– irrespective of quality of counter party or credit • encouraging regulatory arbitrage by cherry picking • lack of incentives for credit risk mitigation techniques • not covering operational risk as time passed, some of the major international banks began using sophisticated models to measure risk. this was when a need was felt to upgrade the basel framework. therefore, the basel committee on banking supervision thought it desirable that the present accord is replaced by a more risksensitive framework. three pillars the new basel accord has its foundation on three mutually reinforcing pillars that allow banks and bank supervisors to evaluate properly the various risks that banks face and realign regulatory capital more closely with underlying risks. the first pillar is compatible with the credit risk, market risk and operational risk. the regulatory capital will be focused on these three risks. the second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bank. concurrently, it also casts responsibility on the supervisors to review and validate banks ’ risk measurement models. the third pillar on market discipline is used to leverage the influence that other market players can bring. this is aimed at improving the transparency in banks and improve reporting. issues and challenges having given you a brief overview of the current and proposed new framework, i shall now move on to the implementation challenges for the banks especially in a developing country like india. here, i would skip the methodological details and technical nitty - gritty associated with the new accord, and concentrate instead on more profound implications for the banking industry. issues and challenges while there is no second opinion regarding the purpose, necessity and usefulness of the proposed new accord - the techniques and methods suggested in the consultative document would pose considerable implementational challenges for the banks especially in a developing country like india. capital requirement : the new norms will almost invariably increase capital requirement in all banks across the board. although capital requirement for credit risk may go down due to adoption of more risk sensitive models - such advantage will be more than offset by additional capital charge for operational risk and increased capital requirement for market risk. this partly explains the current trend of consolidation in the banking industry. profitability : competition among banks for highly rated corporates needing lower amount of capital may exert pressure on already thinning interest spread. further, huge implementation cost may also impact profitability for smaller banks. risk management architecture : the new standards are an amalgam of international best practices and call for introduction of advanced risk management system with wider application throughout the organization.

r gandhi : payment systems - next orbit speech by mr r gandhi, deputy governor of the reserve bank of india, at the launch of the bharat qr code, mumbai, 20 february 2017. * * * good morning everybody i am very happy to be launching the bharat qr code. the qr code development for card payments in india has happened at the most appropriate time ; we are on the threshold of a digital payments ‘ moment ’ and ‘ movement ’. this is a momentous occasion for the payments industry in india with the launch of this global first of its kind, low cost, interoperable, mobile based acceptance solution. i would like to congratulate the payment networks for their enthusiastic collaboration to develop this solution. an innovative interoperable solution, the bharat qr, that is easy to scale, and provides a seamless customer experience, and above all is safe and secure, essential to accelerating india ’ s transition to a less – cash society. i am glad that india is setting yet another standard in the payment arena for others to adopt. since cards began to be used in the country in early 1980s, the industry has set up about 1. 5 million point of sale ( pos ) terminals. however, in comparison to the 800 million cards that have been issued as of now, the number of pos terminals in the country has not been really adequate. among other factors, the high capex and opex associated with traditional pos terminals, have been the major deterrents to the expansion of pos infrastructure. gradually, with increasing mobile density in the country, many developments in the payments space have taken place using this channel, including m - pos on the merchant side. now, qr code based systems leverage mobile usage on the consumer side as well. being asset - light, they become easy to deploy. so, it is but natural that the two developments should come together to offer an efficient, secure and convenient experience for card payments. what makes this development more momentous is that the card payment industry in the country has come together, of course at our direction, to make this process interoperable so that the users get the same experience of card payments – that is, interoperability. no doubt, the visibility to qr code and its consequent widespread usage came from nonpayments area first, followed by non - banks in payments area. these are mostly used by users within the same ecosystem and are not