Second, advanced risk management systems, sophisticated information technology infrastructure, human expertise and a comprehensive database are pre-requisites for Indian banks to adopt the New Basel Capital Accord. Indian banks must also improve their internal audit, loan review and internal rating systems. Third, capital requirements must be supplemented by adequate provisioning for non-performing assets.
Thus, the share of loans to enterprises with low capital ratios and high interest burdens has increased over time. In addition, a lower value-at-risk for market risk in the last two years has helped boost capital ratios. Thus, a sharp rise in financial market volatility could put pressure on banks.