks can invest up to 90 per cent of their deposits. The major
challenge for banks in implementing the liquidity standards is to develop the capability to collect
the relevant data accurately and to formulate them for identifying the stress scenario with
accuracy. However, positive side for Bangladeshi banks, they have a substantial amount of liquid
assets which will enable them to meet requirements of Basel III. Basel III introduces new
liquidity regulations which aim to ensure banks have sufficient liquidity over both the short and
the longer term. The global financial crisis highlighted the problem that banks did not maintain
sufficient levels of liquid assets. When the crisis hit, some banks were unable to meet their
obligations and governments had to step in and provide liquidity support. One striking example
of this was Northern Rock in the UK. To reduce the risk of this happening again, banks will now
have to comply with two new ratios.
Net Stable Funding Ratio (NSFR) is intended to promote more medium and long-term funding of
banks’ activities. In summary, it establishes a minimum amount of stable funding based on the
liquidity characteristics of an institution’s assets and activities over a one year horizon. Stable
funding in this context means capital, preferred stock and debt with maturities of more than one
year and that portion of deposits with maturities of shorter than a year that would be expected to
stay with the institution in a stress scenario. The net stable funding ratio (NSFR) is likely to be
implemented from 2019. Implementation of the liquidity coverage ratio (LCR) it may necessitate
banks to maintain additional liquidity since the LCR requirement is more stringent.
Impact of Leverage Ratios
From Bangladesh Banks’ point of view, Bangladesh Bank already had Statuary Liquidity Ratio
(SLR), as a regulatory mandate. The statutory liquidity portfolio of banks is constituted only for
moderate risk i.e. Market Risk and it is excluded from leverage ratio. The Tier I capital of many
banks is comfortable (more than 8%) and their derivatives activities are not very large. Thus,
leverage ratio cannot be a binding constraint for banks in Bangladesh.
Cost effective model development
For every bank, it is critical to work out the most cost-effective model for implementing Basel
III. Banks will have to issue fresh capital particularly towards the later years of implementation.
Although PCB and FCB banks have the advantage of a strong starting base in the form of a
higher capital to risk-weighted assets ratio with a larger component of core equity capital, the
large equity needs, though over an extended time-frame, could put downward pressure on the
banks’ Return on Equity (ROE). In the long term, the higher capital requirements would bring
down risks in the banking sector inducing investors to accept a lower ROE. In the short term,
though, the only solution is to raise productivity. Return on equity of the banking industry
remained virtually unchanged at 8.20 percent at the end of December 2012 and 8.21 percent at
the end of June 2013. The Government of Bangladesh being the owner of public sector banks
will have to play a proactive role in this process.

Implementing the countercyclical capital buffer

A critical component of the Basel III package is implementation of countercyclical capital buffer
which mandates that banks build up a higher level of capital in good times (that could be run
down in times of economic contraction), consistent with safety and soundness considerations.
Here the foremost challenge to the BB is identifying the inflexion point in an economic cycle
which should trigger the release of the buffers. The identification of the inflexion point needs to
be based on objective and observable criteria; it also requires long series data on economic
cycles. In Bangladesh the types of macroeconomic data and the choice of options will be a
considering factor. The proposed capital buffer provision will impose additional cost to banks in
Bangladesh. However there is variable used to calibrate the countercyclical capital buffer called
credit to GDP ratio.
 Improving the Risk Architecture

Managing all the data

In order to reflect the conditions of the Basel III and making sure that it compliance, all the
banks must make sure the all types of data is kept stored and it is easily recoverable and
accessible, the data must not be distorted all the data must be kept clean and consistent. It is one
of the fundamental requirements of Basel III. If the data is stored in different databases, it will
cost more maintenance cost if you compare those with the centralized data where all the data is
stored in a single place. It shall be easily collected, consolidated and to create reports under the
Basel I, II, III accord. Hence keeping in mind the data must be managed efficiently so that when
making the calculations for the capital adequacy, liquidity and leverage are done correctly and
accurately without any error if it involves error it will cost the bank huge losses in the event of
wrong data input.

Audit-ability-data lineage & Transparency

After the regulatory report has been checked, verified and submitted, it will be reviewed under
the regulatory bodies will follow up with the banks conditions, for example they will clear all
sorts of issues on how the results were calculated how the rules where applied following the
Basel accord. Hence this will require the bank to approve, submit, identify, and check all types of
the given data quickly and without any errors in the data. The process of the audit will be highly
difficult for the banks if the data is not centralized and the data is stored in multiple databases
away from the central database, the process will cost the bank more time to retrieve the data and
also search the data for all sorts of relevant information’s. Therefore, banks that uses centralized
data will have the most effective responses to those types of enquire more efficiently.

SOA-Based Architecture
A SOA-consistent, segment-based architecture will furnish keeps money with interoperability
between their center capacities and lower the coordination costs. Likewise, working with a
typical help scene will prompt the improvement of an architecture that will adjust to bank's
current and future need Progressive Simplification - Instead of totally upgrading center
inheritance frameworks, banks can settle on progressive simplification, picking specific
customizations which will give them upper hands without changing all inheritance items. Yet,
banks should decide whether the change bundle underpins nation explicit guideline strategies and
bookkeeping rules, bank- explicit business measures, and existing heritage center items. Core
banking on the Cloud - Banks can settle on a cloud-based solution to have measures,
applications, stages, or framework to use distinctive evaluating options. This methodology may
bring about some measure of danger move for the bank since functions like debacle recuperation
and information stockpiling will be dealt with by the cloud specialist co-op.
 Conclusion
The feature of further capital necessities can create a challenge for the bank; through the overall
capital level of the banks can see a rise. The DFIs also are possible to be hurt by the increase of
interbank loans that may effectively value them out of the market. In that case, banks will have
to re-structure policies to survive in the new environment through improved risk management
and measurement by banks. Most of these models require minimum historical bank data that is a
tedious and high cost process, as most state-owned commercial banks and development financial
institutions do not have such a database. The technology infrastructure in terms of
computerization is still in a nascent stage in most SCBs and DFIs. Computerization of branches,
especially for those banks, which have their network spread out in far-flung areas, will be a
daunting task. Therefore, whereas banks do not have any choice in obliging with Basel III,
however they prefer to implement it can give scope for competitive advantage. Those banks that
implement Basel III with a read to up their business processes additionally as their regulatory
processes tend to reap additional rewards compared to those banks that see Basel III compliance
as an end it. Basel III laws might work as a revolution for the banking sector. So, taking into
consideration of the financial market situation, supervisor additionally as bank need to renovate
them to truly cope up with the challenges of Basel III.
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