BASEL NORMS

• In 1988, the Basel Committee on Banking Supervision (BCBS) in Basel, Switzerland, published a set of minimum capital requirements for banks. This is also known as the 1988 Basel Accord, and was enforced by law in the Group of Ten (G-10) countries in 1992.
• Its objective is to enhance understanding of key supervisory issues and improve quality of banking supervision worldwide.
•  It does so by exchanging information on national supervisory issues and techniques with a view to promoting common understanding.

BASEL I Norms

• Established in the year 1988.
• Attempts to introduce minimum standards of capital adequacy.
• According to BASEL I financial institutions are categorized based on capital adequacy(capital required to face an unexpected loss).

BASEL II Norms

• Established in the year 1999.
•  Basel II has been introduced to overcome the drawbacks of Basel I.

Stresses on 3 factors:

1. Capital Adequacy.
2. Supervisory Review.
3. Market Discipline.

CAPITAL ADEQUACY

•  Capital Adequacy Ratio or Capital to Risk Weighted Asset Ratio of minimum 8% must be maintained.

CAR/CRAR= (Tier 1 Capital + Tier 2 Capital) /Risk Weighted Assets

SUPERVISORY REVIEW

• Banks should develop and use better risk management techniques in monitoring and managing their risks like Credit Risk, Operational Risk and Market Risk.
• Supervisors should review and evaluate banks internal capital adequacy and should have ability to monitor and ensure banks compliance with regulator capital ratio.

MARKET DISCIPLINE

• Imposes banks to conduct their banking business in a safe sound and effective manner.
•  Banks should make mandatory disclosure on capital, risk exposures etc so that market participants can asses a banks capital adequacy.

BASEL III Norms

• Framed in response to the global economic slowdown of 2008.
• Capital Adequacy of minimum 9% must be maintained.