Basel Norms
Banking · बेसल मानदंड
📋Quick Overview
Basel Norms are international banking regulations issued by the Basel Committee on Banking Supervision (BCBS), which is part of the Bank for International Settlements (BIS) headquartered in Basel, Switzerland. These norms ensure that banks maintain sufficient capital to absorb unexpected losses. There have been three versions: Basel I (1988), Basel II (2004), and Basel III (2010). India's banking regulator RBI implements these norms. Indian banks must maintain a Capital to Risk-weighted Assets Ratio (CRAR) of minimum 9% (1% above Basel's 8%).
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BCBS = Basel Committee on Banking Supervision | BIS HQ: Basel, Switzerland | Basel I (1988), II (2004), III (2010) | India CRAR: 9% (Basel: 8%)
📖Basel I, II & III Comparison
| Feature | Basel I (1988) | Basel II (2004) | Basel III (2010) |
|---|---|---|---|
| Year | 1988 | 2004 | 2010 (post-2008 crisis) |
| Focus | Credit risk only | Credit + Market + Operational risk | Stricter capital + Liquidity requirements |
| Min Capital | 8% of risk-weighted assets | 8% of risk-weighted assets | 8% (+ capital conservation buffer 2.5% = 10.5%) |
| Pillars | No pillar system | 3 Pillars | 3 Pillars + liquidity ratios |
| Key Addition | Capital Adequacy Ratio (CAR) | Supervisory Review + Market Discipline | LCR, NSFR, Leverage Ratio, Capital Buffers |
| Triggered By | Latin American debt crisis (1980s) | Need for comprehensive risk framework | Global Financial Crisis 2008 (Lehman Brothers) |
📝Basel II — Three Pillars
- •Pillar 1: Minimum Capital Requirements — Banks must maintain 8% CAR covering credit, market, and operational risk
- •Pillar 2: Supervisory Review Process — Regulators review banks' capital adequacy and risk management
- •Pillar 3: Market Discipline — Banks must disclose financial information publicly for transparency
📝Basel III — Key Additions
- •Capital Conservation Buffer (CCB): additional 2.5% above minimum capital
- •Counter-Cyclical Buffer: 0-2.5% extra during economic boom to absorb losses in downturn
- •Tier 1 Capital (core): Common Equity Tier 1 (CET1) minimum 4.5% + Additional Tier 1 = 6%
- •Tier 2 Capital (supplementary): max 2%
- •LCR (Liquidity Coverage Ratio): banks must hold enough liquid assets for 30 days of cash outflows
- •NSFR (Net Stable Funding Ratio): stable funding for 1 year
- •Leverage Ratio: minimum 3% (Tier 1 capital / total exposure)
📝India's Capital Requirements
- •RBI mandates CRAR (Capital to Risk-weighted Assets Ratio) of minimum 9% (global: 8%)
- •Tier 1 (core capital): minimum 7% for Indian banks
- •With CCB (2.5%), effective requirement = 11.5% for Indian banks
- •India = stricter than global Basel norms