Basel Norms
Q. Which of the following are to be followed by Commercial Banks for risk management?- Published on 07 Feb 17a. Basel II norms
b. Basel III norms
c. Basel I norms
d. Solvency II norms
ANSWER: Basel II norms
Basel II is the second of the Basel Accords which are recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision.
First Pillar: Minimum Capital Requirement
The first pillar Minimum Capital Requirement is mainly for total risk including the credit risk, market risk as well as Operational Risk.
Second Pillar: Supervisory Review Process
The second pillar i.e. Supervisory Review Process is basically intended to ensure that the banks have adequate capital to support all the risks associated in their businesses.
RBI has issued guidelines to banks to have an internal supervisory process which is called ICAAP or Internal Capital Adequacy Assessment Process.
Another process stipulated by RBI which is actually the Independent assessment of the ICAAP of the Banks.
This is called SREP or Supervisory Review and Evaluation Process.
ICAAP is conducted by Banks themselves and SREP is conducted RBI which is along with the RBI’s Annual Financial Inspection (AFI) of the bank.
Third Pillar: Market Discipline
The idea of the third pillar is to complement the first and second pillar.
This is basically a discipline followed by the bank such as disclosing its capital structure, tier-I and Tier –II Capital and approaches to assess the capital adequacy.
