Basel III Capital Regulation – A Brief Discussion

ABSTRACT

[...]the latest Master Circular chooses continuity over radical change in capital regulations. Even Indian banks which were brought under the Prompt Corrective Action (PCA) framework exhibited a chronic deficiency of Tier I capital. [...]the stated goal of the Basel III regulations was to increase bank reliance on Tier I Capital, under normal and stressed conditions. [...]the credit risk capital requirements in India are at least as high as the global benchmarks. Under this approach, Operational Risk Capital Charges are equal to 15 per cent of Average Gross Income over the last three years (provided gross income is positive each year). [...]for regulatory capital charge estimation, banks will continue to assume that the size of operational losses increases with the scale of business (i.e. gross income) and there are no diversification benefits across business lines.