What is Basel norm?
Banks lend to different types of borrowers and each carries its own risk. They lend the deposits of public
as well as money raised from the market – equity and debt. Cases of big banks collapsing due to their
inability to sustain the risk exposures are readily available. Therefore, Banks have to keep aside a certain
percentage of capital as security against the risk of non – recovery. Basel committee has produced
norms called Basel Norms for banking to tackle the risk.
In 1988, Basel Committee on Banking Supervision (BCBS) introduced capital measurement system called
Basel capital accord, also called Basel 1. It focused almost entirely on credit risk. It defined capital and
structure of risk weights for banks. The minimum capital requirement was fixed at 8% of risk-weighted
assets (RWA). RWA means assets with different risk profiles. For e.g.: An asset backed by collateral
would carry lesser risks as compared to personal loans, which have no collateral.
India adopted Basel 1 guidelines in 1999.
In 2004, Basel II guidelines were published by BCBS, which were considered to be the refined and
reformed versions of Basel I accord.
Indian banks started implementing Basel II in 2008
Basel III or Basel 3 released in December 2010 is the third in the series of Basel Accords. These guidelines
were introduced in response to the financial crisis of 2008. These accords deal with risk management
aspects for the banking sector. In a nutshell, we can say that Basel iii is the global regulatory standard
(agreed upon by the members of the Basel Committee on Banking Supervision) on bank capital
adequacy, stress testing, and market liquidity risk.
According to new Basel-III norms, this will kick in from March 2019
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