BROAD COMPARISON / IMPROVEMENTS / CHANGES UNDER

BASEL 1, BASEL 2 AND BASEL 3

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No
1
1.1

1.2

PARAMETER

BASEL 1

CAPITAL COMPUTATION
Capital for
Credit Risk + Market
Risk

Quantum of Risk
Weights

1.3

Risk
Measurement

Uniform Risk weights

irrespective of
Exposure Quality
Book Value of
Investment Portfolio
taken for
computation of
Exposure

Simple approach with

risk weights provided by
regulator for market risk
and specified categories
for credit Risk

BASEL 2
Credit Risk + Market Risk
+Operational Risk
+Credit Concentration Risk
+ Interest Rate in Banking Book

BASEL 3
In addition to all risks in Basel 2
Capital to be provided for :
+Off-Balance Sheet Derivative
Exposure due to their Illiquid nature
+ Increased Capital Charge for Credit
Risk on Investments in Trading Book

For Credit Risk in respect of

Loan and Investment Exposure
Varying Risk weights based
on External / Internal Credit
Risk Rating
(Standardised/Adv approach)
Market Value of Investment
Portfolio taken for computation
of Exposure
For Operational Risk
depending on the approach
adopted (15% of the average
of the earnings of the Bank for
the previous 3 years under BIA
approach)
For finer measurement of Credit,
Market and Operational Risk
advanced approaches of
measurement provided based on
each Banks Portfolio composition
Page 1 of 6

Same as Basel 2

Same as Basel 2
For Market Risk Stress Testing to be

Sr
No

PARAMETER

BASEL 1

2
2.1

QUALITY OF CAPITAL
Composition of
Equity Capital
Capital
+Free Reserves
+ Tier 1 Bonds
+ Tier 2 Bonds
(Any Composition)

2.2

Capital
Conservation
Buffer

Not Stipulated

BASEL 2

BASEL 3

and Experience:
1. Credit Risk
Standardised Approach
Foundation IRB Approach
Advanced IRB Approach
2. Market Risk
Standardised Measurement
Internal Model Approach
3. Operational Risk
Basic Indicator Approach
The Standardised Approach
Advanced Measurement
Approach

done and additional Capital to be

provided for Stress Scenario

Equity Capital
+Free Reserves
+ Tier 1 Bonds
+ Tier 2 Bonds
Ceiling of Tier 2 Bonds
introduced Tier 2 not to
exceed 50% of Tier 1 + Tier 2
Bonds
Progressive discounting of Tier
2 bonds @ 20% of face value
when residual maturing
reaches 5 years
Not Stipulated

Categorisation of Capital into 3 broad

Categories :
Core Capital Common Equity
Additional Tier 1 Bond
Tier 2 Bonds
Composition of Capital made stringent
by increasing Common Equity Tier 1
(CET Tier 1)
Stringent Norms for Tier 1 & Tier 2
Bonds

Page 2 of 6

Capital Conservation Buffer of

2.50% introduced (To absorb
losses/Credit risk migrations in

Sr
No

PARAMETER

BASEL 1

BASEL 2

BASEL 3
periods of financial stress)
Counter Cyclical Buffer Introduced
upto 2.50% of common equity

3
3.1
3.2

3.3
3.4
3.5
3.6
3.7

QUANTITY OF CAPITAL
Minimum Total
Capital
(of Which
Minimum
Common
EquityTier 1)
Maximum Tier 2
(within Total
Capital)
Capital
Conservation
Buffer
Minimum
Common Equity
Tier 1
Minimum Total
Capital
Counter Cyclical
Buffer

8.00%

8.00%

8.00%

2.00%

2.00%

4.50%

4.00%

4.00%

2.00%

2.50%

2.00%

2.00%

7.00%

8.00%

8.00%

10.50%

0 to 2.50% during periods of excess

Credit Growth

PILLAR 2 OF BASEL GUIDELINES

4

Supervisory
Review Process

NIL

o Risk Based Supervision

introduced as against CAMEL
System in terms of Time,
Page 3 of 6

Same as Basel 2

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No

PARAMETER

BASEL 1

BASEL 2

Frequency and Intensity of

supervision
o RBIA/RBMA introduced for
Banks to supervise Branches
and Administrative offices
o ICAAP to be undertaken by
Banks and to be checked by
RBI
o Supervisory Review by RBI
introduced to check inter-alia
methodology of Computation of
Capital and review all the risks
of the Bank
o Timely intervention by RBI and
advising Banks to provide
additional capital based on
Supervisory Review
PILLAR 3 OF BASEL - TRANSPERENCY AND DISCLOSURE
Pillar 3
Only Accounting
In addition to Accounting
Disclosures
Disclosures
Disclosures Quantitative and
(Capital
No disclosures for
Qualitative disclosures prescribed
Structure, Risk
Capital
at Quarterly, Half-Yearly and Yearly
Exposure,
intervals - Frequency for :
Assessment
Capital (Quantity, Quality &
Methodology etc)
Computation Method)
Risk Management Process
Asset Quality
Credit Concentration
Securitization
Page 4 of 6

BASEL 3

Sr
No

PARAMETER

BASEL 1

BASEL 2

LIQUIDITY AND FUNDING RISK

Capital for
NIL
Liquidity Risk
and Funding
Risk

BASEL 3

Interest Rate Risks

Equity and Forex Risk
Operational Risk

NIL

Page 5 of 6

Two liquidity and Funding ratios

introduced:
LCR
To assess Banks ability to survive
Short-Term liquidity disruption over
a 30 days horizon and to evaluate
the adequacy of Asset Based
Buffers Liquidity Coverage Ratio
(LCR) introduced and to be tracked
on an ongoing basis.
LCR = Stock of High Quality Liquid
Assets / Net Cash outflow over 30
days> 100%
NSFR
To ensure replacement of Whole
sale funding by Long Term Debt
Funding over a period of next 12
months Net Stable Funding Ratio
introduced and to be tracked on an
ongoing basis.
NFSR = Available amount of Stable
Funding / Required amount of
Stable funding >= 100%

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No
7

PARAMETER

BASEL 1

BASEL 2

BANKS LEVERAGE WITHOUT RISK WEIGHTING AND NETTING

Leverage of the
Not Stipulated
Not Stipulated
Banks Balance
Sheet

Page 6 of 6

BASEL 3

Leverage Ratio of 3% introduced by

Basel to ensure adequate Tier 1
Capital to support Aggregate Fund
Based and Non- Fund Based
exposure without Risk weighting
and Netting.
This ratio is less subject to
manipulation through Risk
weighting and Netting of Collateral.
Leverage Ratio = Tier 1 Capital /
Exposure under 100% Risk Weight of
On BS + Off BS + Securitisation +
Notional Value of Written CDS