BASEL COMMITTEE ::
The Basel Committee on Banking Supervision provides a forum for regular cooperation on banking supervisory matters. Its objective is to enhance understanding of key supervisory issues and improve the quality ofbanking supervision worldwide. It seeks to do so by exchanging information on national supervisory issues,
approaches and techniques, with a view to promoting common understanding. The Committees Secretariat is
located at the Bank for International Settlements (BIS) in Basel, Switzerland.
FEATURES OF BASEL II NORMS
Basel II Norms are considered as the reformed & refined form of Basel I Accord. The Basel II Norms primarily
stress on 3 factors, viz. Capital Adequacy, Supervisory Review and Market discipline. The Basel Committee
calls these factors as the Three Pillars to manage risks.
PILLAR I: CAPITAL ADEQUACY REQUIREMENTS
Under the Basel II Norms, banks should maintain a minimum capital adequacy requirement of 8% of risk as-
sets. For India, the Reserve Bank of India has mandated maintaining of 9% minimum capital adequacy re-
quirement. This requirement is popularly called as Capital Adequacy Ratio (CAR) or Capital to Risk Weighted
Assets Ratio (CRAR).
PILLAR II: SUPERVISORY REVIEW
Banks majorly encounter with 3 Risks, viz. Credit, Operational & Market Risks. Basel II Norms under this Pillar
wants to ensure that not only banks have adequate capital to support all the risks, but also to encourage them
to develop and use better risk management techniques in monitoring and managing their risks.
The process has four key principles:
• Banks should have a process for assessing their overall capital adequacy in relation to their risk profile
and a strategy for monitoring their capital levels.
• Supervisors should review and evaluate bank‟s internal capital adequacy assessment and strategies,
as well as their ability to monitor and ensure their compliance with regulatory capital ratios.
• Supervisors should expect banks to operate above the minimum regulatory capital ratios and should
have the ability to require banks to hold capital in excess of the minimum.
• Supervisors should seek to intervene at an early stage to prevent capital from falling below minimum
level and should require rapid remedial action if capital is not mentioned or restored.
•
PILLAR III: MARKET DISCIPLINE:
Market discipline imposes banks to conduct their banking business in a safe, sound and effective manner.
Mandatory disclosure requirements on capital, risk exposure (semiannually or more frequently, if appropriate
are required to be made so that market participants can assess a bank‟s capital adequacy. Qualitative disclo-
sures such as risk management objectives and policies, definitions etc. may be also published.
BASEL III
The Reserve Bank released, guidelines outlining proposed implementation of Basel III capital regulation in
India. These guidelines are in response to the comprehensive reform package entitled
“Basel III: A global regulatory framework for more resilient banks and banking systems” of the Basel Commit-
tee on Banking Supervision (BCBS) issued in December 2010.
The major highlights of the draft guidelines are:
MINIMUM CAPITAL REQUIREMENTS
• Common Equity Tier 1 (CET1) capital must be at least 5.5% of risk-weighted
assets (RWAs);
• Tier 1 capital must be at least 7% of RWAs; and
Total capital must be at
least 9% of RWAs.
CAPITAL CONSERVATION BUFFER
The capital conservation buffer in the form of Common Equity of 2.5% of RWAs. A such minimum Cap-
ital Adequacy ratio for banks will be 11.5% after full application of the capital conservation buffer by 31
March 2018.
The Basel Committee on Banking Supervision provides a forum for regular cooperation on banking supervisory matters. Its objective is to enhance understanding of key supervisory issues and improve the quality ofbanking supervision worldwide. It seeks to do so by exchanging information on national supervisory issues,
approaches and techniques, with a view to promoting common understanding. The Committees Secretariat is
located at the Bank for International Settlements (BIS) in Basel, Switzerland.
FEATURES OF BASEL II NORMS
Basel II Norms are considered as the reformed & refined form of Basel I Accord. The Basel II Norms primarily
stress on 3 factors, viz. Capital Adequacy, Supervisory Review and Market discipline. The Basel Committee
calls these factors as the Three Pillars to manage risks.
PILLAR I: CAPITAL ADEQUACY REQUIREMENTS
Under the Basel II Norms, banks should maintain a minimum capital adequacy requirement of 8% of risk as-
sets. For India, the Reserve Bank of India has mandated maintaining of 9% minimum capital adequacy re-
quirement. This requirement is popularly called as Capital Adequacy Ratio (CAR) or Capital to Risk Weighted
Assets Ratio (CRAR).
PILLAR II: SUPERVISORY REVIEW
Banks majorly encounter with 3 Risks, viz. Credit, Operational & Market Risks. Basel II Norms under this Pillar
wants to ensure that not only banks have adequate capital to support all the risks, but also to encourage them
to develop and use better risk management techniques in monitoring and managing their risks.
The process has four key principles:
• Banks should have a process for assessing their overall capital adequacy in relation to their risk profile
and a strategy for monitoring their capital levels.
• Supervisors should review and evaluate bank‟s internal capital adequacy assessment and strategies,
as well as their ability to monitor and ensure their compliance with regulatory capital ratios.
• Supervisors should expect banks to operate above the minimum regulatory capital ratios and should
have the ability to require banks to hold capital in excess of the minimum.
• Supervisors should seek to intervene at an early stage to prevent capital from falling below minimum
level and should require rapid remedial action if capital is not mentioned or restored.
•
PILLAR III: MARKET DISCIPLINE:
Market discipline imposes banks to conduct their banking business in a safe, sound and effective manner.
Mandatory disclosure requirements on capital, risk exposure (semiannually or more frequently, if appropriate
are required to be made so that market participants can assess a bank‟s capital adequacy. Qualitative disclo-
sures such as risk management objectives and policies, definitions etc. may be also published.
BASEL III
The Reserve Bank released, guidelines outlining proposed implementation of Basel III capital regulation in
India. These guidelines are in response to the comprehensive reform package entitled
“Basel III: A global regulatory framework for more resilient banks and banking systems” of the Basel Commit-
tee on Banking Supervision (BCBS) issued in December 2010.
The major highlights of the draft guidelines are:
MINIMUM CAPITAL REQUIREMENTS
• Common Equity Tier 1 (CET1) capital must be at least 5.5% of risk-weighted
assets (RWAs);
• Tier 1 capital must be at least 7% of RWAs; and
Total capital must be at
least 9% of RWAs.
CAPITAL CONSERVATION BUFFER
The capital conservation buffer in the form of Common Equity of 2.5% of RWAs. A such minimum Cap-
ital Adequacy ratio for banks will be 11.5% after full application of the capital conservation buffer by 31
March 2018.
No comments:
Post a Comment