Finance @ Knowledge Zone


BASEL II: Are Indian Banks Going to Gain?

- by Vipul Mittal & Saurabh Singh *

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Part - II

Existing Capital Accord Proposed New Capital Accord
Focus on single risk measure More emphasis on bank's own internal risk management methodologies, supervisory review, and market discipline
One size fits all Flexibility; menu of approaches; capital incentives for better risk management; granularity in the valuation of assets and type of businesses and in the risk profiles of their systems and operations
Broad brush structure More risk sensitivity by business class and asset class; multi-dimensional; focus on all operational components of a bank

Source: "The New Basel Capital Accord: an explanatory note," BIS

Basel II - The Three "Pillars"

Basel II provides for a framework based on three "mutually reinforcing pillars," implying that each of the three pillars, or areas, described in Basel II is of equal importance. The three pillars are: -

  • Minimum capital requirements. The minimum capital requirement is still set at 8 per cent of risk-weighted assets. A revised credit risk measurement has been proposed and a measure for operational risk is also included in Basel II. However, market risk remains unchanged.

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* Contributed by -
Vipul Mittal & Saurabh Singh,
Ist Year, MBA (Global),
Institute of Management Technology (IMT), Nagpur.