BROAD COMPARISON / IMPROVEMENTS / CHANGES UNDER

BASEL 1, BASEL 2 AND BASEL 3

Sr PARAMETER BASEL 1 BASEL 2 BASEL 3

No
1 CAPITAL COMPUTATION
1.1 Capital for Credit Risk + Market Credit Risk + Market Risk In addition to all risks in Basel 2
Risk +Operational Risk Capital to be provided for :
+Credit Concentration Risk +Off-Balance Sheet Derivative
+ Interest Rate in Banking Book Exposure due to their Illiquid nature
+ Increased Capital Charge for Credit
Risk on Investments in Trading Book
1.2 Quantum of Risk  Uniform Risk weights  For Credit Risk in respect of
Weights irrespective of Loan and Investment Exposure
Exposure Quality – Varying Risk weights based
 Book Value of on External / Internal Credit
Investment Portfolio Risk Rating
taken for (Standardised/Adv approach) Same as Basel 2
computation of  Market Value of Investment
Exposure Portfolio taken for computation
of Exposure
 For Operational Risk
depending on the approach
adopted (15% of the average
of the earnings of the Bank for
the previous 3 years under BIA
approach)
1.3 Risk Simple approach with For finer measurement of Credit,
Measurement risk weights provided by Market and Operational Risk
regulator for market risk advanced approaches of Same as Basel 2
and specified categories measurement provided based on
for credit Risk each Bank’s Portfolio composition For Market Risk Stress Testing to be
Page 1 of 6
Sr PARAMETER BASEL 1 BASEL 2 BASEL 3
No
and Experience: done and additional Capital to be
1. Credit Risk – provided for Stress Scenario
 Standardised Approach
 Foundation IRB Approach
 Advanced IRB Approach
2. Market Risk –
 Standardised Measurement
 Internal Model Approach
3. Operational Risk –
 Basic Indicator Approach
 The Standardised Approach
 Advanced Measurement
Approach
2 QUALITY OF CAPITAL
2.1 Composition of Equity Capital Equity Capital Categorisation of Capital into 3 broad
Capital +Free Reserves +Free Reserves Categories :
+ Tier 1 Bonds + Tier 1 Bonds  Core Capital – Common Equity
+ Tier 2 Bonds + Tier 2 Bonds  Additional Tier 1 Bond
(Any Composition)  Ceiling of Tier 2 Bonds  Tier 2 Bonds
introduced – Tier 2 not to Composition of Capital made stringent
exceed 50% of Tier 1 + Tier 2 by increasing Common Equity Tier 1
Bonds (CET Tier 1)
 Progressive discounting of Tier Stringent Norms for Tier 1 & Tier 2
2 bonds @ 20% of face value Bonds
when residual maturing
reaches 5 years
2.2 Capital Not Stipulated Not Stipulated  Capital Conservation Buffer of
Conservation 2.50% introduced (To absorb
Buffer losses/Credit risk migrations in
Page 2 of 6
Sr PARAMETER BASEL 1 BASEL 2 BASEL 3
No
periods of financial stress)
 Counter Cyclical Buffer Introduced
upto 2.50% of common equity

3 QUANTITY OF CAPITAL
3.1 Minimum Total 8.00% 8.00% 8.00%
Capital
3.2 (of Which 2.00% 2.00% 4.50%
Minimum
Common
EquityTier 1)
3.3 Maximum Tier 2 4.00% 4.00% 2.00%
(within Total
Capital)
3.4 Capital - - 2.50%
Conservation
Buffer
3.5 Minimum 2.00% 2.00% 7.00%
Common Equity
Tier 1
3.6 Minimum Total 8.00% 8.00% 10.50%
Capital
3.7 Counter Cyclical - - 0 to 2.50% during periods of excess
Buffer Credit Growth

PILLAR 2 OF BASEL GUIDELINES

4 Supervisory NIL o Risk Based Supervision Same as Basel 2

Review Process introduced as against CAMEL
System in terms of Time,
Page 3 of 6
Sr PARAMETER BASEL 1 BASEL 2 BASEL 3
No
Frequency and Intensity of
supervision
o RBIA/RBMA introduced for
Banks to supervise Branches
and Administrative offices
o ICAAP to be undertaken by
Banks and to be checked by
RBI
o Supervisory Review by RBI
introduced to check inter-alia
methodology of Computation of
Capital and review all the risks
of the Bank
o Timely intervention by RBI and
advising Banks to provide
additional capital based on
Supervisory Review
PILLAR 3 OF BASEL - TRANSPERENCY AND DISCLOSURE
5 Pillar 3 Only Accounting In addition to Accounting
Disclosures Disclosures Disclosures – Quantitative and
(Capital No disclosures for Qualitative disclosures prescribed
Structure, Risk Capital at Quarterly, Half-Yearly and Yearly
Exposure, intervals - Frequency for :
Assessment  Capital (Quantity, Quality &
Methodology etc) Computation Method)
 Risk Management Process
 Asset Quality
 Credit Concentration
 Securitization

Page 4 of 6
Sr PARAMETER BASEL 1 BASEL 2 BASEL 3
No
 Interest Rate Risks
 Equity and Forex Risk
 Operational Risk

LIQUIDITY AND FUNDING RISK

6 Capital for NIL NIL Two liquidity and Funding ratios
Liquidity Risk introduced:
and Funding LCR
Risk  To assess Bank’s ability to survive
Short-Term liquidity disruption over
a 30 days horizon and to evaluate
the adequacy of Asset Based
Buffers – Liquidity Coverage Ratio
(LCR) introduced and to be tracked
on an ongoing basis.
 LCR = Stock of High Quality Liquid
Assets / Net Cash outflow over 30
days> 100%
NSFR
 To ensure replacement of Whole
sale funding by Long Term Debt
Funding over a period of next 12
months – Net Stable Funding Ratio
introduced and to be tracked on an
ongoing basis.
 NFSR = Available amount of Stable
Funding / Required amount of
Stable funding >= 100%

Page 5 of 6
Sr PARAMETER BASEL 1 BASEL 2 BASEL 3
No
BANK’S LEVERAGE WITHOUT RISK WEIGHTING AND NETTING
7 Leverage of the Not Stipulated Not Stipulated  Leverage Ratio of 3% introduced by
Bank’s Balance Basel to ensure adequate Tier 1
Sheet Capital to support Aggregate Fund
Based and Non- Fund Based
exposure without Risk weighting
and Netting.
 This ratio is less subject to
manipulation through Risk
weighting and Netting of Collateral.
Leverage Ratio = Tier 1 Capital /
Exposure under 100% Risk Weight of
On BS + Off BS + Securitisation +
Notional Value of Written CDS

Page 6 of 6