Basel III Capital Regulations: What are Basel I and Basel II Regulations? (Download PDF)

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Reserve Bank of India (RBI) has implemented ‘Basel III capital regulations’ in India in phases, targeting full implementation by March 31,2019. Norms/guidelines regarding capital required to be maintained by banks in India including the Basel III capital regulations, are issued by RBI. RBI has not notified any changes or proposed changes to these regulations since March 2016.

Image of Criteria, Basel II and Basel III

Image of Criteria, Basel II and Basel III

Image of Criteria, Basel II and Basel III

  • As per audited data of Public Sector Banks (PSBs) for the quarter ended December 2017, all PSBs met the regulatory norm for Common Equity Tier-1.

Recapitalization of PSBs

  • With a view to supplement the efforts of PSBs, for meeting regulatory capital norms and augmenting growth capital, Government of India announced in October 2017 recapitalization of PSBs to the tune of Rs. 2,11,000 crore over the current and next financial years comprising of capital infusion by the Government of Rs. 1,53,139 crore and the balance through raising of capital by PSBs.

Basel III Capital Regulations

  • Basel III (or the Third Basel Accord or Basel Standards) is a global, voluntary regulatory framework on bank capital adequacy, stress testing, and market liquidity risk.

  • It was agreed upon by the members of the Basel Committee on Banking Supervision in 2010–11, and was scheduled to be introduced from 2013 until 2015

  • However, changes from 1 April 2013 extended implementation until 31 March 2018 and again extended to 31 March 2019.

  • The third installment of the Basel Accords was developed in response to the deficiencies in financial regulation revealed by the financial crisis of 2007–08. Basel III is intended to strengthen bank capital requirements by increasing bank liquidity and decreasing bank leverage.

Basel I (1988 Basel Accord)

  • Basel I is the round of deliberations by central bankers from around the world, and in 1988, the Basel Committee on Banking Supervision (BCBS) in Basel, Switzerland, published a set of minimum capital requirements for banks.

  • This is also known as the 1988 Basel Accord, and was enforced by law in the Group of Ten (G-10) countries in 1992. A new set of rules known as Basel II was later developed with the intent to supersede the Basel I accords.

Basel II

  • Basel II is the second of the Basel Accords, which are recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision.

  • The Basel II Accord was published initially in June 2004 and was intended to amend international banking standards that controlled how much capital banks were required to hold to guard against the financial and operational risks banks face.

  • These regulations aimed to ensure that the more significant the risk a bank is exposed to, the greater the amount of capital the bank needs to hold to safeguard its solvency and overall economic stability.

  • Basel II attempted to accomplish this by establishing risk and capital management requirements to ensure that a bank has adequate capital for the risk the bank exposes itself to through its lending, investment and trading activities.

- Published/Last Modified on: June 22, 2018

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