Prudential regulations refers to a set of laws and rules designed to minimize the risks banks assume and to ensure the safety and soundness of both individual institutions and the system as a whole. These reforms were launched as part of the banking sector reforms of the 1990s.
Prudential regulation has been characterized by inserting best practices as defined by the Basel capital accord into Indian banking. Examples of prudential regulation include lending limits, minimum capital adequacy guidelines, liquidity ratios, NPA norms etc. The CRAR was an important component of prudential regulation. For better regulation and supervision of financial institutions, the RBI was following the Basel norms (Basel –I, II and III) from time to time.
