[Solved] Which of the following is TRUE regarding the impact of Basel III norms on Indian banks? — Ans: They mandate banks to maintain a higher liquidity coverage ratio (LCR) | Financial Awareness

Financial Awareness - Risk, Stability & Emerging Finance

Which of the following is TRUE regarding the impact of Basel III norms on Indian banks?

AThey allow banks to ignore market risks in capital calculations

BThey require banks to reduce their capital base to increase lending

CThey eliminate the need for priority sector lending

DThey mandate banks to maintain a higher liquidity coverage ratio (LCR)

Step-by-Step Solution

Step 1: Understand Basel III key features
Basel III norms require banks to maintain higher capital adequacy and liquidity coverage ratio (LCR) to withstand financial stress.
Step 2: Analyze each option
Basel III does not require reducing capital base; priority sector lending is a regulatory mandate unrelated to Basel; ignoring market risks contradicts Basel's risk management focus.
Step 3: Confirm correct statement
Maintaining higher LCR is a core Basel III requirement to ensure liquidity during crises.
Final Answer:
They mandate banks to maintain a higher liquidity coverage ratio (LCR) → Option D
Quick Check:
Basel III = higher liquidity coverage ratio required ✅

Quick Trick: Link Basel III with capital and liquidity norms.

Common Mistakes:

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