Basel norm 1

Presented to-Prof. Anita Yadav

What are basel norms?
These are the international banking regulations issued by
the Basel Committee on banking supervision.
Basel committee
By central bank governers of
group of 10 countries
. 

Basel 45 members & 28 juridictions

committee

Primary global standard setter

Why the name basel?

 Based on City in Switzerland.

 Headquarters of the Bureau of international
settlement. 
 Housed in the BIS offices in Basel,
Switzerland.
Basel 1
Basel I refers to a set of international banking regulations created by the Basel
Committee on Bank Supervision (BCBS), which is based in Basel, Switzerland.

■ Basel-1 was introduced in the year 1988. It focussed primarily on credit (default)
risk faced by the banks.
■ As per Basel-1, all banks were required to maintain a capital adequacy ratio of 8
%.
■ The capital adequacy ratio is the minimum capital requirement of a bank and is
defined as the ratio of capital to risk-weighted assets.
■ India adopted Basel-I guidelines in 1999.
Requirement of basel 1

The Basel I classification system groups

a bank’s assets into five risk categories,
labeled with the percentages 0%, 10%,
20%, 50%, and 100%.
Credit risk?

Credit risk is defined as the risk weighted

asset, or RWA, of the bank, which are a
bank's assets weighted in relation to their
relative credit risk levels.
Types of credit risk
1.On the balance sheet risk
2.Trading on-Balance Sheet risk

• .These are derivatives, namely interest rates, foreign

exchange, equity derivatives and commodities.

3.The non-trading off-balance-sheet risk

• These include general guarantees, such as forward purchase

of assets or transaction-related debt assets
TWO TIERED CAPITAL

Core Supplemen
capital t capital
Principles of capital adequacy

 Banks process for assessing capital adequacy .

 Supervisory review of bank’s internal capital adequacy
assessment.
 Banks should operate above minimum regulatory capital ratios.
 Early supervisory intervention
Pitfalls of basel1
Limited differentiation of credit risk

Static measure of default risk

No recognition of term structure of

credit risk

Simplified calculation of potential

future counterparty risk

Lack of recognition of portfolio

diversification effect
1.Basel Committee on banking supervision is a committee of banking super
authorities that was established by?

RBI

BIS

United states of america

Central Bank governors of the group

of 10 countries

(D)
2.In which of the following years, the Basel-1 accord was introduced?

1980

2004

1988

1993

(C)
3.What is the minimum capital requirement needed for calculating RWA in
Basel-1 accord

20%

8%

16%

2%

(B)
4.What is the main area of focus under basel 1?

Market risk

Operational risk

Credit risk

All of the above

(C)
THANKS!
SUBMITTED BY- AMANPREET (23066)
NIKITA SHARMA (23067
SHAIFALI (23069)
SIMRANJEET (23081)
OSHIN (23090)