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What is Basel Capital Accord?

The BASEL Committee is a committee of bank supervisors consisting of members from each of the G10 countries. The Committee is a forum for discussion on the handling of specific supervisory problems.

It coordinates the sharing of supervisory responsibilities among national authorities in respect of banks' foreign establishments with the aim of ensuring effective supervision of banks' activities worldwide.

The BASEL Capital Accord is an Agreement concluded among country representatives in 1988 to develop standardised risk-based capital requirements for banks across countries. (BASEL I)

The Accord was replaced with a new capital adequacy framework (BASEL II), published in June 2004.

BASEL II is based on three mutually reinforcing pillars hat allow banks and supervisors to evaluate properly the various risks that banks face.

These three pillars are:
 - Minimum capital requirements, which seek to refine the present measurement framework;
 - supervisory review of an institution's capital adequacy and internal assessment process;
 - market discipline through effective disclosure to encourage safe and sound banking practices.

In the wake of the crisis, a package of reform measures titled Basel III was announced. The policy package is aimed at improving both the quantity and quality of the capital maintained by banks, strengthening liquidity standards and also its risk coverage and will also facilitate more effective risk management by banks. (Ref: Banking Sector - Maintaining Resilience to Risk and Shock and the Role of the Accounting Profession by K. C Chakrabarty)

The Basel III capital regulations are being implemented in India with effect from April 1, 2013. Banks have to comply with the regulatory limits and minima as prescribed under Basel III capital regulations, on an ongoing basis. To ensure smooth transition to Basel III, appropriate transitional arrangements have been provided for meeting the minimum Basel III capital ratios, full regulatory adjustments to the components of capital etc. Consequently, Basel III capital regulations would be fully implemented as on March 31, 2019.


(Source: RBI)

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