Definition
Basel III Norms
Basel III is the global bank regulation framework, adopted by the RBI, that strengthens capital quality, adds liquidity and leverage standards, and introduces capital buffers.
Developed after the 2008 crisis, Basel III raised the minimum quality and quantity of bank capital, introduced the Liquidity Coverage Ratio and Net Stable Funding Ratio, and added a leverage ratio and capital conservation buffer. The RBI has phased these into Indian banking with some India-specific minimums.
For Indian banks, Basel III means higher CET1 and CRAR floors than the older Basel II regime, plus a buffer that restricts dividends if breached. The framework is the backbone of how the RBI ensures banks can withstand stress without taxpayer bailouts.
Related terms
- Capital Adequacy Ratio (CAR / CRAR)The Capital Adequacy Ratio, also called CRAR, is the ratio of a bank's capital to its risk-weighted assets, measuring its ability to absorb losses.
- Common Equity Tier 1 (CET1)Common Equity Tier 1 is the highest-quality bank capital, consisting of paid-up equity shares, share premium and retained earnings, net of regulatory deductions.
- Liquidity Coverage Ratio (LCR)The Liquidity Coverage Ratio requires a bank to hold enough high-quality liquid assets to cover its net cash outflows over a 30-day stress scenario.
- Leverage Ratio (Banking)The banking leverage ratio is Tier 1 capital divided by a bank's total exposure, a non-risk-based backstop to the capital adequacy ratio.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.