Basel II vs Basel III Guidelines

Rupalita Sarangi

6% • Tier – I Capital (Includes Common Equity) – 4% • Tier – II Capital – 4% • Total Capital – 8% .Existing Basel II Norms • Common Equity – 3.

Proposed Basel III Guidelines .

• RBI suggested common equity in Tier-I capital be 5. general provisions. revaluation reserves. statutory reserves. • Tier II Capital comprises undisclosed reserves..Contd. capital reserves. hybrid instruments and subordinated term debt. and any other disclosed free reserves. share premium. • Tier -I Capital consists of paid-up equity capital. .5 per cent of risk weighted assets. balance in profit and loss account at the end of the previous financial year.

share buyback. .5% of risk weighted assets (over the minimum capital requirement of 9%) be created by banks.Capital conservation buffer • A new buffer of 2. • Main purpose of the proposed capital buffer is two-fold:  Can be dipped into in times of stress to meet the minimum regulatory requirement on core capital  Restrain the Bank in using its earnings to make discretionary payouts (dividends. and discretionary bonus) • Expected to be implemented between March 31. 2014 and March 31. 2017 .

5% of risk weighted assets. • The primary objective of having a countercyclical buffer is to protect the banking sector from system-wide risks arising out of excessive aggregate credit growth. • Achieved through a pro-cyclical build up of the buffer in good times. .Countercyclical buffer • Could range from 0% to 2. • Constitutes mainly of equity.

600000 crore in external capital over next nine years • Lowering their leveraging capacity. .Impact of Basel III on Indian Banks • Indian banks would have to raise Rs. • Higher level of core capital could dilute the return on equity for banks • Some public sector banks may fall short of the core capital adequacy requirement and would depend on Government support to augment their core capital.

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