Basel II and social dimensions The three-track theme to Basel II implementation, which I had mentioned earlier, might give rise to scope for regulatory arbitrage within the banking system. This would, however, not be of much concern in the Indian context on account of the relatively insignificant size of the non Basel II entities and their relevance from the systemic perspective.
While the desire would be to reduce the scope for regulatory arbitrage, we may have to strike a delicate balance to ensure that this desire does not constrain the non-Basel II entities from discharging their respective specified roles in the national economies viz., achieving greater financial inclusion, playing a developmental role, and acting as conduits for credit delivery to the neglected sectors.