Impact of Basel III Capital Adequacy Norms on the Profitability of the Indian Banking System

Abstract

The Basel III framework was introduced after the global financial crisis of 2007-2009 to strengthen banking regulation, improve capital adequacy, enhance liquidity management, and reduce systemic financial risk. In India, the Reserve Bank of India implemented Basel III norms gradually from 2013, requiring banks to maintain stronger capital buffers. However, higher capital requirements may influence profitability because banks must balance financial stability with lending capacity and earnings performance. The objective of this study is to analyse the impact of Basel III Capital Adequacy Norms on the profitability of the Indian banking system during the period 2015-2024, with particular attention to the relationship between Capital Adequacy Ratio, Return on Assets, Return on Equity, and Non-Performing Assets. The study applies a quantitative descriptive-analytical research design based on secondary panel data. The sample includes five high-capital scheduled commercial banks: State Bank of India, Punjab National Bank, HDFC Bank, ICICI Bank, and Axis Bank. Data were collected from bank annual reports, the Reserve Bank of India Database on Indian Economy, RBI reports, and stock exchange disclosures. The study uses Pearson correlation analysis, simple and multiple linear regression analysis, independent samples t-test, and one-way ANOVA. The findings show that the average Capital Adequacy Ratio of the selected banks was above the RBI minimum requirement, indicating strong regulatory compliance. Private sector banks maintained higher CAR, ROA, and ROE, while public sector banks showed higher NPA levels. NPA emerged as a major negative factor affecting profitability. Basel III norms strengthened the capital position of Indian banks, but their profitability impact was asymmetric, favouring banks with stronger governance, lower credit risk, and better operational efficiency. Future studies should include more banks, longer time periods, macroeconomic variables, and advanced panel econometric models to assess the long-term effects of Basel III implementation on financial stability and profitability.