A

Presentation on
Basel Committee Norms as regards to
Financial Sector Reforms In India

Submitted by-
Roll no- 55-Umang Dwivedi
56-Varsa Lodha
57-Vengatesh v.g
58- Venkatesh Thatraju
59- Vidha Shukla
60- Yogesh Sirsat
 Introduction
 What?

 For what?

 How?

 Needs
 Evolution of Basel norms
 In effect since 1988; very simple in
Basel I application
 Easy to achieve significant capital
reduction with little or no risk transfer.

 Much more complex and risk sensitive

 First Pillar – Minimum capital
 Second Pillar – Supervisory review
Basel II
 Third Pillar – Market discipline
 Treats banks very unequally depending on
sophistication of risk management systems
 Evolution of Basel norms
BASEL- I
 Concentrates on single risk component.

 Arbitrary risk categories and risk weights

BASEL- II
 Concentrates credit risk, market risk & operational
risk
 Risk weights are linked to external rating
 Terminologies
 Tier 1 capital: also called the core capital. it
includes paid up equity share capital and
disclosed reserves such as: statutory, capital and
general reserve. Eg: common stock, preferred
stock etc.
 Tier 2 capital: also called the supplementary
capital. Measure of a banks financial strength. It
consists of undisclosed reserves. Eg
:revaluation reserves, general provisions,
subordinated debt.
 TERMINOLOGIES

 CRAR: Capital to Risk weighted Assets Ratio.

Also known as capital adequacy ratio.
 Indicates banks risk taking ability.
 RBI uses this to track financial position of a
bank.
 CRAR = Tier 1 + Tier2 / risk weighted assets.
 Impact of Basel II in terms of borrowers

• Lower rates
•Favorable terms
Efficient borrower
•Large amount

Concept of
Basel norms

• Higher rates
Risky borrower •Less favorable terms
•Lower amount